Written by Tim Boreham, Criterion Columnist, Melbourne. The following article was published in The Australian, March 17, 2015.

VETERAN broker Terry Campbell says trading conditions are the most “perplexing’’ he has seen in 50 years of watching the ebb and flow of sharemarkets.
“There are so many confusing factors,’’ Mr Campbell told a shareholder meeting of the Australian Foundation Investment Company, which he chairs.
The former long-term chief executive of Melbourne establishment broker JB Were said he had never seen the market trade on a more “robust” price-earnings ratio. But on the measure of dividend yields versus interest rates, the bourse did not look extravagantly valued at all.
“On underlying interest rates the market is as cheap as it has ever been, which is why I find the whole thing so perplexing,’’ he said. “You might even believe the market has a little bit left in it.’’
Mr Campbell’s bemusement is shared by other silver-haired stalwarts of the bourse, who warn that conditions are unprecedented in terms of record low interest rates and commodity price volatility.
“In my 35-year working ­career, interest rates have never been so low and no one has ever seen this much liquidity pumped into the system,’’ said prominent fund manager Geoff Wilson.
“The frustrating thing is there hasn’t been anything by way of growth to show for it.’’
Mr Wilson said asset prices were being driven by excessive global liquidity.
“All your traditional metrics of valuing companies become ­foreign,’’ he said. “Companies showing signs of growth are being valued on ­incredibly high ­multiples of 30-40 times.’’
Bell Financial chairman Colin Bell said the “perplexity” stemmed from the inability of low interest rates to stimulate the local economy, coupled with the risk of a housing boom if they went any lower.
“It’s a bit of a dilemma,’’ he said. “Our economy is in very difficult circumstances with what has happened with commodities.
“Yet we already have low interest rates, and if we lower them more, property prices in Sydney will go higher and higher.’’
Argo Investment Management CEO Jason Beddow said the market was grappling with “unique’’ circumstances given two major economies (Europe and Japan) had embarked on monetary easing programs eight years after the global financial ­crisis.
“In the meantime, the US may be on the cusp of going the other way,’’ Mr Beddow said.
The receding oil price added to challenging investment conditions. “But fundamentally I don’t think it’s all that perplexing, in that people are moving out of cash and into yields,’’ he said.
Clime Investment chief investment officer John Abernethy said aggressive hedge fund ­activity had clouded the valuations of an increasingly large ­cohort of stocks.
For instance, 6 per cent of Woolworths stock and 19 per cent of Myer stock was reported as short-sold yesterday.
“There are some very big companies being very heavily shorted,’’ Mr Abernethy said.
At the other extreme, shares linked with US growth were being “seriously” overvalued, because most fund managers did not have a mandate to invest directly in US shares.
Addressing the AFIC faithful, Mr Campbell said the nation’s biggest listed investment company was unlikely to tweak its portfolio, which is heavy in bank shares, BHP Billiton, Rio Tinto and the underperforming ­Wool­worths.
He said “based on what has happened in the past’’, the local bourse was poised to fall a further 10-15 per cent. But “all things considered, my feeling is it will be closer to another 5 per cent than 10 per cent’’.
He said the local market ­tended to follow US interest rate variations rather than local movements, even though the domestic bourse has factored in at least one more RBA cut.
“The market is not waiting for the Fed (US Federal Reserve) to move,’’ he said.
“What interest rates say to me is that US equities have probably peaked in this cycle … and the Australian market has probably peaked in this cycle.’’