Information about ‘Investment volatility’

Share market volatility in the past few weeks has renewed uncertainty — even gloom — and diminished investors’ taste for risk. There’s European public debt and Chinese economic tightening worries, along with regulatory action against US and European banks. Concerns around Australia’s planned ‘resource super profits tax’ haven’t helped the impact on our shares and dollar either. While none of this sounds very good, here’s why it’s probably not a bear market — and certainly not time to throw in the investing towel. (more…)

Investors shun Europe amid fears the Greek debt crisis will spread. Across the Atlantic, Wall Street suffers a gut-wrenching 15-minute dive because of a suspected computer snafu. What’s wrong with markets? (more…)

“Double dipping” has a few meanings: drawing income from two (generally public) sources, putting your biscuit back in for a second dollop of dip, and when an economy slips back into recession after a short-lived recovery. None sounds fantastic, but it’s the latter that has us worried — particularly regarding the USA. Should it?   (more…)

The economies

The start of 2009 sees all the big economies – the US, Europe, China – in slowdown mode. This is a flow-on from the ‘credit crunch’ which has made it much harder for companies and individuals to get credit. Consequently this is affecting consumer spending and hurting sharemarkets because consumers aren’t buying at the level expected by companies and so their profit outlook – and their share prices – are falling. (more…)

Every day it seems someone is seeking to compare the current financial crisis with the Great Depression of the 1930s. There’s no doubt these comparisons are an attention grabber. But how do today’s events really match up?

A search of a newspaper database reveals 30,000 mentions so far this year of the term ‘Great Depression’. References to dust bowls, long and winding dole queues and overflowing soup kitchens are getting a real workout.

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This article was sent to SFS investment clients on 6 November 2008.

In his first television interview since his historic election victory, Democrat President-elect Barack Obama said  stimulating the economy was a top priority – even if it meant adding to the nation’s growing deficit. 

“I think what’s interesting about the time that we’re in right now is that you actually have a consensus among conservative Republican-leaning economists and liberal left-leaning economists. And the consensus is this: that we have to do whatever it takes to get this economy moving again, that we’re gonna have to spend money now to stimulate the economy,” Obama said. (more…)

Given all the bad news that is coming through the media at the moment, I thought it might be useful to review ten reasons to be cheerful about the global economy and the state of investment markets:

1. An awful lot of bad news is in the price. It is the nature of markets to assimilate new information quickly, which means that as we all sit around feeling gloomy, markets have usually moved on.
2. In bad times, demand for risky assets falls. So the compensation for taking this risk needs to adjust higher to attract investors. Lower share prices relative to fundamentals just means expected returns are higher.
3. Governments in the US, Europe, the UK and Australasia are pulling out all the stops to recapitalise their banking systems and get credit flowing again. The extraordinary response of risk assets to recent moves on this front shows how important confidence is in supporting markets.
4. Central banks have mounted a globally coordinated reduction in benchmark interest rates. Markets are priced for further moves. Insofar as banks pass on these lower borrowing costs, this will support business and consumer activity, buttressing the real economy.
5. Some governments are providing fiscal stimulus to bolster economic activity. Australia, for instance, recently unveiled a $A10.4 billion package. In the US, there is talk of a post-election stimulus plan.
6. Oil prices, which until recently were seen as a major threat to global growth, have retraced significantly. From late July until early October, crude oil futures fell by 45 per cent from a record $US147.27 a barrel.
7. According to investment research, the average duration of bear markets in the US from the end of 1965 until the middle of this year was about 14 months. This one has now lasted just on a year. This is not to claim it is near an end, but the longer it goes on, the closer is the next bull market.
8. Someone is buying. It’s important to remember that on the other side of the trade from all those people liquidating their portfolios and mutual funds are other investors who are happy to buy. While some are market timers, others see this as a long-term buying opportunity.
9. Unless you have sold your holdings, your losses so far are only on paper. Market recoveries after prolonged downturns tend to come in quick sudden bursts. All you need to do to capture those recoveries is to stay in your seat.
10. The sun will come up tomorrow. Anxiety over the market downturn is understandable. But there have been crises before. The world moves on and risk appetites have a tendency to reassert themselves.

Although what we are experiencing is unprecedented with regard to the global banking system, it is interesting that some commentators are making comparisons to our market and economy from the October crash in 1987 and the recession that followed in the early 1990s. (more…)

You may have started to hear or may shortly hear the term ‘market capitulation’ after the end of this week’s share market falls around the world. But what is ‘market capitulation’? (more…)

It has been an eventful week in financial markets this week, with the US investment bank, Lehman Brothers forced to file for bankruptcy, Merrill Lynch agreed to being bought by the Bank of America to get them out of trouble and now the US Government stepping in with financial assistance to prevent AIG falling over.  Many in the media are already calling the start of this week ‘Black Monday’, combined with another large fall overnight in US markets.

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