Farewell 2008
What a year it has been! So many things have happened that most of us have never seen before, such as the Sub –Prime crisis which fuelled a credit squeeze, the failure of some of the largest financial institutions in the world and a sharemarket that has dropped by amounts not seen since the Great Depression. We have banks needing to be government guaranteed, car makers now looking for handouts to survive, mortgage and property funds frozen and industry giants reduced to a shadow of their former selves, struggling to survive.
This has been a year of irrationality and huge swings.
Who would have thought that oil could reach a high of $147 with some predicting over $200 a barrel by Christmas, only to see it crash to not much over to $40 a barrel now. The same with the Australian dollar, 88 cents to the US$ in January, 98 cents in July with a rapid decline to a low of 61 cents before recovering slightly.
It’s the same with interest rates. There were two rises of 0.25% each in February and March 2008. By September the RBA started cutting viciously with 0.25% in September, 1% in October, a further 0.75% in November and another 1% in December 2008. And it’s not over yet.
Our economy has gone from boom time to bust almost overnight. Suddenly, inflation is no longer a problem (even though it is still at 5%), unemployment is rising rapidly and with forecast job retrenchments will go much higher, a huge government surplus looks like turning into a deficit and a recession looms.
So what does the future hold?
Certainly the economy is going to do it tough next year. But as we are being told, our economy is better placed than most to weather the global downturn. Recession is a real possibility, though likely to be short in duration and probably quite shallow. The stimulus package of infrastructure spending announced by the government, coupled with the cash payments to targeted groups should start to have an impact in the early part of 2009 and our economy should start to show signs of recovery soon after.
The sharemarket will also recover and much sooner than the economy. History tells us that sharemarkets tend to be well ahead of the economy. The consensus of commentators has recovery setting in toward the end of the first quarter of 2009. Stock markets always overshoot both on the way up and the way down, which generally means that when the recovery starts, there is a quick catch up period where returns are well above average. Those who remain invested will benefit from the upturn.
In times like this it is hard to see the big picture when we are immersed in a deluge of (sometimes conflicting) information on a day to day basis. For all we know, this could be the best buying opportunity right now for decades. Only time will tell that.
Hopefully though, a brighter future for sharemarkets and all things financial is not too far away. After the year we have had, that will be very welcome.
POSTED: 18-Dec-2008