Jen’s Note January 2009

We begin the new year with some very mixed messages, both on the economic front and on the climate front. Clearly no one wants to face another year like 2008 but it would be very foolish to think that after the holiday season all will be well.

Melbourne has just had the coldest December in 7 years but the upside was that we did have some good rain that went some way to restore faith in our veggie gardens.
But we still face the possibility of further water restrictions if more solid rain does not fall in the next few weeks.

The weather is something we have little control over but other aspects of our lives also seems to be out of our control. Clearly in the USA there has been significant lack of good legislation to control the activities of the banking system but no amount of law will control crooks.

The Ponzi scheme that was operated by Bernard Madoff that has made fools of many investment fund managers is proof once again that the more complex an investment scheme is, or the better the results that so called expert fund managers claim, the more you should be cautious. They were foolish enough or inexperienced enough to believe that he could pay higher than normal returns for many years.

More sensible fund managers pointed out to the regulators that the system that he claimed to be using did not have validity as there were simply not enough of the deals available in the whole world let alone the USA market and they were ignored.
So we all now suffer.

Ponzi schemes for those not familiar are scams that keep collecting new money from “investors” that is paid to the existing “investors” so the first people in usually are paid but eventually there is no new money and the money that was collected was never invested but had fees taken out before it was paid to the first people in. It is named after a chap called Ponzi who did this to poor fools in the early part of the last century.

It is straight out fraud and to think that the USA regulators had been warned about Madoff and did nothing to bring to justice is just breath taking.

So what am I really on about is this: when times are tough there are always crooks out there who will come up with schemes to make money that are disguised as investments but are all about stealing from those who are trying to make good their losses.  When good times return then these blighters are often not so obvious, as the good market conditions allow them to operate for much longer before their wickedness is discovered.

Now, do I have any predictions about interest rates or the share market? On the understanding that you all realise my Mum did not give birth to me clutching a crystal ball in my little hand here are my thoughts.

I think that interest rates may come down a little more but not much. The economy is slowing quite quickly and certainly there seems to be a slow down on spending by families and a real effort to reduce personal debt. Now what needs to happen is for folk to start saving for purchases rather than borrowing to replace kitchens, go on holidays, buy a new car or replace the hot water service or fridge that died when you expected it to last much longer.

Those who want to buy their first new home will need to have bigger deposits and have saved the money to cover expenses like legal fees. The banks are going back to asking for answers to questions like how long do you want the mortgage for and how do you expect to pay it back and can you afford to borrow as much as you are being offered?

Now, will the share market go up?  Well I think slowly it will return to more realistic prices as many quality Australian companies have been over sold. Those who have had to sell up to meet margin calls have largely caused this. In the later part of the fall, investors who had not been foolish and over borrowed but who had modest loans against shares, were caught up in the panic that resulted from the ceaseless fear of the market, fuelled by the next lot of bad news from overseas.

Bad news from the USA now is just the confirmation of what we already know and plans are being undertaken to hold up the USA economy by the incoming President.
So it is generally expected that we will see modest gains over time in our local market as the world sorts out the problems in each country.

So we think the job outlook is going to be tough for school leavers, therefore if they can stay at school or do a course that is probably worthwhile if possible.  There will be work for women who are past childbearing if the proposed rules for maternity leave come to fruition. Jobs in the financial sector will be very tight, retail and building not so, but still not buoyant.

There will be several of the Franchise companies looking to sell new stores or vans or what ever their particular base is. Bakers Delight is looking to add 150 new stores this year. That is a lot of bread given many shopping strips already have 2 or 3 hot bread shops now.

Petrol will become more expensive as the OPEC group look to limit supply. So the price of every days needs may not drop as expected.

There has to be an upside to all this and I think it will be the environmental issues. Shortage of money to spend on luxurious and indulgent items will reduce the burden on the environment. Many people will find that real wealth is being able to sit in your own backyard that will not be bombed and have a cup of tea brewed in your own teapot. Picking a few herbs and maybe some home grown tomatoes is wonderful when you think of how tough it is for many in Europe and the Northern USA.

We are still the lucky country and if we can return to water usage as we did in the 50’s we should be fine. You can still be perfectly clean and healthy bathing with a bucketful of water rather than even a 4-minute shower. After all that is what we all did in the country as all the water we had was what fell each year into our rainwater tank and we knew there was no more till it rained again.

It is possible to wear clothes more than once without washing them, and the world will not end if you wear aprons to keep your clothes clean while you are washing the dishes or cooking.

Thank you for all your wonderful good wishes for the New Year and Lina thanks the lovely person who left the little parcel for her on the front step. She just loves liver treats.  Now the office is open again we trust that she will desist from sand mining in the back yard to fill her time. If she does not stop soon we can see that a tin hat will become essential, we think that even more walks will help but she is a girl on a mission.

The markets are trying to rise and with some good reports soon from various sectors there should be more that is positive than negative this year.

So enjoy a peaceful summer and keep well and remember what my grand dad used to say “it will all be the same in 100 years no matter how you fret and worry”.

Not so sure that he was always right but if he was referring to the behaviour of humanity he probably was.

Jen, Rose and Lina the canine receptionist