Pasted from reefcap for those who arn't members
http://lightning.he.net/cgi-bin/suid/~reefcap/ultimatebb.cgi?ubb=get_topic;f=2;t=000281;p=1#000008
Well 4 "experts" gave their opinion on this mornings Business Sunday.
ALI MOORE: Gentlemen thank you very much for joining me. I think we've got three bulls and a bear which is probably pretty reflective of market sentiment at the moment. Let's start with a politician, and the Federal Treasurer no less, Peter Costello says he put all your eggs in the resource basket and in a few years time he'll be as badly off as those who bet on the tech boom. Let's start with you Shane, is he right?
SHANE OLIVER, AMP Capital: I think it's always wrong to put all your eggs in the one basket, you need diversification and there's always going to be volatility in individual shares and the overall share market but I think the situation we have today is very different to the tech boom. Back in March 2000, Nasdaq, that was the index dominated by the tech stocks, was trading on a PE of nearly a hundred times the dot coms, trading on PE's near infinity, very little profit growth, whereas this time around, the resources stocks are generating very, very strong profit growth, 50 percent, often more.
MOORE: So has this boom got more than a few years to run?
OLIVER: My feeling is that it's got many years to run.
MOORE: Justin, are you as optimistic as Shane, a long, long time, if indeed you are, can you put a time-frame on it, is five, ten, fifteen years?
JUSTIN BRAITLING, Wilson Asset Management : Sure. If you look at the industrialisation of China, if it follows the same course as Japan and Korea, then this process lasts, you know, a number of decades and we're very early in that process.
MOORE: Greg, what are the charts telling you, I mean, is this sort of demand, this level of demand sustainable over that period of time?
GREG TOLPIGIN, GH Financial : A lot of these commodity prices haven't done anything for 20 years, I mean, we're talking about silver prices, gold prices, copper prices, these sorts of things are awakening from 20 years or, 25 years in some cases, of poor performances. So, when you're leaving behind that sort of activity, you tend to see some very, very big, large and longer term price movements that tend to underpin what we are seeing in the equity market.
MOORE: Gerard, in the face of all of this, you're the bear, how can you possibly be bearish?
GERARD MINACK, Morgan Stanley: Well, two points. First is there's a lot of other areas in the market I'm more worried about than the resources, but if you just focus on the resource sector I always like to distinguish between on the one hand the economics, and on the second the investment case. Now, there's lots of other areas in the market where this same sort of volume arguments are true as well, so on a one or two year view, I'd be happy to buy these things but I think extrapolating out for ten and twenty years is way too optimistic.
OLIVER: I think that's a bit too negative, I mean if you look at the resources sector, it is a big chunk of our export income, and each year every time we see commodity prices rise that leads to higher profits for companies like BHP and Rio and some of that flows through into the Government budget surplus.
MINACK: We are truly the lucky country. I mean just as we had the consumer adjustment start, we had land in our lap, this once in a generation commodity price windfall. I think it's too early to say however the consumer's escaped its problems. We're still leveraging up at an enormous rate, we're still seeing home owners borrow six-billion dollars a month for (unintelligable) led investments, I mean this is good money going into a bad investment. More-over we can focus on the upside of China and the exports there but let me tell you, there's only one thing that's grown faster than exports to China, and that's our imports from China.
MOORE: But how much does that demand in China trickle through to all those other sectors of our economy that people want to invest in. I mean, how many companies are really going to reap the benefit of China's boom in the next two, three, four years?
OLIVER: It's broad-based, you see what happens is that obviously the key sector benefiting is the mining sector but as income levels rise there people get paid more, they spend that money in the rest of the economy and you get a flow-on to the rest of the economy.
MOORE: Can you see some value?
MINACK: Very stock specific. But in aggregate we have a market where the profit share of GDP's at all time highs… and that's the case.
MINACK: US, Europe, Japan.
MINACK: You're absolutely right. Why, this is, Australia is as I describe it, a part of a global bubble, we are worlds best practice in my view, in terms of the bubble but this is not just an Australian problem and what I'd argue is, we are being swept along now in part, on the back of a global wave of euphoria and I don't think...
MOORE: But what *****s that? What *****s that?
MINACK: What *****s that is you can have these things ***** without a trigger that that's obvious and I'd ask all the panellists — here we are, six years after the Nasdaq top, can anybody say what was the trigger then?
TOLPIGIN: The trigger was, in January, US bond yields peaked in January and they were falling for two months signalling that the strength of that US economy had ended and I think, as Gerard's probably point is that there are going to be some aspects that are of concern out there, there are some head winds for the markets in the next few years and I think...
MOORE: But headwinds are a lot different to substantially changing the…
MINACK: I think we're now at the stage where people have pushed up these things, risk appetites are so aggressive at the moment that it doesn't take much bad news to get a large reaction.
OLIVER: Nasdaq — there were a few things that ultimate led to the peak, Nasdaq was trading on an exceptional PE, a hundred times. BHP is trading on about 14 times…
OLIVER: Very, very different. Very hard to say that BHP and Rio are in a bubble.
MINACK: I don't think they are as big a bubble... but it's more the issue of the trigger. I mean, to say the Nasdaq was expensive in March 2000 — absolutely, but it was expensive a month before, a year before, two years before, given how far it ultimately fell, it was expensive five years...
OLIVER: I'm saying it was expensive five years before.
MINACK: That's right.
BRAITLING: If you want to look at the specific events which led to the unravelling of the tech bubble, first of all it was an additional call of a 100-billion dollars of capital to fund the third generation mobile licences. I think the fundamentals are much stronger in this mining boom and it's all to do with the industrialisation of China and the issues we talked about.
MOORE: As Gerard, you say, everyone is riding this particular wave, I mean, so what? I mean everyone can be right can't they?
MINACK: Not, not but not everybody's riding the, the mining wave. I think the wave I'm talking about is the leverage investment in markets. I mean, everything's gone up over the last three years. We're not just talking about mining stocks we're talking about financial stocks, we're talking about credits, everything where risk is involved has performed well.
MOORE: So are you seeing signs of a rational exuberance? Are you seeing the??
MINACK: I think in some parts of the global markets absolutely.
OLIVER: It's fair to look around — you can certainly say there's risks there. As households we've taken on a lot of debts compared to the past but you've got to see something that goes wrong to trigger that, either a big rise in unemployment or interest rates and right now I can't see either of those occurring on a big enough basis to cause big problems for Australian consumers, or therefore, the banks.
MOORE: So, is that fair to say, there's three of you all in that camp, no really big issues on the immediate horizon?
TOLPIGIN: I think there are some big issues on the horizon, but it's just a matter of whether the market can overlook those in the short term, obviously any of these concerns, for example the oil price, geo-political concerns in what's happening in Iran, and if the US Federal Reserve continues to raise rates where it *****s the housing bubble there are probably your three main global concern.
OLIVER: I would sort of see the oil price and there's a few other problems around the world like the rise in bond yields, and interest rates, there's a possibility that China might announce a monetary tightening sometime in the next couple of weeks to slow their economy down just a touch, all of those things have the potential to cause a correction in our market. Last year we saw two corrections, around April and October, both of the order of eight per cent, or so, both of them were associated with higher bond yields and oil price concerns, but, of course, with both of those corrections the market then came back down and then moved back up...
MOORE: So you'd say a healthy pause is what we're likely to be in for but not a fundamental change.
OLIVER: Yes, we have seen an eleven per cent in the market - our market so far this year, other markets are up by similar, if not greater amounts, so we are due for a bit of a pause at some point.
MOORE: Let me ask all of you, given the scenario that we've painted about the current situation and what's ahead, do you hold, do you sell, or do you buy, Greg?
TOLPIGIN: I think you buy.
MOORE: You buy.
TOLPIGIN: You buy.
MOORE: Alright we'll get to where you buy in a minute. Shane
OLIVER: Right now I'd be holding and I would use any correction as an opportunity to buy into the market.
MOORE: I guess you'll just…
MINACK: Short term, short term, I'm with Shane, I don't think we're at the top yet. I think markets may have a one or two months celebration if the Federal Reserve brings to an end its rate increases but I'd be selling into that rally.
BRAITLING: I think there's a strong corporate profit momentum in place and consequently I think the earnings expectations will be met and the stock market can move ahead.
MOORE: So is now a good time to buy, or sit for and wait for a little correction?
BRAITLING: I would hold.
MOORE: You'd hold. Ok the question then is, when it does come time to buy, what do you buy. I mean if you look at resources, you've got massive share price increases just in the last couple of months alone coming off a very high base. Let's perhaps start with you this time, give us your topics?
BRAITLING: Well if you look at the earnings forecast, a large portion in earnings growth that the market's looking for is coming from the international growth companies, NewsCorp, Aristocrat, ResMed, these types of companies.
MOORE: How about you?
MINACK: If you had to invest I'd go for off-shore companies as well. I'd go for QBE a world-class insurer, I'd go for Brambles, which is in turnaround mode, and I'd also go for Westfield.
MOORE: Shane…
OLIVER: I'd be focussing on two main areas. One is the resources sector, I think that's still worth looking at...
MOORE: Even though BHP's off something like 30 percent just since January.
OLIVER: Certainly had a great gain but the PEs are still quite reasonable and my feeling is that earnings growth will remain quite strong for that.. that sector driving further gains in the resources stocks, so I certainly think that's one area to look at. On top of that, another one worth looking at is the health care stocks. Health care is being driven by very rapid growth on the back of innovative products and good off-shore expansion, stocks like CSL and Cochlear and ResMed and those sorts of companies.
MOORE: Greg, what are the charts telling you?
TOLPIGIN: If you're looking in the resources area, I mean I continually like stocks like Beach Petroleum, for example, stocks that potentially when there is consolidation in the industry, and oil companies start to merge and acquire each other, you want to be owning one of those stocks that's being acquired and get a premium for your investment. Outside the resources sector my favourite out there is IBA Health...
MOORE: So you're sort of next tier down really aren't you?
TOLPIGIN: Yeah, I think so, I think, look, that's where I think the best opportunities are going to lie with stocks specific, opportunities in sectors where there is a lot of growth.
MOORE: I do want to just ask you, was anyone keeping more cash? Any one putting a little bit away in case there's a rainy day? You are?
MINACK: Well I unfortunately still have an investment that gives me a guaranteed, after tax, return of seven percent, which I just don't think the stockmarket can do, apart from a mortgage.
MOORE: Despite a 22 percent return last year.
MINACK: Despite that, I mean, I wish I'd have put it in the stock market a year ago but if I had a dollar today I'd pay down my mortgage.
MOORE: Well it's a brave man who calls an end early isn't it? Gentlemen, thank you very, very much for joining us.
Interesting to note that the ( so called ) bear is still positive about the short term , he's just wary about predicting to far in advance , which is my take on what people should be doing anyway . Invest but keep your eyes open.
See Change
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