Do you think we are in a bubble? Well what about 81b more, remind you whole asx only 1,300b today, Another 6%, or All Ordinaries 6400, PE ratio = 18 or more.

P/E ratio 18 is nothing close to bubble.

Think about residential property 3.8% ( after current rent increasing ) or P/E ratio = 26 more. In Sydney, it has held for three years.


“$81bn of new cash to flood marketâ€

Bubbles form when there is assets inflated exuberance .
If the ASX200 would pass the 18 Perspective PER FY07 it would correct . My understanding is that it is still far off the LT average of 17.5 .However we are only 4 months away from 30/06/07 which means the market is gonna factor in H1 FY08 after the next mini correction which would not last for a long time .
I think industrials will correct in March April , Banks will moveup towards their May 07 reporting season , and resources would appreciate due to lagging behind the overall market this calendar year .
Our own portfolios ATM pers FY07 PER 15.73 V same time last year PER 15.32 .
That is 41 basis points higher on pcp , 2.5% "dearer" but nothing really extraordinary . I'm expecting it to move to PER 17 by August 07 .
Our portfolios are skewed towards the ASX300 and SMALLCAPS though .
Cheers... eG

the other factor at play, in short term at least, is meeting 'the numbers' or 'meeting analyst's expectations'

So far (Feb 07) in reporting season, 49% have exceeded, 32% are on the target and 19% under-delivered

sounds good?

maybe, maybe not. Last (Aug 06) year it was 49% up, 39% on the money and only 12% failing to meet. and in Feb 06, 49% above/ 27%/ 24% fail

It is no better than any of the last 4 years, and no worse.

so more of the same?

your opening line of this thread EG

"It's the market . There is very little doubt that the All Ordinaries is heading to 6000 by July 2007 "

well it happened in february.

S&P/ASX 2000 closed at 6017. AllOrds is at 5991. And it is still February.

Friday's Fin Review brings out a celebratory supplement. Content: same old, same old....... Its the headline trying to get more sales.

Options closed out yesterday, Dow down overnight, Europe up, the SPI is up 5, pushing 5998, so may or may not close at 6000 today.

to me the number itself is irrelevant. We have canvassed most of the issues in this thread.

Prudence; a bit off the table, or hang in there for more?

messy day today - SPI futures down 150

DOW down 3+%, Europe similar;

all triggered by Shanghai tripping down 9% but the market cap of Shanghai gamblers exchange is miniscule. and primed for it

So is this an over-reaction?

Possibly, but things will be exacerbrated by CFD and Margin calls. Expect a bumpy few days.

Meantime, the flow of dividends is about to commence.

Yes a day for the disciplined Benthonic,
CFDs and margin calls as you say, and then there's the hedge fundies. In recent years this magnitude of pullback, are we premature to say "correction", has taken weeks, sometimes months to work through. IMHO some prudent lightening up wouldn't hurt anyone at the moment.

probably belongs in Economy, and is extensively culled from Bill Gross's March article

http://www.pimco.com/LeftNav/Featured+M ... h+2007.htm

"The secret to avoiding being a fish at the current poker table is to have a collective sense of what drives asset prices, which ones are affected first, and ultimately which ones are affected last – and to decide ahead of time whether heretofore bullish risk assets are going to correct or whether they will keep on keepin’ on.

We at PIMCO, in our Forums and Investment Committee meetings, have a sense that in this U.S. and global cycle, perhaps more than any other previous one, it is the “carryâ€

Benthonic , I have raised this correlation of assets V the cash rate a few times in the past . In general the author is right .
However the value of stocks ( ASX 100/200 ) reflected by their PRROSPECTIVE EPS / GEPS / PER .
PER is the INVERSE or YIELD ( and vice versa ) but one has to add at least 20% PREMIUM for the RISK in investing in blue chip shares V the going 10 year RATE . At PER 14.5 /15 (which is current FY07 going forward ) the yield is ( 1/14.75 = 6.75% ) and that is not far away from the 10 year bond rate 9 after deducting the 20% premium ). T
Therefore any further correction will inflate the above yield and make investment a better entry .
I read today an ABN analyst report that values the ASX200 at FAIR VALUE of 5650. This means that the current correction is purely technical or mostly a cleansing healthy exercise .

My biggest question mark is the RE VALUATIONS of all the PROPERTY TRUST ASSETS . I'm scratching my head heavily with no real answer that can satisfy me ...cheers eG

Analysis: bumpy, then a soft landing
By Mark Harris, head of investment, New Star Funds of Funds

Since the bear market bottomed out in 2003, there have been regular interruptions to the recovery in share prices. The October 2005 and May 2006 scares resulted from fears that the trade-off between economic growth and inflation was deteriorating. The latest scare is similar. There are, however, two added ingredients. First, investors have been spooked by size of the decline on 27 February; second, market participants are nervous about the consequences of a possible unwinding of the 'yen carry trade' .

Although it would be rash to assume that the recent weakness will not be repeated in the coming weeks, one reason for longer-term optimism is that while US economic prospects have worsened, analysis of monetary conditions suggests that a global 'soft landing' is likely. As this unfolds, the ride for investors may be bumpy but should still yield positive returns. In each of the three 'soft landings' since the 1980s, equities ended the growth slowdown in positive territory - but not before the annual change in share prices turned negative.

A second reason is that there is a surplus of money beyond that needed to finance industrial growth. When this occurs it tends to find its way into financial markets, lifting the prices of assets such as shares and property. Conversely, if this surplus dries up, markets typically suffer. Right now, there is a surplus - and this can be seen at work in increased takeover activity.

END

Not sure that the above is really cheery. How long will 'right now' last? USA economic health is still the big Q. Housing looking to be painful retraction from the bubble

http://observer.guardian.co.uk/business ... 52,00.html

..."As construction spending plummets and estate agents wait anxiously for the buyers to arrive, analysts are asking how damaging the housing market dip will be for the rest of the economy. By the end of 2006, many had convinced themselves that the downturn could be neatly sealed within the housing market, or even within the shaky sub-prime sector. But after the latest official estimates showed that GDP growth was a sluggish 2.2 per cent in the final quarter of 2006, despite unseasonably mild weather and falling gasoline prices, fears are intensifying that the damage wrought by the end of the housing boom will be widespread and long-lasting."

With many of the fast-growing emerging markets dependent on export-led growth, and the US still a major consumer market, there will be some knock-on effects - but with the eurozone growing strongly, Japan finally in recovery and a host of emerging economies performing well, recession in the US won't necessarily mean global recession.

'For the rest of the world to hold up so well shows that the relationships in the global economy have changed significantly,'

But it still will be a factor. IMO

B.

I'm revisiting the start off of the thread from 3.5 months ago.
The mini correction that we had to have came in and gone with trhe wind . A previous 19/02/2007 peak of our portfolios performance for this FY07 took a healthy good dive thereafter of about 10% . On Thursday 05/04/2007 the correction was "formally " over and today the portfolios have gone berserk to a new high for the year .
Now . Please read the prologue to this thread . Its contents are still valid . I do not see a change in the Fundamentals that I had listed there . BUT , BUT we are only in the beginning of April 07 , and therefore I can feel another mini storm could occur before the 30/06/2007 .
A huge political risk is the Iranian nuclear issue which from the prism of the downunder distance it looks unrelated , but it is ! Very much so .
And another BEARISH sentiment with back uped data was published a few days ago .

The party in ASX is live and kicking and Metals are hard to get .
Uranium auctioned at USD 113 a LB from USD 95 .Industrial stocks in ASX indecies have climbed too far ( PER of about 18 ) while the resources stocks added to the ALL Ordinaries would drag down the FY07 PER to about 15.50 . At a certain time in the near future , the institutions will be looking for a trigger , to perform another mini correction , and there are many candidates to choose from .

Anyway here is the article ...cheers eG

http://www.kitco.com/ind/grandich/apr092007.html

ASX party kicking on - a record high yesterday.

Looking for a home:
$20bill - Coles
$17Bill - Rinker
$14Bill - Qantas
$40Bill - Future Fund
$15Bill - dividends from companies
$10Bill - Super contributions

Rubbery figures, probably can reduce by 30- 40% because of foreign owners not reinvesting in Aussie market. But it is still a fair amount of money. And fewer homes to go to, with the competition from private equity.

Doesanybody see any icebergs ahead?

In Feb 2007 I posted

egilmore



Joined: 02 May 2003
Posts: 3831
Location: Sydney
Posted: Fri Feb 16, 2007 4:47 pm Post subject:

--------------------------------------------------------------------------------

Lainie Jean Quote:
Will all this prop up the market. I think it will. I think the end result will not be a stockmarket crash, but a huge round of capital asset price inflation, so you need more and more money to gain the same retirement income.




If the scenario of both sokeye and LJ eventuates the market will CRASH because fundamentals would not support the soaring assets .
The treshold should be this : ASX200 not to pass its projected FY2008 of gradual movement from PER 14.5 towards 17-17.5 by 30/06/2008 .
as long as this model is adhered to do not expect crash but do expect a few mini corrections

Remember that crashes are the end results of IRRATIONAL EXUBERANCE when values of assets are way higher and beyond their intrinsic value , which correlates to a reasonable rate of return .

Remember that the inverse of PER is basically the ROR . At 17.5 PER the ASX 200 would return 5.71% . That is with at least 20% risk premium embeddded into it ( equals to 30 year Bond rate of 4.60% ) .

Now if the high GROWTH rate of earnings would not abate , projected EPS will be upgraded , and PER is further reduced . This will push the equities in the ASX200 higher no doubt .

Severe Corrections ( not technical one which are based on TA ) can happen due to FORCE MAJOR like Tsunamies , terror , Hedge funds financial gigantic wrong punting , severe wars that potentially can spill from being localized to something broader and more complexed , sudden civil commotionin major economy ( such as Russia, India and God forbid China ).

We have to realize that Severe Corrections can occur at any given minute , and they are outside managements agendas .

I hope I did not weary U too much here .
Have a nice weekend ...cheers eG ]

Herebelow is an echo of my post , in more elaborate language from Alan Kohler :

http://www.theage.com.au/news/business/ ... 80761.html

My comments are :
1. MR Kohler has based his assumptions on HISTORIC PERs and INVERTED YIELDS , while markets factor in FUTURE EPSs , PERs and INVERTED YIELDS ( as I did ) . Of course historic parametres are factual , but the market behaves in the futures not at either past or present performance .

2. MR Kohler did not take in account the at least 20-25% RISK PREMIUM , which should be ascribed to EQUITIES versus BOND RATES . This missing gap is critical in getting a properly moderated equity yields versus bond rates .

3. I must admit that my posts have never tyaken in account the rate of inflation . However when comparing the above parametres , the RATE of INFLATION , is excluded from both sides of the equation , which mathematically is correct because they become mutually exclusive if both in or out the equation .

4. For the ASX200 to reach 13000 in the near future GEPS of its companies has to reach something like a 95% to 30/07/2008 , or instant doubling of future 2008 Growth in EPS rates . I KNOW IT WOULD NOT HAPPEN ...cheers eG