Monday 6 October 2008

Dive! Dive! Dive!

It's a public holiday here in NSW, so I'm sitting at home getting my SMSF tax documentation organised and trying to ignore the jungle that replaced our garden while we were on holiday overseas. It's not a national holiday, so the stock market was still trading today, managing to post the lowest close for almost three years. The Aussie dollar has also plunged to a two year low (against the greenback!), and most commentators expect the Reserve Bank to cut the official interest rate tomorrow - possibly by 0.5% rather than the normal 0.25% move. With inflation still running well above the RBA's target of 2%-3% "on average", the RBA normally wouldn't be looking at cutting rates yet, but, despite the latest figures showing the economy is still growing and unemployment remains close to 20-year lows, the global financial situation gives the impression of Wiley Coyote running off a cliff. His legs are still running and his eyes are on the Road Runner, but the ground has dropped out from beneath his feet. The Aussie dollar had been strong on the back of the commodity boom, but commodity prices have started to come off the boil in the past couple of months. The Australian economy would be relatively unscathed by a recession in the US and the Eurozone, but, it would suffer from a slow-down in the Chinese economy. And since a US and Euro recession would impact the Chinese economy, the Australian economy will be affected by recent events in the US and Europe - it's just a question of lag.

Overall, the global financial crisis feels a bit like one of those submarine movies where something has gone disastrously wrong and the sub is plunging rapidly towards the abyss. All the ballast has been blown, and yet the submarine is still going down, maybe just a little bit slower. We're all sitting on the edge of our seats, wondering if things will level out before the financial system implodes.

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1 comment:

Andee Sellman , One Sherpa said...

Wow, it has been quite a rough ride at the moment and when our wealth is heading south it's hard to stay positive.
However, to be completely counterintuitive all our returns on investment are going up because the value of our investments are going down!!!
May be we should focus more on the dividends we are getting than the value of the investment. Then we would have real cash flow rather than a heap of paper profits which are really hard to spend!!