Australian Investment Blog

Flexibility, open mindedness, patience & being prepared to sell are all required for successful investing We have had a number of subscribers question our shift in opinion for a +20% correction from equities in 2016, to more likely in 2017. This evolution of our view has been discussed a few times over recent week, but the questions continue (we love questions so please continue!) hence we will attempt to explain more fully / clearly our current stance today. We are forecasting a major correction to the rally in US equities since March 2009, which as the below chart illustrates has seen a 320% appreciation before dividends for US stocks. The million dollar question is when and from where? Simply until further notice, we believe that US stocks will complete the classic "Phase 5" to a bull market, which should take the S&P500 towards the 2300 area, or over 10% higher. This view has twice rewarded us over recent times after we aggressively bought equities when the S&P500 challenged the low 1800 region - interestingly we remain 12.7% above that area today. S&P500 Cash Monthly Chart We must look at a combination of the current market swings and the fundamental back drop to explain our short term positive view. Our previous view that equities would top out in 2016 was established around the anticipation of a blow off top in the S&P500 towards 2200 and the backdrop of looming geopolitical risks. However, the S&P500 has tested the 2135 all-time high over recent weeks and has consolidated its ~16% advance since early December, an overall positive outcome in our opinion. S&P500 Cash Daily Chart There is a story in today’s AFR that Auscap Asset Management is sitting in 50% cash, similar to ourselves recently.
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