Global Meltdown…is the end of the world nigh?

John Howard predicted last year that “a Labor government would result in madness and mayhem!”

However, I doubt even Mr Howard could have predicted the global economic meltdown that is transpiring before our very eyes, and obviously nor is it the cause of a change of government in the little old backwater of Australia.

The Australian share market fell by more than 3pc within minutes of the start of trading this morning, following heavy losses in global markets overnight.

The Australian dollar is also taking a hammering. Overnight, the local currency traded between a three-year low of $US0.6985 and a high of $US0.7506, marking the most volatile offshore session since the Australian dollar was floated in December 1983.  It was only 3 months ago that economists were predicting parity with the US dollar by the end of the year.

Bad luck if you’re planning to head to the US for a Christmas holiday, but then again, there may be few cheap hotel deals around!

Forecast senior currency analyst Lee Wai Tuck said the Australian dollar has weakened due to investors shying from riskier assets in these uncertain economic times.

Investor flight was exacerbated over the weekend by news of more European banks in difficulty and its effects spreading to the global economy.

There was more turmoil in European banking circles, with Germany’s fourth largest bank, Hypo Real Estate, nationalised to stop it from folding.

Beleaguered Belgian/French bank Fortis was partly nationalised earlier last week and then had 75% of it bought by BNP Paribas.

“There are concerns that this global crisis will affect more companies and more banks,” Mr Lee said from Singapore.

Banks are being nationlised in the UK, Asia, Europe and the US. 

Meanwhile, financial advisers continue to advise clients to retain their holdings in shares.

This is a once in a lifetime global economic crisis, with the recent US $700 billion bailout looking like it’s had a negligible impact.

So how are you feeling?  Should you continue to hold your share investments? Or as TB suggests is now the time to pull it all out and hide it up in the attic?

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16 Responses

  1. And I think it was on Insiders on the weekend that Suncorp was having difficulties at the moment and both ANZ and CommBank seem to be having a close look at buying it at a knock-down price.

    I think that we might start to see some other financial institutions in Australia start to have some issues in the coming weeks.

  2. “Meanwhile, financial advisers continue to advise clients to retain their holdings in shares.”

    At this stage I don’t think anyone would have much choice – they have to rely on the market upturn to recover lost capital.

    I reacll JMc stating some time ago that the recovery from this fracas would take up to five years – even John’s prediction may have been conservative.

    Let’s hope that people will now push for better regulation everywhere and revisit the nonsense that is central banks (run by bankers!) – so much for curbing inflation – curb the bloody banks lending!

    Disclaimer: (For those who may take sreb’s, staement out of context – which it is of course)

    I do not advocate attics for storing anything, particularly money!

  3. Exactly TB, attics are for storing crazed uncles.

  4. or hydroponic cannabis plantations…

    (or at least, so a friend told me…)

  5. On a serious note, the US financial crisis is now beginning to take a human toll:

    “AN unemployed California man shot and killed his wife, three children and mother-in-law before taking his own life over his family’s financial difficulties.”

    “We believe this individual had become despondent recently over his financial dealings and the financial situation of his household, and this murder-suicide event is a direct result of that.”

    Full story:http://www.news.com.au/story/0,23599,24459157-401,00.html

  6. We have all heard stories about the Great Depression, the suffering and hardship it caused. People in every country were affected, including Australia. Anyone here read My Brother Jack?

    Admittedly it’s impossible, but say if you could put a figure on the amount of misery it caused… and match that figure against the misery wrought by Communism, I wonder which system would come up worst.

    I mean, Communism’s misery was generally confined to the countries where it was in place, USSR, China, Cuba etc. It never caused people in every country to be affected in the way the Great Depression affected people in every country.

    This isn’t an argument against Capitalism; we’re stuck with it for better or worse. Just a little idle conjecture on which system has the potential for more misery.

    PS: I know no system is perfect, and that Communism is unworkable etc, and all the other givens.

  7. My father was a young lad during the Great Depression but it set the groundrules for how he was to live the rest of his life. He was, and still is, prudent with his money (to the point of being miserly in fact). His rules are simple: in times of uncertainty reduce your bad debts and put some money aside.

    It’s ironic that the reason the world is in this mess is because we all did the opposite.

  8. Miglo | October 7, 2008 at 11:42 am How very true. Another rule is never a borrower nor a lender be. Mum and my late father always ‘made do’ with what they had and never bought anything that they hadn’t saved for.

    My granny at Tungamah used to relate how she used to feed the swaggies at the kitchen door. This would have been in the late ’30s. In many cases these were not itinerants but previous well-to-do people who ‘did their dough’ during the Great Depression. My grandmother was an upper class Englishwoman who married an Australian less well to do grazier and dry land wheat farmer. She said that she could tell these swaggies ‘class’ by their accents and many were middle and upper.

    I personally think that we’ve all been conned by a major brain-washing exercise – at least 2 decades of being convinced that we can afford to spend money what we do not have.

  9. Right on Min, apparently we never had it so good!

    Returning to my dad again, he learned from the mistakes of the past. Yet what we are witnessing now is very similar to what we witnessed in 1987. We didn’t learn much, did we? Lesson’s over. We failed.

  10. My parents were born in the 20’s and 30’s. The only time they borrowed money was to buy their home in the 60’s. They don’t have a credit card. They don’t even have an ATM card. They withdraw what they need every fortnight. They knows how to BUDGET.

    I sure don’t. The only shares I have are in super. Super. Gee, that’s a misnomer. Supercrapluation, more like.

  11. Update: RBA has cut interest rates by 1%.

  12. Re the cut by the RBA I will just update my comment from last night:

    OH SHIT!

  13. Update: The consensus from people “in the know” is that the decision to slah rates by 1% is an indication of how f**ked things actually are.

    It seems we will be following the US into recession.

    The last time interest rates were cut by 1% was when they were about 13%.

    The Banks are still no saying whether they will pass on the rate decrease.

  14. Via Sky News, John Symond of Aussie Home Loans says that in his opinion that there is no reason why .75 shouldn’t be passed on to the consumer. His comments included – quite right .5 wasn’t enough for anything substantial to go back to the consumer – that Turnbull has been talking through a hole in his head.

    Shall just have to wait and see.

  15. Aussie dollar has sunk to US 68 cents – lowest in five years!!

    😦

  16. I worked for one of the major Banks for over 22 years and am now a mortgage broker.

    The reason we are not in the mess that the US and the UK are in is very simple.

    We were a few years late jumping on the bandwagon.

    Around 12 months before I left the Bank, was the time they introduced Low Doc Loans. This was due to the demand for the product and fear of loss of market share.

    I became a broker just over 4 years ago. Upon becoming a broker I was visited by many, many employees of lending institutions of all areas extolling the joys of Low Doc Loans and No Doc Loans. These were the loans of the future, the loans that had given the US and UK the unimaginable wealth to their borrowers and lenders and now it was going to happen in Australia. The momentum was on and nothing could stop it.

    Do I have customers with Low Doc loans I hear you ask? Yes I do but less than 1% as I do everything I can to set the customer up with a normal loan. Yet there are Bank Staff as well as brokers who do Low Docs simply because they are easy and take no time. After all if I do not do the loan and try and take some control, then someone else will do it for them.

    Now all the employees have disappeared, the non major lenders either closed, at a standstill, or no longer providing these type of facilities at the rates and lending margins they used to.

    This happened in the last 5 years, so who is to blame for the last five years of lending and mortgage policy in Australia. It certainly is not Jimmy Carter or the Democrats.

    Our Banks are in the position they are in, simply because we were behind in the roll out of this type of lending. They were slow to jump on the bandwagon. But then again our Banks are known to be slow and conservative and many times have been chastised for it. This time they should thank their lucky stars it went belly up now and not in 2 or 3 years time as our position would be as dire as the US or UK no matter what Government would be in Australia at the time.

    The amazing thing is that only the other day my brother-in-law who has been bankrupt twice rang and asked if I could help with find finance for a new vehicle. Being family and knowing his poor fiinancial position I declined and suggested to him that he struggle along for a while longer as I felt no finance company could help him.

    Surprise I called him yesterday to say g’day and he has a brand new car financed by one of the major lenders throiugh a car dealership. So it still goes on.

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