Why You Won’t See Me on ABC or CNBC Discussing Financial Markets…

To get on Aussie TV as a financial expert you have to say the right things.

It’s the same if you want to get in the mainstream papers.

But if you say the wrong things, you won’t have a chance. Sure, you see some alternative views crop up. But mostly it’s a guest appearance from one of those ‘crazy’ Americans – Peter Schiff or Gerald Celente. Or a ‘crazy’ man with a funny accent – Marc Faber.

Heaven forbid the Aussie networks should allow their viewers to see someone based locally who has a different view to the mainstream.

That’s why you won’t see your editor on any of those fancy sets chewing the fat about the financial markets. But hey, that’s fine with us. Although, we do have one regret…

It would be great to get more exposure so we can warn others about the perils of the financial market. Not that we’re worried the market will fall in a heap tomorrow. But we do worry that investors are piling in from the fear of missing out.

And that has some stocks trading at crazy-high valuations.

But seeing as there isn’t much we can do to warn the 99% of the Aussie population who will never hear or read a word we say or write, you may as well use their ignorance to your advantage.

The fact that ‘blind’ investors are rushing in to buy stocks is reason alone for us not to consider selling…yet.

These ‘late-to-the-party’ rallies can have quite an impact on stocks. In fact, the late-rally gains can be some of the most lucrative.

If you set the starting point for the recent stock rally at June 2012, we’re almost one year in. Although the real burst of gains didn’t start until the last two weeks of November – an early Santa rally if you like.

Stocks peaked in March and have been weaker since then. But the 300-point gain since mid-April has caught many short and by surprise. Many folks saw the downturn as an opportunity to sell, thinking the run was over. But with stock prices heading north again, our guess is these investors are buying back in along with those who missed the first part of the rally.

It’s this buying pressure that has had a key impact on the next move for the Aussie market…

The Two Big Game-Changers for the Australian Market

We make no apology for continuing the theme of following the market as it hovers around this key level. As we’ve said before, we believed the market would trade sideways for the rest of this year, stuck in a range between 4,900 and 5,150 points.

But two key events over the past week or so have caused us to revisit that view: the bumper Aussie bank profits and the Reserve Bank of Australia’s (RBA) interest rate cut.

These two factors helped push the Australian market above 5,200 points, closing Friday at 5,206.10.

This is above the two previous high points (March and late April). This has us wondering if the market has settled into a new range…a range that could see stocks shoot much higher from here:

Source: Google Finance

To be honest, it’s too early to tell for sure. Technical trader, Murray Dawes’ ‘false break‘ analysis would tell traders to be careful about buying stocks on a breakout.

But if stocks hold above this level it could be the driver for the next leg of the rally – the fear of missing out rally. This is why we’ve encouraged you to hold onto your stocks at this point. That said, if you’re sitting on big gains, we wouldn’t stop you from taking some profits off the table.

It’s a fine balancing act. You should protect your investments in the event of the market going into a nosedive, but without the risk of selling too early, missing out on further gains and then panic-buying at the wrong time.

That’s why it’s always useful for you to take into account a range of viewpoints. You then need to figure out which fits your situation best.

Part of that is trying to figure out the next phase of the market, so you can work out where you’re likely to find the biggest gains.

The big gainers over the past year have been dividend stocks. That’s true of blue-chip and small-cap dividend payers. Half the stocks on our Australian Small-Cap Investigator buy list are dividend payers, so it goes to show you the widespread nature of the urge for yield.

Investors to Ditch Income Stocks for…Income Stocks

But over the next two years, we believe there will be a subtle change in what investors look for. We don’t for a minute believe investors will chase yields all the way down to 2% or 3% on blue-chip dividend payers – unless investors anticipate rapid dividend growth for these stocks.

No, more likely is that investors will start to search for growth and try to pre-empt dividend growth in the small end of the market. And when that happens, most of the small-cap dividend payers on the Australian Small-Cap Investigator buy list should benefit.

These stocks have a great chance of boosting dividends as the central bank money torrent sweeps through the Australian economy.

Make no mistake: punting on small-cap stocks is risky at any time. Never more so that when the market hits a new high point (even though this isn’t a record high, it is a five-year high).

But whereas small-cap growth stocks usually lead stocks higher, that hasn’t happened with this rally because investors have eyed income. That’s about to change.

Hold on to your dividend payers, because we dare say you’re picking up a handsome yield. But if you want to take part in the next part of the rally – the late-to-the-party rally – you need to make sure your portfolio has exposure to growth stocks too.


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Ed Note: For years it was the investing Holy Grail – stocks that grow and pay a dividend. Investors saw that the idea was a sham when infrastructure companies went bust after promising both growth and yield. But after the yield-led rally over the past year, investors will start looking for these Holy Grail stocks again. In today’s Money Morning Premium, Kris reveals how, where and why this will happen. Click here to upgrade now.

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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