Welcome To 'Your Advantage' Newsletter #20
Changing Times - The Year of Living Dangerously
In our last newsletter edition (around election time) we remarked "These are good times..... Australia has never had it so good!"
Roll forward four months or so and my how times have changed.
It seems from a business and investor perspective the headlines have been dominated with inflation and interest rates scares, the international sub prime crisis, short selling and resultant stockmarket volatility and climate change issues. Investors have just experienced the worst quarter in 20 years!
For the most part, we have read mainly negative news and some say we are in a credit squeeze similar to that experienced in the early 1980's
However, most Australian businesses are still tracking extremely well and are generally in good shape. The issue now is consumer perception and the less than confident outlook.
So what can we expect going forward?
The next two months will be critical as credit markets remain tight, US Companies will downgrade earnings forecasts and it is becoming more likely the US will hit a recession.
So while most analysts agree the recent moves by the US Federal Reserve have gone someway to helping both credit market issues and the US economy, clearer signs on both fronts are what's needed for the economy to bottom.
The area of uncertainty that really requires clarity is assessing the depth of the US slowdown. We are just entering it now but have no real view about how deep the slowdown will be.
The other issue is determining how long it will take for the credit markets to return to a normal pattern of operation. Although US authorities have taken aggressive actions, the depth of the crisis is so extreme, it is nothing that anyone who is currently alive has ever experienced.
Locally, we have all seen that Centro was the first casualty to face short term funding difficulties. ABC Learning, MFS and Allco Finance became headliners for all the wrong reasons. There was a common thread to the problems faced by this group... All fell victim to a combination of over gearing and under-duration. Too much debt subject to refinancing, or was it greed?
So a seemingly benign interest rate environment proved no protection when supply of credit dried up. Refinancing became the impossible dream when first the current lenders decline to renew and then alternative lenders don't emerge.
Worse, equity funding is not (to most) a viable alternative when in the midst of all this, share prices in general are under seige on the back of "Can they survive?" concern.
Some analysts think we are near the bottom of the market and the time is now right to buy-back into equities as valuations are much more reasonable. Being cashed up means being able to take advantage of opportunities in business, property and shares.
Indeed investors can expect some further clues of the potential impact of the credit crisis on the banks' bottom line in the upcoming reporting season.
Meanwhile, resource stocks have been largely insulated from the crisis and many believe still represent good long-term buying value.
Our Reserve Bank has continually increased interest rates. It seems now, given the lag between rate rises and their impact on the underlying economy, there is a serious risk that they have gone too far and have effectively stopped our economy in it's tracks.
We therefore believe that interest rates are likely to fall later in the year (perhaps early 2009) and return to levels of around 12 months ago.
So whilst our own market will remain volatile in the short term, it is still fundamentally strong. In the main, it's strong because there's a pipeline of resource and infrastructure projects planned that are still coming on stream. There are long term projects including the huge Gorgon & Pluto liquified natural gas projects of the WA coast, another LNG project in Gladstone Qld, The Gums Pulp Mill in Tas and SA's uranium and copper Olympic Dam project.
Our new Government have said "sorry", signed the Kyoto protocol (both largely symbolic events) and still has the significant issue of climate change to evolve and deal with. For some it simply means changing and adapting your game plan for these changing times.
Good luck in the year ahead!
Many of you will notice we have significantly upgraded our web site so it is more user friendly and easier to search for information.
We now provide access (via a log in and password) to all reports so you can keep a closer eye on your wealth.
We have made other enhancements and have included a new section related to Private Client Services, Hot Topics & New Offerings and Your Government Entitlements.
This newsletter will provide you with a wide range of business related news and information, useful knowledge, profile some of our team members, introduce some of our clients and keep you informed of upcoming seminars and events.
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