Somethings gotta give...

Guys,

The following article articulates well a concern I've had for some time now about the longevity of the US market's positive growth. Their burgeoning foreign debt position and a seeming lack of faith in their economic fundamentals might well manifest itself in a marked correction in their market.

Given the ASX follows the US, I am starting to get slightly nervous about adopting a highly leveraged position in the ASX and risking a margin call.

Here's a quote which kind of sums up the article:

I'd be very interested to hear what some of the seasoned investors feel about the strength of the Dow and the likely impact on the ASX.

I'd be particularly interested in Steve's thoughts about this. I know it is being a bit "predictive", but it was my technical nature that spared me from the dotcom crash. It wasn't so much prediction as reaction to an obvious asset bubble. I sold out completely about a month prior to the major correction. I don't think we've gone completely bubble in the US yet, but its certainly getting into dangerous territory.

Link to the full article:

http://www.smh.com.au/news/business/somethings-gotta-give-in-america/2005/11/22/1132421665012.html

Thoughts?
Michael.

 

I couldn't give a rats to be honest - our economic fundamentals are sound and our company valuations are within long term averages. Granted, sound fundamentals can still mean a 10%+ drop in the market due to external events (think September 11. Iraq war), but it would ultimately lead to a rebound and great buying opportunities in the meantime.

What drop do you need Michael for a margin call? Have you diversified into other asset classes, like the less volatile property trusts?

My LVR has gone from 55% in June to 49.9% now, so Excel tells me I'd need a 48% market drop to reach my margin call. Just not gonna happen. What I do know is that I'm about 6 weeks away from the December distributions of another $30 000.

 

Hi Glebe

You said:

I tend to agree with your analysis, but then we shouldn't:

a) say never
b) bank the money till it's arrived

As they say: expect the best prepare for the worst.

 

If someone is margined to 50%, on Navra, there would need to be a drop in value of 33.3% (according to the Leveraged Equities PDS) for a margin call to occur.

Now, I don't know about anyone else, but if I saw the value of the fund steadily dropping all the way down to 30%+ I'd be finding every single dollar I possibly could and be steadily buying more units as it fell. This has a double effect in that I get more units at very cheap prices and I (hopefully, depending on how many dollars I can scrounge up) avoid a margin call.

In fact, I plan to (eventually) have a pool of funds set aside for this very reason. I can tell you, I wouldn't be freaking out - I'd be partying like crazy celebrating the great buying opportunity.

Mark

 

Nigel,

If it does happen I've got cash on the sidelines that would be put to use buying bargains.

 

Guys,

Tend to agree. After I posted this thread I started thinking about a response and I was almost going to post my own response. But Glebe beat me to it!

My leverage is only around 40% now so margin calls are a low risk. Also, I know Steve's selection criteria weed out the high risk stocks even in the ASX200. So, low PERs and good cash positions.

I'm also holding a nice fat cash reserve in case of emergency so I think I could ride out any "crash" pretty well.

Thanks,
Michael.

 

Hi Michael,

Not only would you ride out any "crash" well . . . you will be in a position to buy VERY good value by reacting to the "crash"

It is this opportunity that creates extraordinary returns!

DOW crash??

Please . . . bring it on

Regards,
Steve

 

Would it be okay if it waited until after the fund was set up?

Mark

 

Interesting....
My newsletter today from optionetics believes that a bullish market looks good for a little while yet.
Here is the last two paragraphs of that article :
In conclusion, both the VIX and the surveys of investor sentiment confirm that bearish sentiment has fallen back towards extreme lows. However, using the ISEE as a guide, the bullishness has not yet reached the extreme levels witnessed at the market top of December of last year. In addition, the average gain off of an October low is 14.2%. Therefore, the recent 7% advance in the S&P 500 Index is still modest by historical standards. As a result, stocks might have more room to rally before the end of the year, but investors should keep an eye on the ISEE during the month of December.
If it begins to rise above 200 on numerous occasions as it did last year, it could be a sign that bullishness is too high and trouble for the stock market lies ahead. Traders can find the latest readings from the ISEE, as well as intra-day updates, at the International Securities Exchange's web site, iseoptions.com.

 

Perky,

Thanks for that information, very interesting.

Anyone else just watch "Peak Oil" on Catalyst tonight on the ABC. Now, THAT could put pay to the global economy if the early peakers have it right. Could see it run out in as little as 3 years...

Ah well, no-one likes a bear in bullish times. Let the good times roll then hey!

Cheers,
Michael.