Baldinvestor.com

Insights into behavioral investing on the Australian share market

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How high can shares go?

The whole idea of low interest rates is to get people to borrow more and buy more stuff they dont need. It appears that the strategy has miss fired. People are paying off their mortgages instead and companies are borrowing to buy their shares back so executives can pocket their massive bonuses.  The real economy does not seem to be responding and the public are drowning in a sea of red.

What will happen when joe average works this out?  Everything is becoming more expensive and the public cannot make any money from bank deposits. Their salaries are not increasing. The yield on ASX shares is still around 5% , probably more with franking credits added. There is no other asset that offers this potential yield. It is possible that the public may not just move their own savings into shares, but borrow money at cheap rates to invest in the share market.

Baldinvestor is not saying this will happen and certainly does not think this would be a good thing.  If interest rates were to climb, the whole system would unravel and you would see a collapse of epic proportions. But perhaps shares will be the next huge asset bubble.If share yields get pushed down to the same yields as we see in housing of around 2% net, the share market may yet have boom times ahead. If people start to believe low rates will last forever, then this move would cause another doubling of the Aussie share market at least.

The entire world economy is a house of cards built on debt. For as long as the public has confidence in the system, it will work and the bubbles may continue to expand. The problem is that no one knows when confidence will be lost and when this happens the hopes of a large portion of the population will evaporate. 2019-11-13
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