Forum Topics Markets Frothy on Strait of Hormuz news
tomsmithidg
Added a month ago

Busy holidaying for Easter I completely forgot yesterday was a trading day until about 11pm at night. I checked to see WDS had closed at $35.80 and my portfolio had moved up nicely. Then today WDS dumped by around 11% and a bunch of stocks I would consider riskier 'positive sentiment' plays were up by large percentages. Banks were also up a decent amount. Seems to me to be a very frothy over reaction to a 'ceasefire' which is unlikely to make a material improvement on the negative economic trajectory we appear to be on. I wonder how much of it is momentum from traders wanting to be 'first in' on 'good news' and 'first out' on bad. I'm curious as to how others here are reading these large fluctuations.

As I mentioned in a previous post I am finding myself very negative on our economic outlook and as a result on the investment horizon. My normal 'safe haven' investments are priced high on my value range so not as appealing to me. I wonder where exactly any flight to safety is likely to be, particularly if we end up with much higher interest rates. Is it going to be predominantly cash and bonds and is that going to result in share price falls? Are the big banks going to continue to see inflows even though their valuations could potentially be stretched?

I have been looking at the Banks and Woodside through the lense of median share prices and dividend yields over 10 and 17 years, and also compared with prices adjusted for median annual inflation (I used 3.2%). By those measures prices are in excess of what I'd expect with the exception of an annual inflation calculation for WDS over 10 years which would have it priced over $50.

That said, bank prices traditionally go up with increases in interest rates, and the ETF market will continue to force money into banks. While my valuations and 'return to mean' considerations tend towards a reduction in prices for banks, I think there are push factors that could see prices continue to run up.

I'm bullish enough on WDS that I briefly considered today's drop as a buy cue, but exercised some restraint as my WDS holding is still my largest and I don't need to accumulate at the moment.

Interested in what others here are considering for investment and opinions on the prospects for our economy moving forward.


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lowway
Added a month ago

Some interesting points indeed @tomsmithidg. I admit to shuddering when I saw you comment "Is it going to be predominantly cash and bonds" (admittedly taken out of context when used standalone as I have here) as that would be my move just before the masses are in the street with pitch forks, etc (running off the back of an old @Strawman term, although I probably stuffed it up). seriously though, in a world of high inflation trending towards recession, cash is a killer. You sit there and watch your wealth deteriorate before your very eyes as inflation eats away at any interest paid (that is also taxed) leaving you with significantly less in the long term. You could almost achieve a similar outcome sticking it under the bed!!

I'm sure that's not what you're suggesting mate, as having assets versus cash is a no brainer in the current and soon-to-be expected higher inflation market.

Re $WDS, I'm happy to be an investor for the short term, at least while oil prices fluctuate higher and there are dramas in the middle east, but not as a long-term hold IRL. As I mentioned in another post, I did jump in IRL with a largish investment the day the conflict started, mostly to strip the franked dividend and to also ride the oil shortage arbitrage. I have to hold until 17 April to have met the 45 at risk clause for franking credits to be utilized, so I'll make a call on that day as to keep for the ongoing conflict or jettison and run for the hills. BTW this is a very rare type of trade for me as I normally hold forever, unless the company goes pear-shaped (or thesis failed using the PC term).

After being involved in these large market fluctuations since I first purchased shares in the mid 80's (so Black Friday 87, onwards), I've sort of learned to just be patient, look for any silly pricing on A grade companies (if I have any spare cash, which is not often) and not let the market pricing on a daily basis mess with my head too significantly. Of course, easy to say, harder to do, but I reckon I'm getting better as I get older.

Of course, having been around for some time, I have definitely had my play with the 4 pillars, particularly for the franked dividends in my SMSF that is in retirement/pension mode, so a full refund, but I have found their lack of actual growth to be a greater investment deterrent these days, so if I do play it is usually for a 47 day period and hope to get some dividends only. Frankly, I haven't done that for a couple of years now due to the bigger price movements and tend now to just have a big chunk in Macquarie Group and dabble in some of the smaller banks like $BEN if I want a solid dividend.

Anyway, that's my 2 bob's worth mate!!

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tomsmithidg
Added a month ago

@lowway , thanks mate, yes not suggesting I would go cash but wondering if that is where the masses could be headed with consequences for the market overall. I note that the Strait didn't even stay open 24hours at this stage and wasn't surprised to see a WDS bounce today and some of those frothy 'positive sentiment' stocks reverse. I reckon we are in for a bumpy ride and I am trying to keep a 'volatility = opportunity' mindset.

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