**06/10/10 - 7.11am - by James Gerrish**
Warren Buffet spoke at a conference yesterday saying that "It's quite clear that stocks are cheaper than bonds. I can't imagine anyone having bonds in their portfolio when they can own equities." I thought this was quite a pertinent quote from the worlds 3rd richest person and supports our view that bonds, paying a yield of around 2.6% for the 10 year note is quite ridiculous.
We saw Japan come out yesterday and drop its interest rate to near zero and expand its balance sheet (by Buying assets to improve liquidity) in a further attempt to prop up an ailing economy. Another round of quantitative easing is also likely in the US and this is certainly being priced into the Bond market.
On the market last night, US Stocks rallied hard with the DOW JONES finishing up +193 points or +1.8% to 10944. The highest closing level since May of this year. In London the FTSE 100 added +79 points or +1.44% to close at 5635. Locally, SPI Futures are pricing in a rise of +63 points on the open this morning.
In commodity markets, Crude was very strong adding $1.38 or +1.66% to close at $84.66 right at the top of its recent trading range. We also saw continued support for Gold which added $24.40 or +1.85% to close on another record high of $1341. Most other commodities including Metals and Grains also rose pushing the commodity index higher.
The move into commodities is a factor of US dollar weakness combined with the backdrop of strong demand from emerging markets. I believe this theme is set to continue and we maintain our view that investing in companies with exposure in emerging markets will outperform investments in companies that have a high exposure to struggling developed countries like Japan and the US.
The Reserve Bank kept interest rates unchanged yesterday which was a bit of a surprise to the market (70% were expecting a 0.25% hike including myself). I think this opens up a strong case for a rise in November taking the cash rate to 4.75% for Christmas. It seemed the RBA were more keen to wait until CPI data for the September Quarter was released at the end of October to get a handle on price pressures before jumping again. View the RBA Statement HERE .
A strong day on the market today...
By James Gerrish
