Economy XVII

After the plunge on Wall St overnight (Dow down 4.7%), I think it is time that we have another thread on the economy. Some of the recent developments:

  • the US government intervention in AIG has increased. Some of the loans have now quietly been transformed into actual stock, with additional money also being pumped in
  • the US car manufacturers are really struggling. I read yesterday that one major broker has recommended that people sell any GM shares as they will be worth nothing in the near future
  • Amercian Express has converted into a bank to allow it to get government protection and access to federal funds. But wait – isn’t this what the Australian government recommended that non-banks in Australia should do if they want federal protection?

I am sure there are other stories that I have missed that the blogocrats can fill us in on.

The two big issues of the day are the economy and climate change, and one of the objections against any action on climate change is the effect it will have on the economy. Now isn’t the current downturn in the economy the sort of opportunity that we should leverage (oops, bad choice of words) to stimulate growth in clean energy. Instead of pumping money into old industries, the money could be used to invest in new industries – to give them the kick start that would set us up for a better future? Something like GSC, for example.

And I leave you with a quote I saw on the MRT here in Singapore yesterday from Warren Buffett:

Try to be fearful when others are greedy and greedy only when others are fearful.

Sounds to me like we should be viewing this economic climate as an opportunity not a threat.

joni

Advertisements

15 Responses

  1. The Australian sharemarket is expected to take a hammering today as shares fell sharply in the US overnight.

    The chooks are coming home to roost with local banks set to make up to 10,000 people redundant in the next few months (according to a report on news.com.au).

    Me thinks things are going to get a whole lot worse before they get better.

    This G20 mob better have some tangible stimulus plans when they come out of their meeting, otherwise things will definitely deteriorate…

  2. I’m beginning to think that going back to India at this stage is probably the most sensible decision we might have ended up making under the circumstances….

    Balance of economic power shifts is shaping Indo-China to be the economic super powers in the next decade.

    Apparently Tata Motors in India has already bought Land Rover and Jaguar, and are now eyeing a pice of Aussie candy in the form of Ford.

    We might face struggle and strife in setting up again this late in the day, but the kids might have the advantage when its their turn!

  3. local market is down 4%…

  4. Just been on Jack’s live blog…one has to type at pace to keep up but it was fun.

    Infrastructure Australia will be releasing their findings to the government next month I believe and the projects that will be fast tracked will be road, rail and ports as there is so much to be done to catch up because of decades of neglect by the previous governments!

    Until these issues are addressed pretty much all other projects should be placed on the back burner, that does not mean that they will not be considered in the future.

    I believe that there is an advantage to be had by this economic turmoil and the powers that be are realising this and the future from where I sit is bright!

    I see increased foreign investment in certain projects that will realise a return that will be complimentary to IA…especially from India and China.

  5. “local market is down 4%…” – reb 12:01pm

    Yep and is’nt it just fantastic. Opportunities to buy into companies at these ridiculous prices only come around every 25 years or so.

    Even if you discount their last year’s earnings per share by 50 to 60% they are still cheap. Blue chips only I mean.

    My theory is all this turmoil is frightening the bejesus out of all the 20 something fund managers and day traders plus the last of the margin loan holders.

    They have yet to learn the patience you need to buy today and forget about that purchase for 2 or 3 years.

  6. Walrus, I purchased a large amount of shares in a company about a month ago…the market lost 6% today and the shares have appreciated by 22% since purchase.

    I’m in for the long run and expect these share will be worth at least a hundred more times in ten years.

    I’ve got my eye on another company but they have not been listed yet.

  7. scaper, that is exactly what I mean. If you stick to the bluest of the blue for instance and stop looking at them every day or so then you are bound to reap the rewards in years to come.

    Walrus’ mother has had a share portfolio for many years now. Its not too modest either running into quite a few hundreds of thousands of dollars. One stock I got her into was Leighton Holdings which I think hit $60 at its peak last year or this year (mid $20 now). Her average entry price ….?

    It was $1.15 in 1988. Now that’s patience.

    People just get so scared at seeing their share prices drop that the slightest “Boo…..!” sends half of them running to the exit doors.

    As Warren Buffet says recessions are a great instrument for transfering wealth from the impatient to the patient.

    Why bother to look at the share price every day. Do they get their house valued every day as well ? Of course not.

    Some of mine are down another 8 to 9% but I dont care since you’ll never pick the absolute bottom.

    People are jumping at their own shadows at the moment and I dont mind that one little bit. I certainly do not subscribe to the propositions put forward by that suburban university professor Stephen Keen as in order for his arguments to hold sway we must assume that the entire population of China and India are going to turn their backs on bettering themselves in a material sense and going back to tending rice paddys and watchin’ cricket.

    And that aint gunna happen !

  8. Sage words Walrus. I find myself in complete agreement.

    Now is the time when the bargain hunters will come out…

  9. Walrus,

    I’ve been thinking the same for a few weeks now. My only problem is I don’t have any spare cash (damn house purchase and impending wedding).

    BTW, what do you think about Ken Henry’s advice to move a fair chunk of you accountants to a new profession like teaching?

    Also – Go The Mighty Sea Eagles (seeing as I missed my opportunity due to Tim shutting down Blogocracy a week early)

  10. “BTW, what do you think about Ken Henry’s advice to move a fair chunk of you accountants to a new profession like teaching?”

    I actually laughed when I read it. The loss of PAYG taxpayers (who are really the only ones it would affect) do not account for that big a % of the market for accounting services that you would have huge numbers moving to other professions and especially not teaching.

  11. I think Henry’s comment was pretty tongue in cheek as well – he probably only made it to head of any OO criticism that he would be putting accountants out of work.

    It’d probably affect the bulk PAYG accounting firm/companies like H&R Block though.

  12. “I think Henry’s comment was pretty tongue in cheek as well ”

    I agree. That’s why it made me laugh.

    “It’d probably affect the bulk PAYG accounting firm/companies like H&R Block though.”

    Possibly not even a huge effect on them. I’d bet the bulk of their work these days is BAS related.

  13. PTO
    Possibly not even a huge effect on them. I’d bet the bulk of their work these days is BAS related.

    I hadn’t realised that (although if I thought about it, I guess it makes sense).

    No offence to accountants, but it wouldn’t hurt to fix up the BAS and PAYG returns systems and simplify them so that accountants aren’t required. The figures he used for accountant assisted tax returns of something like 8 million out of a total of 11 million compared to NZ’s 25% is pretty staggering.

    His example of fencing wire I can relate to. My GF has just set up a hair salon and working out what can be claimed back on GST, this years tax return and what has to be depreciated or threated as stock in trade is pretty confusing. There is no way you could start up a small business without tax advice from an accountant. She and her business partner operate 2 separate bank accounts just for tax – and it is just them and 1 employee.

  14. Hey, you don’t need to be an accountant to do your own BAS, I always do my own by the old method…the dreaded ledger!

    It’s a matter of operating only one cheque account, no cash or credit cards and it is not that hard.

    I have trade accounts that affords me the benefit of entering a single entry of say $10,000 rather than fifteen to twenty separate purchases on that account.

    Besides…I like to exercise my creativity.

  15. BTW, what do you think about Ken Henry’s advice to move a fair chunk of you accountants to a new profession like teaching?

    – Dave55

    Mmmmmm……!

    You’ll keep !

    Hehehehehehehehehe……!

    By the way Dave55………………Your GF and I are in the same industry but I work for a very very large wholesale outfit. We are not a household name with the general public but we are a household name for those in the industry.

    She will probably be buying from us at some stage or other.

Comments are closed.

%d bloggers like this: