Jen’s Note October 2008
When I first was interested in the share market and property markets and even just the veggie markets one thing that was pointed out to me by the chaps who trained me as a financial adviser was this: Markets go up and they go down and if anyone could predict with total accuracy by how much and when then the opportunities would disappear.
Well I guess that we are all going through the going down stage at present and it certainly feels pretty uncomfortable. My thoughts were when this market started to retreat that it might well hit lower points than we had seen for many years, but few thought that the damage would be so extensive.
So what to do? Quality companies are still paying good incomes and those are the ones that you are invested in. Unless of course you have some speculative investments that you bought because you either had a “good tip” or you simply felt that they would be a “good thing”. Those types of companies are in the doldrums simply because they do not meet the criteria as investable quality.
Will the USA plan by the Government to take over dodgy loans help the markets stop falling and start to return to better times? Well it is a start but the USA had better start to get real with controlling their financial markets soon or they are likely to see the average US citizen get really angry about the mess their legislative slackness has got them into.
Unfortunately these slack controls have affected the whole world with the possible exception of China which will slow down somewhat but is still going to grow at around 6 to 7% a year. That does give us some comfort, as there is lots of opportunity for us to export a wide range of goods and services to China, one growth area being food, so if the Australian government does not get too silly about piping water out of the food bowl and into backyard spa pools we should be OK.
Will the share market ever go up? Absolutely, it will return to higher levels so this is the time to stay calm and wait till better times return. This shake out is worldwide and we are better positioned to ride it out than most countries. We have a stable government, and if they do not keep sucking up to the banks and tell them to pass on the rates cuts expected the pressures will ease for lots of folk.
There will be job losses and it is tough going for many but most of us can trim our expenditure and go easy on our wallets for a while. There is a real change of power going on in the world and the USA will never have the same faith and trust shown to them that they once enjoyed. The new power brokers will be Europe and China, China more so simply because the Chinese save their money. Most homes bought in China are paid for in cash the rest have only 30 to 50% mortgages.
It is common for households in China to save between 50 and 70% of household income. So they still have the capacity to buy goods that we can export to them, they are looking to have better quality food and are prepared to pay well for that food. Thrift is a habit that we would do well to emulate and I suspect that the younger generation is going to learn lessons from this period that they will never have to learn twice. It is young people who have excessive debt and who are going bankrupt in great numbers. They seem not to see any shame in this, and that is a great culture shift from earlier times.
Banks are not going to be so free and easy with lending money to buy Plasma TV’s and extending credit card limits. Failure to pay bank debts on time will attract swift action by the banks and living on credit will be a declining activity. Saving up for the things you really want will be the best way to acquire them.
Coming to more pleasant matters, may we say thank you so very much to you all. It has been wonderful to have the support of clients who have rung us and written to us to let us know that they are pleased to have us keep in contact with them. We have been and always will be a conservative advisory firm. Although we have all lost money in this once in a lifetime downturn from what we can ascertain most of our clients have not suffered the degree of loss that we are seeing from some of the new clients that are joining us. Up to now we have seen some portfolios that have suffered losses of 60% and up to 78%. We sincerely hope that none of you face this.
All bad times pass, we would like to think that this one will pass soon, but until the USA elections it is unlikely that there will be any real forward move. But we are all in the same boat and can only wait till confidence returns to the investment community again.
In the meantime for every seller there is a buyer so many people are making hay from those who are panicking and selling up. Warren Buffett, the most successful investment manger in the world is buying, so he believes that there is very good value to be had in the markets right now.
Let us all hope that others soon join him to restore confidence in the markets.
Spring has got off to a good start and our newest employee Lina is settling very well.
She was spayed last week and cannot understand what she did that was so naughty that we took her paddle pool away. She had to keep her stiches dry so she will be very pleased this week when we restore the pool.
Keep well and enjoy the warmer weather
Jen, Rose and of course Lina