New Yorkers I talk to are pleased to see the sharemarket up 30% from its lows, but are cynical as to the rally's resilience and are using the bounce to raise cash.
As I found in London, 'the bounce' is the number one topic of discussion across fund managers and analysts. Most are shaking their heads at the speed and steepness of the rally. Some recovery off lows was justified as news has certainly being "less bad" over recent weeks, but most struggle to see how a 30% bounce can be justified.
Many I talk to are sticking with their equities, but have used the bounce to raise some more cash by trimming some of their positions.
If the stories in The Wall Street Journal are anything to go by, we're not out of the woods yet.
A front page article carried a photo of a bulldozer demolishing a row of half finished houses in California.A bank had ordered their destruction after the owners went into foreclosure and it took ownership. Given the huge decline in house prices, it was cheaper to demolish the houses than complete and on-sell them.
Another article recounted a survey that has found that 30% of homeowners in the United States have negative equity (they owe more than their houses are worth). The worst areas are Las Vegas where 67% of homeowners are under water and parts of California where half of homeowners have negative equity.
There was also the news that so far this year a total of 11,600 sharebrokers have left the sharemarket industry, which leaves 'only' 63,000.
Unemployment is the number to watch. All hinges on it. If unemployment rises less than expected the economy may be able to struggle through. But if unemployment hits high single or double digits the story gets a lot worse. Housing will fall further, consumer spending will fall and banks will face more pressure.
Given the relatively high level of ownership of the sharemarket by Americans (certainly compared to New Zealanders) the rise in the sharemarket has helped sentiment here. There has perhaps been a small wealth effect. House prices though have not yet stabilised, not even in Manhattan where prices of apartments in the "mid-range" of $2-$5 million have fallen 25% and are still slipping.
I met with a team of analysts that specialize in Exchange Traded Funds - listed funds that track underlying sharemarkets or sectors without any human involvement. These funds are increasingly popular with private investors in the United States as an alternative to trying to pick stocks and to managed funds.
Their advice centred around finding low-cost funds that gave broad sharemarket exposure, and that also generated some income. There are over 700 of these funds available covering everything like American shares, smaller companies, property, utilities, healthcare, emerging markets, ethical investing, income shares and so on.
Some of these funds are so large that fees are very low. The largest fund that invests in American shares has an annual fee of just 0.09%. Compare that to the 1.5% or more charged by managed funds and you can see why people are moving towards index funds.
The past year has been very difficult for investors in American shares although the recent bounce has helped settle nerves a little. Most advisers I talk to here that use index funds are recommending their clients own a range of funds that provide good income and that any money earmarked for shares be invested in instalments over a period of time.
The fluctuations in our currency have always being an ongoing frustration of investing in overseas equities. I see in past days our currency has hit US$0.5935. Given how far our Kiwi dollars don't go in this town, this would appear to me to be a reasonable cross rate at which to send a little capital to the big apple.
Author: Cam Watson
No comments:
Post a Comment