Back handed compliment

Putting the best gloss on the Australian market in the aftermath (almost) of the annual reporting season, the Sydney Morning Herald financial columnist Malcolm Maiden said "The most important thing is that the sky has not fallen in." (http://www.smh.com.au/news/business/a-season-free-of-surprises/2005/08/28/1125167552421.html)

You know the aftermath: that's when they go back over the figures after a first look to make them add up better.

Of course, markets being what they are, whatever has been expected is already "baked in" to the current prices. So can current prices get better? When do you eat the cake you baked?

This is a theme I expressed a few days ago, when I pointed out that the whole market was being driven by resources, and many index fund managers were taking investors for a ride because 75% of the market was non-resources. http://guambatstew.blogspot.com/2005/08/dotcommodity-boom.html

Malcolm Maiden's column echos that notion. He says, "While sharemarket values haven't been undermined by the June profit reporting season, they haven't been proven to be outrageously low, either", and points out "industrial shares are trading at about 17 times their expected earnings in the year to June 2006, which is relatively high." He intones the sell side line that dividend yields are "still close enough to the current cash rate of 5.5 per cent to persuade many to hang in, in the expectation that continuing share price appreciation will produce a total return cocktail that beats fixed interest", but warns " a strategy of buying industrial shares across the board in the coming year will not produce exceptional returns."