More News and Events

 

Our financial advisers coincidently attended a breakfast session with Alan Oster (NAB Group Chief Economist) on Friday morning (5th August). While Alan Oster hadn’t had time to fully digest the events from overnight, (Dow Jones Index fell 512 points), he gave a very realistic summary of the events. These are some very brief notes taken that we thought you might find of interest...

World growth is at 4% - during the GFC, it was negative 1%.

The focus is on the wrong economies because of their prominence but it’s important to remember that this isn’t where the real growth stories are. The world is increasingly divided between the “Emerging” economies (BRIC - Brazil, Russia, India & China) and Submerging (mostly) Western economies – US, parts of Europe, UK etc.

Alan Oster thinks that some slight panic has set in (temporarily) in the US – it doesn’t make sense and we need to separate the Economy (which is generally performing better than expected with many companies recording record profits) from the stock market. He also thinks that the admission they got their first quarter economic figures wrong and therefore revised them downwards didn’t help last Thursday night. Growth is estimated at 1.5% rather than 4%. On the back of that, he expects unemployment in the US to increase. US politics isn't helping and the recently approved debt raising measure will have minimal impact this year with its main benefit coming in 2012. Oddly enough, an election year when economies magically seem to pick up.

Europe, is in his opinion has two stories - Germany is performing extraordinarily well with a growth rate of 4% (normally 1%), because it is has a major export market in Asia (emerging economies). France and even Italy are also good. On the other hand, the usual suspects (Greece, Spain, UK etc) are basically bankrupt and (managed) defaults will occur over the next few years.

The only concern he has though is whether or not the situation spills over into Asia where the real growth story is. This is not expected.

Japan is recovering despite what was a major setback with the Tsunami.

China is growing at 9% - a massive benefit for Australia. We know this story well.

In Australia

Anything to do with discretionary spending is a problem – customers aren’t spending unless necessary and retail is back to the level it was towards the end of 2008 (pre government stimulus package).

Savings rates have gone from 0 to 12% so people are holding onto to cash

Confidence is extremely shaky – we know that

Impact of floods massive with many coal mines still shut - this won’t be fully operational until the end of the year and this is very much a positive from an economic perspective

Economic performance depends on what sector you’re in – we have a “two speed” economy

Inflation is too high and he expects interest rates to come down by 0.50% by Christmas.

Unemployment (low already) will improve

Carbon tax hasn't impacted on business confidence

In summary, the world “seems” all over the place at the moment – but critically, growth (globally) is strong.

Hope you find this of interest – it’s one man’s (highly qualified) opinion.

Other interesting comments from the weekend and today’s press that are worthwhile reflecting on;

From the Age Monday 8th August;

“While we are obviously concerned at any dilution of the values of the portfolio’s we manage on behalf of 10 million Australian workers and their families, we’re also long-term investors not easily spooked by a set of bad headlines or a silly stunt by a ratings agency”.

“It’s worth musing that Australia’s retirement savings system is both world class and designed to accumulate savings built up over more than 40 years of a person’s working life, not the latest three or four months” - Gerald Noonan – President of the Australian Institute of Superannuation Trustees and the Australian Council of Superannuation Investors and a former editor of The Australian Financial Review.

Reminding us that shares are in the cheap zone - “We simply need to be fearful when others are greedy and to be greedy only when others are fearful” - Warren Buffett.

If you have any queries in relation to this email, please contact your Eluvia Adviser. 

Kind regards,

Eluvia