Unhappy New Year: Jobless heading for 1 million

There’s a decidedly chilling feature about what’s in store in 2009 and frankly I tend to agree with this unemployment prediction.  Whether or not government actions will help soften the blow is a matter of speculation simply because we now have on average higher housing prices and personal debt levels  as well as lower personal savings rates than the US and UK .

Jobless heading for 1 million

THE global financial crisis could force unemployment towards the one million mark next financial year, despite further expected dramatic interest rate cuts by the Reserve Bank.

In a gloomy new year outlook, economists are predicting unemployment could rise through 2009 from its current 4.4 per cent level towards 8 per cent, costing a further 400,000 people their jobs and pushing the number of unemployed to more than 900,000 – the worst level in a decade.

“Unemployment of 8 per cent in 2010 is on the cards. It’s quite likely,” said Melbourne Business School professor Mark Crosby.

But a massive economic stimulus delivered by interest rate cuts, lower petrol prices and extra government payments could mean the nation will avoid the worst of the downturn that has swept economic giants such as the US, Britain and Japan and forced a significant slowing of growth in China

John Mc


47 Responses

  1. Friggin’ stupid voters put in Labor and this is what you get. If only they had not momentarily lost their intelligence and had not been swayed by a dominant left wing communist (look up Springborg’s latest) media in this country, then we would be having an unemployment rate of 2% under a Howard government. Grateful Australian workers on five dollars an hour with no conditions would be down on their knees bowing to the mighty Howard for making sure they had a job through such hard times.

  2. Besides a strong mining/resources sector is tourism part of the lifeblood of our economy? Of course it is. And yes, that too is experiencing a major downturn.

    Tourism industry told to work harder
    THE Rudd Government has ruled out an assistance package for the troubled tourism sector, accusing the industry of not offering competitive packages to attract business.

    Tourism chiefs yesterday appealed for a government financial package, similar to that handed to the car industry, after dire forecasts of a large drop in inbound tourism as the global economic crisis bites.

    However, Tourism Minister Martin Ferguson said that operators should do more to help themselves.

    “The retail industry has outcompeted the tourism industry hands-down when it comes to attracting the disposable dollar,” he told The Australian.

    “What we’ve seen is that people would rather buy a new sound system or a digital television than take a holiday. It’s only very recently that we’ve seen an aggressive package from the tourism sector to attract business.”

    The comments by Mr Ferguson were made as Qantas announced the removal of its domestic fuel surcharge in an unexpected boost to the tourism industry.

    Qantas’s move came after a report by Tourism Australia’s Tourism Forecasting Committee, revealed in The Australian yesterday, predicted a drop in the value of inbound tourism by almost 4 per cent next year because of the global downturn.

    The forecast slump follows a poor performance this year, when $500 million was shaved off the value of the inbound tourism sector.

    Japanese tourists in Sydney yesterday confirmed that Australia was losing its international appeal, blaming rising airfares and warning that more Japanese would stay at home as the economic crisis worsened.

    “Korea and Bali are cheaper,” said Nanaho Yoshida, walking in Sydney with two friends who had joined her for a short holiday. “More people are going there than before.”

    Miho Nomoto, from Saitama near Tokyo, said Japanese would look closer to home this year for holiday destinations.
    With the downturn starting to bite, Australian Tourism Export Council chairman John King said there was a strong case for government help for hard-hit regional areas, similar to the $6.2billion package announced for the car industry.

    “This is an industry which employs considerably more people than the car industry and is providing jobs in just about every community across the country,” Mr King said.

    Queensland Tourism Industry Council chief executive Daniel Gschwind said the economies of destinations such as Cairns, where the industry depended on foreign tourists, would be hurt badly.

    “This downturn will cut deep into the incomes of communities that depend on tourism,” Mr Gschwind said.

    Tourism and Transport Forum executive director Olivia Wirth said although the Tourism Australia report forecast a recovery in 2010 after a slump next year, the downturn could be protracted.

  3. Adrian

    Also, I think it’s obvious that state government’s like NSW have placed us in the worst possible position to deal with the economic downturn/ financial crisis. A recovery, in my opinion, will be years away simply because the poor state we’re in. In short, we’re a money pit! And things may get much worse before they get better simply because taxpayers no longer have the ability to keep funding incompetence.

  4. I won’t subscribe to the gloom and doom that is trotted out by the MSM on a daily basis…it was the tourist industry yesterday and I suspect they will want a hand out too!

    I’m not saying that it won’t be tight, I’ve been through downturns before which separates the men from the boys as far as business acumen is concerned.

    This will be my strategy…I’ve got enough gear downstairs to run an extra two crews…I will advertise in late January to secure bread and butter jobs which means not a great profit…cut my quotes to the bone and through my excellent references win a substantial share of that market.

    After establishment of this crew I will review the situation and if I am satisfied I will employ over time another crew whilst engaging in another marketing strategy…this will provide seven extra jobs and most probably support a dozen people.

    I look forward to the challenges next year and refuse to be negative…I’m far from alone on this.

  5. What happened to the utopia promised by Kev747? It looks as though we’ll soon be living in our very own condign kakotopia.

  6. You hit on something fairly important in NSW Mac, and the negative influence of NSW on the whole Australian economy cannot be understated, and for that the NSW government has a lot to answer for.

    Tomorrow 17 billion from the Federal government under the COAG agreement hits the coffers of local, state and federal agencies with NSW getting a lions share because of its dire predicament.

    I heard this on the ABC Breakfast News this morning in the Julia Gillard interview, so looked into the package some more. It is impressive how the Rudd government has gone about doling out this huge swag of money, by starting at the local government level, to State run projects and then building up to major national infrastructure projects. This is something the previous government never did, only directly and inefficiently funding some local governments as a wedge and punishment against Labor state governments.

    I don’t think this 17 billion and other Federal government measures have been factored into the predictions. Also an ABC spokesman on the economy stated the extreme predictions of unemployment at 8% are only being made by a minority (I think Citibank was one) with most saying around 6%.

    In all this the absolute failure of the previous government to make efficacious use of the bounty that landed in their laps cannot be overlooked, it has as great a part to play in the hardship we will go through as the NSW government.

  7. #5. Stephan | December 31, 2008 at 9:02 am

    What happened to the utopia promised by Kev747? It looks as though we’ll soon be living in our very own condign kakotopia.

    What utopia did he promise? The only promising of an endless utopia if elected came from Howard and his ministers.

    Oh I get it, yet another exaggeration and divagation from the facts when it comes to Kevin Rudd, should have guessed.

  8. Scaper@4 all negativity aside, what you’re working on stands alone as an important project and potential future investment. You’ve obtained funding and should remain focused on the long term.

    The picture of doom and gloom faces the broader economy and as always that doesn’t mean that every aspect of the economy will be adversely effected. In fact, many businesses and projects thrived off the back of the Great Depression. It’s no the end of the world but it is the end of reckless lending and spending for the majority.

  9. “and frankly I tend to agree with this unemployment prediction”

    Now John which employment prediction would that be? Would it be the one made by Melbourne Business School professor Mark Crosby who said:

    “Unemployment of 8 per cent in 2010 is on the cards. It’s quite likely,”

    Or would it be the one made by Citigroup economist Paul Brennan who claimed “unemployment would peak at 6.7 per cent in 2010 “?

    Or perhaps this one?

    “Treasury has forecast that number to creep upwards to 5 per cent next year and 5.75 per cent in 2010. ”

    There’s a bit of a range there. You have a choice about whether you want to be optimistic or pessimistic keeping in mind unemployment will rise.

    Now back to the article which says:

    “economists are predicting unemployment could rise through 2009 from its current 4.4 per cent level towards 8 per cent,”

    Note that it is ‘Economists’ (plural) who are predicting. Not one (1) but more than one are predicting.

    I am sure if the authors looked hard enough they could have justified using that plural (academics fall over themselves to get their name in the paper) but they didn’t. They should have used the singular and given as much prominence to the other economists who were less gloom and doom.

    But of course The Australian doesn’t like the current government and takes every opportunity to be as pessimistic as possible. Let’s hope that this prediction is as good as their election prediction.

  10. Adrian@6 the success of government spending at this stage is speculative at best – you make a very valid point though. I remain cautious simply because so much of what has passed for good intentions in the past has been largely wasted through incompetence. NSW as an example, is a money pit.

  11. Nature5 I’m leaning towards the 8 to possible 10% by 2010 simply because the level of economic instability is high in my opinion. My prediction is on the dire side simply because of the level of personal debt that has been helping fuel economic growth in this country for over a decade (thanks to the Howard Government) is no long sustainable. And debt deflation once started has the tendency to wipe balance sheets clean before a new phase of lending can begin.

  12. Now I’m not a religious person but I do like the concept of Karma…

    The philosophical explanation of karma can differ slightly between traditions, but the general concept is basically the same. Through the law of karma, the effects of all deeds actively create past, present, and future experiences, thus making one responsible for one’s own life, and the pain and joy it brings to him/her and others. The results or ‘fruits’ of actions are called karma-phala. In religions that incorporate reincarnation, karma extends through one’s present life and all past and future lives as well.

    Just a pity it seems not too many feel responsible for their actions these days, particularly the effect on others…

    …particularly The Robber Barons (still busy carving empires in the background of all this chaos)…

    …wonder if compassion will return next year…?

  13. Nature5

    “But of course The Australian doesn’t like the current government and takes every opportunity to be as pessimistic as possible. Let’s hope that this prediction is as good as their election prediction.”

    I agree on this point and the Australian will have to get real about how our current circumstance were created. A careful balance between the Howard Government’s regulatory policies and fiscal spending along with their ongoing feuds with incompetent state governments (dominated by the ALP should provide a few clues).

  14. Also don’t forget Mac that the current Federal government is also now encouraging unrestrained spending (whilst putting out the contradictory message of personal responsible spending), which is being born out by the recent flood of credit ads and new institutional credit products. All the old players are back in force including ones like Motor Finance Wizard who always says “Yes”.

    Btw what is with the link of the word “Wizard” to loan sharks? Is it that they can magically make your hard earned savings disappear.

  15. Adrian@14 dangerous, dangerous shit! Talking about trying to prolong the life of the bubble. Counter-productive attempt to keep the fantasy alive, I think.

  16. 9. Nature 5 | December 31, 2008 at 9:28 am


    Agreed Nature 5………………..but you forgot John McP’s superhero……….the one and only Mr 20%……………..Professor Steven Keen himself………..!

    John McPhilpin……….Economics Spokesman for Beyond Blue

  17. I Am The Walrus

    “Professor’ Steven Keen himself.”

    Has he been upgraded now? I not also that Mark Crosby has also gone from an ‘Associate’ to the full deal. But one can never be sure because the MSM doesn’t use ‘Associate’ when it’s using an individual to support their case.


    “has been helping fuel economic growth in this country for over a decade”

    True! But easy credit has implications that go beyond economic growth. It has profound implications for social structure.

    In the US, the middle class is being eroded with wage increases falling behind inflation by a considerable margin. The ‘punters’ were kept quiet because they could still live the ‘high life’ without deserved wage increases because easy credit allowed for plasma screens, new cars and the like.

    Riches in the US flowed to the ‘top’ with the middle and lower classes hung out to dry. Easy credit kept the lid on. Of course this was made easier because ‘unions’ in the US were gutted decades ago. Easy credit was not only an economic mirage but it also had significant social effects.

    Tom, anything to say on this claim?

  18. John, I have not applied for or received any funding whatsoever and have refused sponsorship offers until I’m ready.

    I did not make a submission to Infrastructure Australia either as its purpose is to rectify a situation of decades of neglect…that is more important in my opinion.

    GSC will indeed be a stand alone project that is in the eye of the players already and I’ve got two months to put the whole package together which is a daunting task but I will get there…will have to get Dave to clean it up as writing is not my strong point.

    I would like to tell you more but I’m pretty tired of being fodder for the detractors!

  19. Well done scaper. It’s very refreshing to read about how a business person is planning for the future instead of as you say, endless doom and gloom.

    Re the tourism industry. Having been involved in this industry a while back I would say:

    The industry has been severely lacking in innovation for decades. Plonk a set of apartments on the beach and rake in the money. Byron Bay is a prime example of this. Ever tried to find something to do in Byron when it’s raining (which it frequently is).

    Certain sections thought that the Japanese were going to be never-ending cash cows. Refer to above, leading to little innovation.

    For domestic holidayers, everything is hugely over-priced especially accommodation. It’s no wonder that Australians don’t take annual leave but instead prefer to purchase something substantial such as a plasma ;)). Actually a few issues there..eg to obtain reasonably priced family accommodation you mostly have to book 8-12 months ahead and often workers cannot be guaranteed of being able to take leave when they need to make bookings – 3 month contracts/the blow out of casual & part-time employment. All this impacts on the tourism industry.

  20. I was thinking 125,000 hits by the end of ’08. Maybe this was a bit ambitious? Waddya’recon.

  21. Definately ambitious, min – were are ticking over on around 1300 per day at the moment as lots of people (the lurkers) are off… but we could get there.

  22. Nature5 Excellent point, now we’re getting down to the underlying reality.

    John Howard was blindsided by his own economic brilliance when he failed to realise that low – middle Australia were up their eyeballs in debt and offered Work Choices as his “Great Solution” to deal with any economic storm that may come our way.

    George Megalogenis from the Australian knew exactly how precarious things had become for the Coalition.

    Twist in the mortgage belt – October 11, 2007

    …today we have a twist to the tale. The mortgage belt also happens to the less-educated belt.

    Here’s where the stats gets interesting. Of the 31 most marginal Government-held seats, 21 are less educated than the national average. And of this 21, 13 are also counted in the mortgage belt (marked in bold in the “paying off” home column).

    John Howard had declared low and middle income families as the nation’s pivotal vote in a much-cited quote he gave me for The Longest Decade.

    For the record, here, for the first time, is the full quote:

    “I won’t keep them forever,” the Prime Minister said of swinging voters.

    “If something goes wrong, they could go big time. Low and middle income families have done well out of this government and they are still the greatest voting bloc. If you have got low and middle income families contented with you and if you are getting an above-average portion of the over 55s, it is very hard to lose. And the reason that they voted for us (in 2004) is that they are better off, family tax benefits, low unemployment, all of those things.”

    I published just the middle line: “If you have got low and middle income families contented with you and if you are getting an above-average portion of the over 55s, it is very hard to lose.”

    But as the election approaches, the first line is worth looking at again: “If something goes wrong, they could go big time.”

    Have working families already bolted, or will they come home to their sugar daddy, the PM who made them affluent?

  23. I am certain joni that between the 2 of us that we could could come up with over 1,000 pieces of nonsensical trivia.

    Hmm, topics to get the blood boiling…could always do a Tim Dunlop and ask for recipes..??

  24. Min – the Beyond Blue angle is wearing very thin. My analysis and opinions have nothing to do with suffering depression and frankly I take it as a cheap shot.

  25. Nature5

    also, Mark Davis wrote earlier this year:

    “Australia’s ‘age of prosperity’, as Peter Costello calls it in his memoirs, has been underwritten by the mining boom (even as manufactured exports stagnated during his tenure) and massive increases in household debt (now more than $1 trillion – about the same as the annual national output), even as the government has wound down its own debt. The national debt has in effect been privatised while, at the same time, risk has been shifted away from government and business onto the shoulders of ordinary people, in the shape of long working hours, casualisation, and the sort of uncertainty that is written in the fact that Australians take the least holidays of any western nation.”

    It just doesn’t get anymore succinct and to the point than that. In fact it was reported just recently that our “economy is even more vulnerable to an economic downturn than the struggling US, leaving us facing the spectre of soaring unemployment, falling house prices and a long-drawn out economic slump.

  26. Oh and one other thing about all these University Economists that I would like to draw people’s attention to….!

    Who made them qualified to talk about the way money goes around when they have never made a cent for anyone in their life ?

  27. Apologies Min, I meant that Walrus character.

  28. Walrus@26 I thought so, you’re struggling.

  29. Excellent points from Nature5 and John McP.

    Scenario – record household debt – record housing unaffordability and Howard says, You’ve never had it so good. Then add into the equation the casualisation of the workforce and then to add to all this insecurity chuck in WorkChoices.

    Hence the reason of course why the ACTU advert showing a mother being called in with no notice struggling to find anyone to look after the kids resonated with so many Australians.

    The workers always knew that Howard’s statement of ‘never had it so good’ was a big fib, hence the reason that the Libs lost the last election.

  30. John McP, if you are a sufferer of depression then I apologise for my “cheap shot” as it was not meant to be taken as such.

    I’m just trying to point out that you consistently take a profoundly negative view of all forecasts and ignore anything positive that is also talked about in the MSM.

    Plus all these opinions sem to be based upon economic models that have barely predicted anything correctly in the last 5 years so how can we rely on them in any short term forecasts.

    People have to stop looking at models and start looking at fundamental supply demand situations

  31. Oh by the way John Mcp……………….I dont see how I’m supposed to be struggling as you put it.

  32. No probs John McP. I spent 6 years as a disability advocate re teens with Asperger’s Syndrome. Depression is of course a huge problem, sadly many teen suicides.

  33. Adrian @7, sorry, I didn’t know you were out of the country at the time of the Promised Land speech.

    From the SMH:
    “As Opposition leader, Kevin Rudd empathised with “working families under financial pressure”. John Howard was “out of touch with Australian working families,” but Rudd promised help. He would take measures that would seek to make housing more affordable, and to contain the price of petrol and groceries.

    To be fair to Rudd, he was smart enough not to promise that he would be able to actually bring prices down. But he certainly promised to try.

    So how has he been going? To find out, let’s construct a Kevin price index (KPI). Using the Australian Bureau of Statistics data, we can isolate the three price categories where Rudd promised to try to help. In the first six months of this year, the price of food was up by 2 per cent, the price of housing by 3 per cent and the price of petrol by 14.1 per cent.

    How do we put these three together? You can’t just add them together and divide by three, because each occupies a different weight in the cost of living. For instance, if the price of petrol goes up by 50 per cent we’re all catching the bus. But if the price of housing goes up by 50 per cent, we’re all out on the street. It’s the difference between a problem and a catastrophe.

    So we need to assign each of the three a weighting in the KPI. If we give these items the same relative weighting that the statistician does, then, excluding all other items, we have an index in which housing makes up 50 per cent, food 40 per cent and petrol 10 per cent.

    The KPI for the first half of this year is up by 3.7 per cent. Over the same time, the CPI is up by 2.6 per cent.

    So in the three areas where Rudd promised to try to contain prices, they have, so far, been rising even faster than prices overall. The CPI is bad, but the KPI is worse, running about 40 per cent faster.

    As Opposition leader, Rudd remarked that “the statistical averages don’t reflect the day-to-day realities that so many families face”.


    From financial savant Wayne Swan:

    8 June 2007
    E & O E – PROOF ONLY
    Well we’ve got the long weekend coming up and there’s tremendous focus on what’s occurring with petrol prices. I notice we’ve had the Prime Minister, we’ve had the Treasurer and other ministers talking about petrol prices. But we say: what about some action on petrol prices.

    They’ve had 11 years to authorise the ACCC to have a probe into allegations of price gouging – and no action. They could fix this in the stroke of a pen if they wanted to, and they should, and they should do it today.


    There’s more Adrian but no need to clog the blog with politician’s tosh. Mr Rudd didn’t add a caveat to his Promised Land speech like: “Of course my vision is contingent upon the USA greed machine being somewhat restrained”.

    Don’t get me wrong Adrian, I’m not a fan of the other mob. What is most galling about the professional idiots masquerading as politicians is their empleomania is so great that if one party promised to sacrifice the first born in each Australian family the other mob would promise to start with the ugly ones first. They will say and do anything to occupy the treasury benches.

  34. Walrus: I wish I could ignore the economic reality that I’m seeing. All the indicators are pretty negative so I’m obliged to put forward my view in those terms.

    Happily, however, the long term outlook in my opinion is very positive but sadly (even depressingly) a recovery may be a long time coming – not measured in months, but years.

    Here’s a tip, check this out, a low cost Index fund. In my opinion the market could really bottom out next year and steady investing in an Index fund such as this should offer a bounty for those willing to buy and hold for 5-10 years whilst stocks are cheap and the overall market depressed.

    ANZ simplifies investing

    By John Beverdige | November 21, 2008 02:40pm

    * ANZ offering online direct access to shares
    * Works like an online bank account
    * An initial deposit of $1000 is required

    OCCASIONALLY a new investment product arrives that changes the whole market.

    ING’s online savings maximiser was one, switching Australians on to the idea of a simple internet account that paid a high rate of interest.

    Now ANZ may well have given birth to another – the modestly titled online investment account.

    Like the ING product, this one is incredibly simple but powerful.

    The idea is to give anyone with an ANZ bank account direct access to the share market without going through a broker or having to worry about selecting individual shares.

    It works in exactly the same way as an online bank account except that the balance will fluctuate directly in line with the performance of the ASX 200 index.

    Dividends are paid twice yearly and fees are very low and compare favourably to brokerage, particularly for regular, small investments.

    From an investment point of view, the product gives even the very smallest investor access to at least four very attractive features:

    * The ability to use dollar cost averaging to enhance returns by buying a set amount of shares every week, month or year.

    *The ability to automate the investment process, by setting up periodic withdrawals.

    *The simplicity of a single online account that will hold all tax return records.

    *Buying an index of the top 200 Australian companies, taking the stress out of selecting individual stocks.

    ANZ’s MD of investment and insurance products, Geoff Cohen, said the product was born out of research showing that many Australians were keen to invest in the growth of the share market.

    What stops them – apart from the sort of bear market we are in now – is a lack of time, a fear of mistakes, a lack of knowledge and the cost of investing.

    “We set out to meet all of their concerns in one product that operated just like an online bank account,” said Mr Cohen.

    “I can assure you there is a lot of hard work involved in making something that is so simple to use.

    “But our tests on focus groups make us confident that this product will fill a lot of different investment needs.”

    The account works on a $1000 initial deposit with minimum extra investments of $100.

    The balance of the account will go up and down with the share market with entry and exit fees of just 25 basis points (25 for every $100) and management fees of 1 per cent a year.

    To use the current market as a guide of how dollar cost averaging would work with the account, imagine you are investing $100 every month.

    Near the end of the bull market last year, you would have bought roughly half as much of the ASX 200 index as you would be getting now.

    So you are buying much more when shares are “on sale” and fewer when they are expensive, which can greatly improve total returns even in a bear market.”

  35. Walrus, the shame as I see it is the level of wealth destruction that has to occur in order create long term balance and sustainability of our economy and financial system.

    But as you’ll note, those who have avoided being crunched will have ample opportunities to get great value because of this crisis.
    I can’t, however, ignore the level of pain many are going to experience and simply because they believed, just as John Howard did, that ‘a new era of permanent prosperity’ had arrived and risk management was thought to be a thing of the past.

  36. 34. John McPhilbin | December 31, 2008 at 11:55 am

    Thanks but no thanks…………………….Too many non blue chips in an indexed fund just definition.

    On 2 occasions this year I have departed from my own investment strategy of only investing in blue chips in a bull market.

    1) An investment that lasted for approximately 51 minutes and returned me 43% of my money in 51 minutes. The company ?……………………….ABC Learning during its initial sell down…………..I never touched it again after that.

    2) Staggered investment in OZ Minerals. Result ? ……………….Likely loss of 100% but still to be determined.

    Other investments have been repeated buys and sells in companies such as BHP, Caltex, NAB, QBE,ANZ, Coca Cola,Wesfarmers………………all of which made me cash and some of which I would not even look at for the time being but all had one thing in common…………the “colour” Blue

    Lesson learnt is just stick to the blue chips in these times.

  37. “my own investment strategy of only investing in blue chips in a bull market…………………………..”

    Freudian slip…………………….How I pine for the good ol’ days.

    I meant “bear market”

  38. 33. Stephan

    But nowhere in that did Rudd promise utopia or promise prices would be lower under him. And if you take it that he did then he delivered on petrol, which is of course a nonsense. Also prices of many other good are plummeting as demand dries up, and that includes cars. Good on ya Rudd yet another tick to him, but nowhere have I heard him bragging he is responsible for this, in fact the opposite, he calls these price drops for the serious underlying financial problem they indicate. This is so different to the way Howard did things.

    All he promised is that unlike Howard, who allowed prices to run unfettered, he would do everything possible short of nationalisation to attempt to influence prices downwards. Of course this is mostly pie in the sky stuff but what does come out of this is a better informed public whereas previously ignorance was a deliberate policy. That has to be a good thing.

  39. On this subject, I find my usual drum needs some more beating only to be ignored, I am sure, by the “enlightened”.



  40. Walrus@36 an Index fund simply follows the ups and downs of the top 200 companies and nearly 50% of value has been written off the market. Now, I’m similar in respect to you in that I analyse and focus only on companies with excellent economic, future growth prospects, honest and capable management – but that takes some knowledge and experience.

    Low cost index funds are for those who would like to invest in the market but are not sure of themselves and their ability to select stocks. In recent years would I have advised people to invest in an index fund when I knew the market was way overpriced? Not on your life. But when the market has suffered and will probably suffer some more before it inevitably rebounds, I’m thinking this is a rare opportunity – even a once in a lifetime opportunity to make some decent money long-term.

    And what would happen if someone invests and the market falls from say the 3,500 level? Invest even more. The risk of losing money at this level and below over the long term is very remote and the chances of making significant gains is greatly enhanced.

  41. Walrus – by the way I don’t have a short-term trading mentality and aim to invest with a nice margin of safety (buy at bargain prices) and then allow compound interest (capital growth off the back of reinvested earnings that ensures healthy business growth) to work its magic over the long term.

    I try to keep it simple and to quote Warren Buffett:

    “I consider there to be three basic ideas, ideas that if really ground into your intellectual framework, I don’t know how you could help but do reasonably well in stocks. None of them are complicated. None of them take mathematical talent or anything of the sort. [Graham] said you should look at stocks as small pieces of business. Look and [market] fluctuations as you friend rather than your enemy – profit from folly rather than participate in it. And he said the three most important words in investing: margin of safety. I think those ideas, 100 years from now, will still be regarded as the three cornerstones of sound investing.

    The key to investing is not assessing how much an industry is going to effect society or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide sustainable moats around them are the one’s that reward investors over time.

    Frequently, you’ll look at a business having fabulous results. And the question is, how long can this continue? Well, there’s only one way I know how to answer that. And that’s to think about why the results are occurring now – and then figure out the forces that could cause those
    results to stop occurring.

    The real risk an investor must assess is whether his after-tax receipts from an investment (incl those he receives on sale) will, over the perspective holding period, give him at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake.

    Though this risk cannot be calculated with engineering precision, it can in some cases be judged with a degree of accuracy that is useful. The primary factors bearing upon this evaluation are:

    1.The certainty with which the long-term economic characteristics of the business can be evaluated;
    2.The certainty with which management can be evaluated, both as to its ability to realise the full potential of the business and to wisely employ its cashflows;
    3.The certainty with which management can be counted on to channel the rewards from the business to the shareholders rather than itself;
    4.The purchase price of the business
    5.The levels of taxation and inflation that will be experienced, and that will determine the degree by which an investor’s purchasing power return is reduced from his gross return.

    These factors will probably strike many analysts as fuzzy since they cannot be extracted from a data-base of any kind. But the difficulty in precisely quantifying these matters does not negate their importance.”

  42. Like I said Walrus, a low cost index fund investment should deliver the goods over the long term with minimum risk of loss. Stay in the game and don’t panic would be my advice to anyone who invests at these record lows.

    Stocks post worst ever year
    December 31, 2008 – 2:43PM
    Australian shares delivered their worst year on record in 2008, posting a loss of 41% as slowing economies, volatile global markets and a credit crunch slashed the value of the nation’s biggest companies.

    At the 2.15pm AEDT close of a shortened trading day ahead of the New Year holiday on Thursday, the benchmark S&P/ASX200 index was up 68.1 points, or 1.86%, to 3,722.3, and the broader All Ordinaries index added 67.9 points, or 1.89%, to 3,659.3. But for the year, the S&P/ASX 200 index has fallen 2671.5 points to end the year at 3722.3.

    The All Ordinaries index also had its worst calendar year on record, plummeting 43%, compared to the 32% slump during the oil shock of 1974 and the 34% fall in 1930, during the Great Depression.

  43. I receive a newsletter ‘Daily Reckoning’ yes, daily, which offers a number of interesting views. Today it reads:

    “At the bottom of the mess is the consumer, both Australian and American. We put them in the same boat because they both carry high levels of personal debt (credit card and mortgage). The Aussie retail sales figures for the shopping season are deceptively high at the moment thanks to the government’s $10 billion stocking stuffer. But in his boots, the Aussie consumer may find himself in the same position as his American counterpart.

    –And that position, to borrow a phrase from a currency trading friend, is one of accelerating poverty. For the first time, the crunch is starting to feel real for people in the West. Jobs are being lost. Lower oil prices and food prices are not making up for vanishing incomes. Confidence is low. And it’s all showing up in cash hoarding.

    –The care free, debt happy commercial consciousness of the 90’s is finally reaching a tipping point. The reality in front of people is beginning to clash fundamentally with their own experience and expectations. The authorities-Wall Street, Washington, Canberra-are clearly unable to simply “fix” the problems.

    –It’s reluctant, but the psychology of the consumer is shifting to fear. You can tell this by paying attention to the market’s most important signal: prices. Prices communicate vital information. And right now they’re telling us that consumers are scared to death.

    –One example from here in America: virtually nothing is even offered at ‘retail’ or at manufacturer’s suggested retail price (MSRP) any longer. Those are now entirely imaginary concepts.

    –“What’s REALLY happened is major consumer deflation,” my friend says. “MSRP/retail is no longer the real price. But manufacturers avoid admitting that (and it plays into government preference) by calling it a sale. Truthfully, if the sale price is the market clearing price… that’s not only the price, but the value. And that’s deflation.”

    –Or, another way of looking at it is that the value of cash has gone up in a world where other assets are falling and there’s increased anxiety over jobs and the economy. This tells you to expect a surge in the cash-to-market-cap ratio. Cash will rise. Stocks will fall.

    –But not all stocks. Already we see gold, energy, and some resource stocks in Australia getting up off the mat. The massive fall in commodity prices not only hurt resource company earnings, it put many resource companies out of business (with more to come). This restricts resource supply.

    –That might not seem like such a problem in a world where final demand is falling off the cliff. Who needs resources in a global depression? And if the American housing market doesn’t bottom in 2009, it will be a dismal year for the entire globe. Even if it does bottom in 2009, it takes several years for the economy to recover.”

  44. While every one in retirement is aware that the value of their stocks has declined, there is less awareness and understanding of the fact that their cash has also suffered a significant decline in value.

    It really hits home when travelling abroad. The Australian Dollar like the British Pound is now worth a hell of a lot less compared to the Euro.

    There was no safe haven, unless one stays within Australia but even then imported goods will now cost much more.

  45. 44. Nature5 Very important points

    Way back when Blogocracy was still kicking around I came to a conclusion that a number of factors would present very real challenges. Rather than viewing them in isolation they really need to be viewed from a systems standpoint I wrote:

    Jacob Saulwick of the London Telegraph wrote on June 26 2007 something that really should have caught many people’s attention as well, he wrote::

    “THE risk of a 1930s-style economic slump has been heightened by “euphoric” markets tapping cheap global credit, one of the world’s pre-eminent financial institutions has said.

    In its annual report the Bank for International Settlements noted that the conditions which led up to the Great Depression of the 1930s and the Asian crises in the 1990s were reflected in the current environment.

    “Each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,” the bank said.

    The BIS, the central bankers’ bank, pointed to a confluence of worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

    “There is a high degree of complacency, coming out of the long period of low interest-rate environment, and a low volatility environment,” Singapore’s Second Finance Minister, Tharman Shanmugaratnam, said.

  46. “We’re dealing with something that is really historic and we haven’t had a playbook,” he said.

    “The reason it has been difficult is first of all, these excesses have been building up for many, many years. Secondly, we had a hopelessly outdated global architecture and regulatory authorities…in the U.S.,” the newspaper quoted him as saying.

    Paulson said any regulatory overhaul should emphasize “better and more effective” regulation and needed to make sure that infrastructures and powers were robust enough to allow large institutions to fail

    John, perhaps we might see an enhanced role for government.


    The neo-liberal ‘myth’ finally discarded? Lol.

  47. […] Unhappy New Year: Jobless heading for 1 million […]

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