It will be an interesting battle between buyers and sellers this week. Traders with nerve will be tempted to load up on the high-yield blue chip stocks that funds dumped last week. The funds dump blue chips to raise cash because they can. It’s much easier to sell Citigroup (NYSE:C), GE (NYSE:GE), Macquarie (ASX:MBL), or BHP (ASX:BHP) than to sell exotic financial instruments these days. Hence the selling.
The No Pain, No Gain portfolio spends much of its time hunting in the stock market undercard for its constituents. There is no doubt that little'uns are more exciting and often more rewarding than blue chips which, because of their very size, attract the headlines.
Is it time to be a blue chip buyer or is it better to be in cash? Well that depends on how troubled the market really is by the subprime mess. Here’s the thing, though. The sub-prime meltdown has shown us that the whole class of exotic financial instruments that became so popular in the last ten years is difficult to value and even more difficult to trade.
But a portfolio cannot live by small caps alone. It needs a few heavyweights to provide ballast and a more secure dividend income. Since .
Here’s what is something Interesting you probably don’t know about Australia:
Australia is HIGHLY REGULATED. Society borders on being socialist - Medical is practically free. The result is that the government meddles in every aspect of life and one can get tied in knots by rules and laws (much the same as the USA). Figure this one out, it’s a law that you have to Vote in every election!
Being a socialist country (well almost) the tax burden is incredibly high. 42% on income over US$44,000 and 47% on income over US$65,000. The first thing I did when I opened a branch in Sydney was convert my degree to become an Australian Chartered Accountant. As with all tax codes one MUST be aware of the finer points. For example, there is NO capital gains tax in Australia on Non-residents that buy or sell less than 10% of a Corporations Capital Stock.
Financial services in particular are extremely regulated. Legally speaking one cannot even recommend a stock to a friend without being a registered advisor. The result is that financial services are dominated by the BIG Banks and Institutions (not much different to anywhere else actually).
Here’s an interesting point – there is a law that each employer must place the equivalent of 10% of an employees payroll into a superannuation fund (pension). This has generated a massive flow of funds, mostly into the stock market, over the last 10 years. People believe this flow will support the market forever – yeah right, tell me another one!
Australia was first out the gate with the Housing Boom. Sydney property prices are still astronomical even though they’ve been off the boil for 2 years. The result is a demographic that looks eerily similar to the US in that people are up to their eyeballs in debt. The difference though is that Australians have a much higher debt to income ratio than the US. A TICKING TIME BOMB IF YOU ASK ME!