Economy slides deeper into recession

Things get worse:

THE world economy has taken a sharp turn for the worse, with early estimates showing global output fell more than 4 per cent in the last three months of last year, with further decline expected over the next six months.

The OECD warned yesterday of a “deep slowdown” in all major industrial economies and most of the emerging economies, including China, The Australian reports.
So much for our robust economy, but what about a speedy recovery?    Dun and Bradstreet’s Economic & Risk Outlook report seems realistic and very credible to me.  Then again I’ve been calling a similar scenario for well over 12 months now. The bursting of the commodities bubble and a softening Asian economy on top of a sea of personal debt doesn’t make for a robust economy that Howard and Costello claimed to have left us.

Zero growth tipped for 2009

“Australia may find its recovery lagging in coming years, in part because of its dependence on rising house prices and credit financed consumer spending to buoy growth in recent years, D&B said.

Those features put Australia in the same basket as the US, UK, Spain and Ireland, where cheap credit and the expansion of the finance sector were a primary source of wealth.”

Rewind back to August 2007, when I pointed out what I thought was obvious at the time:

Geoff Elliott Blog | The Australian

Geoff, Just to add to my previous comments we here in Australia need to start considering whether our stock market’s reaction (yes, it’s taken a another pounding on the back of falls in the US) is more than a simple reaction to US markets. Or do we have similar issues with growing and doubtful debts? It’s easy to get bogged down in detailed theory or political debate over the economy in general, including interest rates and our growing prosperity rather than making hard-nosed assessments of the sustainability of growth fueled by easy money, namely debt.

Mr Howard’s response recently to the fact that household debt has reached the $1 trillion figure was: “Debt levels are rising, but we are choosing to use the debt more productively to buy assets that traditionally rise in value, like shares and property.” Personally, I think his assessment is too simplistic and politically convenient (it is an election year).For me, the lights really came on when I recently came across an insightful assessment of what seems to be one of the primary causes of the emerging economic picture and potential financial crisis in the US. Unfortunately the same elements and conditions that are causing distress in the US also seem evident, in large part, here in Australia.

Update: 44,000 lose their jobs – Full-time employment hit hard

“The massive decline in full-time employment, down nearly 44,000 it’s a big worry,” said economist Matt Robinson of Moody’s Economy.com. “Even with offsetting force of part time employment.”

“It shows weakness in job security and having their hours cut back.

“It’s a real shift in employers’ behaviour.”

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37 Responses

  1. This is a good article, and the Japanese were calling the downfall of debt laden economies for at least as long as Mac has.

    Why Obama’s plan is still inadequate and incomplete

  2. More doom and gloom from John Mcp and JP Morgan who rank just in front of Goldman Sachs. as the the highest paid of the crystal ball gazers.

    Of course none of those firms got anything wrong in the past…….did they…?………………and consequently made mountains of cash from being “short” on the entire market over the last 18 months such were the accuracy of their previous forecasts ………….NOT !

    And dont get me started on the IMF…………

    I’ll stick to the indexes of consumer confidence,rate of unemployment and new housing starts in the USA rather than the predictions of a couple of Wall Street brokerages thanks very much……..!

    PS John McP………………….was that you I saw yesterday walking along Avoca Street Randwick carrying a large scythe, and wearing a midnight black gown with a hood, face not to be seen, but only a mere shadow beneath the hood………………?

  3. Great find Adrian and the Japanese should know, they’;ve had to learn the hard way themselves:

    In a nutshell:

    … there must be a credible programme for what Americans call “deleveraging”. The US cannot afford years of painful debt reduction in the private sector – a process that has still barely begun. The alternative is forced writedowns of bad assets in the financial sector and either more fiscal recapitalisation or debt-for-equity swaps. It also means the mass bankruptcy of insolvent households and forced writedowns of mortgages”

    Ouch! and our personal debt levels are higher than the US

    Solvency was always going to be a major, major problem, injecting more liquidity into the system is a fix that often fails, especially if banks and businesses don’t have their ‘balance sheet’ shit together to begin with. We’d do well to keep the same lesson in the back of our minds, in my opinion.

    It shows just how off track the financial system has really gone. It would have been nice if Galbraith were still alive to see this, he knew that “now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.”

  4. Walrus, I don’t pluck predications out of my clacker, I simply recognise fundamental truths of how the system works and does not work and when it’s health and when it’s out of whack.

    Commonsense really if you understand economics.

  5. Keep your blinkers on Walrus

  6. John………………………..I am merely pointing out that you seem to delight in all the bad news/views without any reference to anything remotely contrary.

    Commonsense really if you understand taking a balanced point of view……………….!

  7. Time to blame the Chinese perhaps:

    “US mistakes are the root cause of the global financial crisis, a senior Chinese central bank official said Wednesday, rejecting criticism of China’s high savings rate and booming trade surplus.

    “Errors made in US economic policy-making, financial supervision and markets are the ultimate causes of the crisis,” said Zhang Jianhua, research head at the People’s Bank of China, in an opinion piece carried by the People’s Daily.

    Some observers in the West are blaming China and other nations’ high savings rate and trade surplus for fuelling excess consumption and asset bubbles in the United States, he said.

    “Such views are ridiculous and irresponsible in the extreme,” Zhang wrote in the harshly worded piece in the Communist Party’s mouthpiece”

    China spends a large part of its forex reserves buying US debt, keeping interest rates down and creating the conditions for more spending by American consumers, economists have argued.

    But Zhang said China’s forex reserves as well as investment in US Treasury bonds started to grow fast only from 2003 while household savings and the long-term interest rate in the United States have been falling since the 1980s.

    It was the loose monetary policy, lax supervision and huge fiscal deficit in the United States that caused the financial turmoil, he argued.

    The big US trade deficit is a result of its own economic structure, according to the article.

    “Theories that try to shift the responsibility for the crisis to countries with high savings are severely lacking in self-criticism, which is urgently needed if we are to … prevent similar crises,” Zhang said.

  8. Balanced if you know what you’re talking about Walrus. There are obvious imbalances in the system that leads to my balanced viewpoint.

  9. Well that’s amusing John Mcp…………..You accuse me of “keeping the blinkers on”…………………..!

    Talk about “Hello Pot meet Kettle”………

    That basically says it all I think……………..

    But dont stress……… I wont be commenting further on your latest slab of “cut and paste”

  10. Ouch, Walrus – I don’t mind debating when those who debate have more to say than “PS John McP………………….was that you I saw yesterday walking along Avoca Street Randwick carrying a large scythe, and wearing a midnight black gown with a hood, face not to be seen, but only a mere shadow beneath the hood………………?”

    You’ve got to bring more to the party than a sweeping generalisation based on your feelings rather than cold hard facts about the reality.

  11. I also have my blinkers on.

    I refuse to join the throng of people declaring “the world is about to end”

    A BIS Shrapnel economist on World News ABC this morning said that judging by the latest unemplyment figures, unemployment will reach a staggering 4.5% in the first quarter of 2009! Good heavens, that means 95% of us are still employed.

    Likewise he poured water all over Steve Keen’s prediction that the residential property market will decline by 30% in 2009, saying that the figure is more likely to be in the vicinity of 5%.

    OMG we’re all gonna be rooned!!!

  12. Reb

    I’ve never claimed the world is about to end, what I’m pointing out is that a major shift is occurring in the global economy. The destruction of wealth we are seeing is because many mistook ‘free markets’ to be efficient and thought deregulation was the only way to go.

    And credit expansion has been allowed to reach ridiculous proportions. It’s all coming home to roost in a big way.

    I’ve also made it clear that long-term (now that could be years away) we’ll find a balance. In the meantime, the destruction of illusionary wealth will cause a lot of pain. Especially for those who believed a ‘new era of permanent prosperity had arrived’. Essentially, we forget the concept of risk and thought the good times would keep on rolling.

  13. Fair enough John.

    I doubt that we will ever find a “balance” as you put it. I think there will always be boom and bust cycles.

    I also think the recovery will occur sooner than some are predicting.

    Financial washouts occur fairly quickly. Looks like Nortel is about to go under now too BTW.

    However when markets recover, they do so rather dramatically. I would be surprised in markets begin to show signs of recover in Q4 of 09 or early 2010.

    Until then we are bound to see more bloodshed. I think things will get particularly nasty in Q2 and Q3 of this year.

  14. Not all economists are so pessimistic:

    “In the midst of the deepest recession in the experience of most Americans, many professional forecasters are optimistically heading into the new year declaring that the worst may soon be over.

    For this rosy picture to play out, they are counting on the Obama administration and Congress to come through with a substantial stimulus package, at least $675 billion over two years. ”

    http://www.nytimes.com/2009/01/03/business/economy/03econ.html?pagewanted=1&_r=2&partner=rss&emc=rss

    One of the more balanced articles even for those submerged in the dismal art of tea leaf reading.

    The First Law of Economists: For every economist, there exists an equal and opposite economist.

    The Second Law of Economists: They’re both wrong.

  15. The Third Law of Economists: If you lay all the economists in the world end to end you would still not reach a conclusion.

  16. G’day J Mc,

    I see some people are still shooting the messenger and not looking at the facts – as of yesterday the All Ords is down 34.91 for the month…

    …last night the Dow J was down 248.2…the FTSE down 218.51…

    …this morning the All Ords did a power dive and is 115 down with SPI Futures at 122…

    …oh! The good news is that the housing industry is up 1.3% in Queensland

    I like Alan Kohler’s recent description of the government’s approach to recession in Australia it is “officially in denial” – must be working on some local folk… 😉

    Just a reminder that this is the worst economic disaster within two generations…and we’ll avoid a recession? Nah!

    …and my cash returns are steadily declining…

  17. I am not a doomsdayer either. I am a realist and can see that we are heading for a recession.

    However I also think things need to be put into perspective. When a company has a massive write down it is usually against the valuation of assets held in their books. This is simply a figure of what they could sell the asset for in the future. If they don’t sell they don’t actually lose out, yet the decline in value is booked against income and effects the profit declared.

    As companies write down the values of assets their dividend is effected, but ONLY FOR THAT YEAR.

    So if companies have written down their values and declared these as a loss against their income the next years didvidend shoudl stabilise.

    Conversely if the assets increase in value again in the future then profits will be higher.

    I think there is some massive over reaction. For example Wesfarmers has announced their profit may be less than anticipated due to writedowns. It will still be around $880 million and at this stage they look like paying the forecast dividend of $2 per share for the year. Based on their current share price of $16.69 at 10.50am today that is a yield of 11.98%. Current bank interest rates for oncall internet facilities is 4% so the dividend would need to drop below 67c for the share to perform lower than cash.

    Opportunities abound if you are taking a long term view.

  18. John,

    Speaking only for myself, and I’ve told you this once before, I tend to skip over these types of articles, whether written by you or anybody else.

    My personal preference for good news probably cost me a good percentage of my self managed super fund when the ‘GFC” arrived. Had I listened your and others’ warnings, I might have sold most of my equities and been cashed-up when the market nose-dived.

    (Then again, if I’d listened to every doom-saying coat-tugger who bent my ear over the years [not referring to you now John ;-)], I would not have made the gains or earned the dividends I did in the years leading up to the recent difficulties.)

    So, whether I’m a slow learner, or an optimist – not sure which – you will forgive me if I continue to overlook such bad-news stories. It’s nothing against you, and it might be to my detriment, but that’s how it is.

  19. Fourth Law of Economists:

    When asked whether particular figures or scenarios are good or bad, they will say: Compared to what?

    Meet an economist on the street, and ask him how his wife is. He will say: Compared to what?

  20. TB, you and I are on the same page, however, I can’t condemn people for wanting to skip the doom and gloom articles about the economy. It can get confusing and like Tony said, he needs his distance. In the end the one thing that matters most when investing is trust in one’s own personal judgment.

    It goes without saying that the worse things get the more real opportunities for value will pop up.

    Having said that, this thing is huge!

  21. LOL ToSY!!

    I agree. In fact in the Financial Advisory industry, they refer to the daily market media reports from so called experts as “pornography” – designed to titilate those with a passing day to day interest in in market happenings, and only serves to distract people from adhering to their long-term strategies…

  22. There is a saying in the finance sector when lending via Personal Loans that if your arrears are not 5% then you are not lending enough and do not have enough market share. Meaning that you should be prepared to risk losing 5% of your loans overall especially when you can charge 13%.

    There is always risk involving anything to do with money. The main thing is to try and mitigate some of the risk and look long term.

    If the doomsdayers in the 80s had kept their shares instead of panicking they would have been millionaires in the 00s. Kerry Packer made a killing by entering the market while it was crashing.

    Keep everything in perspective.

    The ones I feel sorry for are those retiring this year and will be required to live off their super and no longer thave the time frame to recover.

    Another reason why I still maintain that 5 years before retirement you need to seriously consider whether you want to risk your super in high risk investments or convert it to secure cash assets.

  23. Here is some damning evidence that the US have been increasingly living in a bubble/s, these figures are from 2006, some of our bubbles bare some resemblance:

    Massive Government Debt Bubble – The federal deficit in 1980 was about $50 billion; in 2006 total government debt was more than $8 trillion. For 2 decades, larger and larger foreign-funded deficits have helped boom the U.S. economy.

    Overvalued Dollar Bubble – In the last few years, Japan and China have bought more than $1.8 trillion worth of U.S. dollars. Why? To keep the value of the dollar high so the US can continue buying lots of their exports. What would the dollar be worth if they were not propping it up? What will it be worth when they can buy no more?

    Astronomical Trade Deficit Bubble – Americans buy far more from other countries than they sell to them. This trade deficit in 2006 was nearing $1 trillion annually. Foreign investors use those dollars to buy our stocks and bonds, keeping their values high. Foreign investors need to invest more than $2.5 billion every day just to maintain the trade deficit. If they don’t, interest rates will rise and the dollar and stock market will fall dramatically.

    _____________________________compare below similarities with us. Think of how many jobs our housing, finance, retail and mining booms have created .

    Overpriced Real Estate Bubble – Housing prices up 80% since 2000, while incomes rose only 2% during same time period. 74% of all new jobs created in the five years prior to January 2005 were due to the housing boom. The Real Estate Bubble was key to boosting the current economy.

    Irrationally Exuberant Stock Market Bubble – Dow up 1000% from 1982 to 2000, without an equal rise in real corporate earnings. By comparison, the Dow rose a more reasonable 300% from 1928 to 1982, a period of strong economic and earnings growth. Despite recent corrections, both the Dow and NASDAQ are still up 1000% since 1982.

    Huge and Growing Consumer Debt Bubble – Consumer spending was a key driver of economic growth. Americans in 2006 were more than $1.7 trillion in debt. The Consumer Debt Bubble has greatly helped to boost the economy.

  24. The above figures need to be compare relatively

    Given that government authorities have placed all their faith in market fundamentalism and have given scant regard to the need to regulate markets, banking and the finance industry in general, I’d say, (and I don’t like the idea myself), that our government’s and central banks (US and AUS) will have no other alternative if the crisis continues to deepen.

    Two options I think are likely, the central banks can print more money and increase liquidity (which is liable to devalue the our currencies) or the government can use taxpayers dollars – or a combination of both.

    I know our own RBA is ready to assist with a ‘bailout plan, as have the Fed Reserve in the US. We all end up paying through the teeth in one way or another- that’s why this is such a particularly nasty crisis. And frankly, there are still so many unknowns.

    My sanity saving approach has led me to look at the whole problem in more general terms, simply because there is no avoiding the pain brought about by our addiction to debt:

    We will, in my opinion, continue getting ‘snapshots’ that are aimed at providing greater hope and optimism about the economy and our wealth status. I’m just hoping people take a more realistic view of what is really happening. Nobody wants to see a major panic or excessive pessimism, however, we’ve had well over a decade where it seems nothing could stand in our way.I personally think that our average wealth will decrease (taking away previous gains through heated housing and stock markets), credit card spending will have to slow significantly and therefore consumer spending will decline, and housing prices will continue to fall. For how long? anywhere from between 18 months to 5 years – seriously (and the 5 years is a conservative guess). The problem that some people are not seeing clearly is that many of us are leveraged to the hilt with debt and we now need to start shedding much of the excess debt we’ve been carrying – this could be a lengthy process.

  25. George Soros is right, in my opinion, what we have here is a super bubble:

    “The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

    However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

    Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.
    Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.”

  26. “Economics is the only field in which two people can share a Nobel Prize for saying opposing things.”

    Specifically, Myrdal and Hayek shared the 1974 Nobel.

    Any economists will tell you that it’s too early to assess the full effects of the French Revolution or indeed the Fall of the Roman Empire. Lol.

  27. It’s interesting that one of the main reason cited for the 1930’s depression was the Government’s unwillingness to intervene and bail out major banks. Hence the reason Fannie Mae and Freddie Mac were set up. Yet, it was the failure of the government to appropriately regulate lending practices that led to the ‘Great Crash of 1929’ and the subsequent depression.

    We should have learned then that ‘free markets’, or the ‘invisible hand’ needs sensible boundaries.

    Jim Rogers wrote in 2003:

    “ The current bubble that Greenspan does not see is the consumption bubble he is causing. He has the lunatic idea that a nation can consume its way to prosperity although it has never been done in history.”

    In America, if you have a job, you pay taxes. If you buy a stock and you get a dividend, you pay taxes. If you have a capital gain, you pay taxes again. And when you die, your estate pays taxes. If you live long enough to get social security, they tax your social security income. Remember: you paid taxes on all this money when you originally earned it yet they tax it again and again. These policies are not very conducive to encourage saving or investment. They promote consumption.

    By contrast, the countries that have been doing well the last 30 or 40 years, are the countries that encourage saving and investing. Singapore is one of the most astonishing cities in the world. Forty years ago it was a slum. Now, in terms of per-capita reserves, it’s one of the richest countries in the world. One of the reasons Singapore was so successful is its dictator, Lee Kwan Yu, insisted that everyone save and invest a large part of their income. Whatever Lee’s policies toward personal freedom, at least he forced people to save and invest. History shows that people who save and invest grow and prosper, and the others deteriorate and collapse.

    Artificially low interest rates and rapid credit creation policies set by Greenspan and the Federal Reserve caused a bubble in the US stocks of the late 1990s, policies now being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble. And when those bubbles burst, it’s going to be worse than the stock market bubble, because there are many more people who are involved in consumption and housing. When all these people find out that house price don’t go up forever, with very high credit card debt, there are going to be a lot of angry people.

    No one, of course, wants to hear it. They want the quick fix. They want to buy the stock and watch it go up 25 percent because that’s what happened last year, and that’s what they say on TV. They want another interest cut, because they’ve heard that’s what will make the economy boom.”

  28. Lets face it, we were been lulled into a false sense of growing affluence which is ironically the same phenomena that preceded the Great Crash of 1929 and the Great Depression that followed.

    Jacob Saulwick of the London Telegraph wrote on June 26, 2007 something that really caught my attention:

    “THE risk of a 1930s-style economic slump” he claimed “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.

  29. Reb and Joni

    Here’s a few thoughts some of our environmentally friendly bloggers also need to contemplate. My comments were addressed to ‘the rodent’ and that baton has obviously been passed on, but the issue remains as hot as ever ‘climate change’

    Where’s the money going to?

    http://blogs.theaustralian.news.com.au/henrythornton/index.php/theaustralian/comments/wheres_the_money_going_to/desc
    John McPhilbin
    Wed 17 Oct 07 (03:58pm)

    Seriously , tax promises aside, how will the PM reconcile his economic ambitions with his environmental ambitions?

    With China now making its intentions clear it seems as though we stand to lose in more ways than one. It’s an irony that our miners are holding up the ASX as I write. Do we become part of the solution or remain part of the problem? Maybe the PM is right, the ‘economy is the central consideration’ in all of the decisions we make. Unlimited economic growth comes at a price though!

    Yesterday JOHN HOWARD called on Australians to throw off the “cultural inhibition” of fearing success and argued that the economy could keep growing indefinitely.

    “We have to get out of our systems this idea that we can’t be successful for a long period of time,” the Prime Minister told the Herald yesterday. “We must throw off this cultural inhibition.

    And today it seems China has similar ambitions:

    China’s drive ends our carbon dreams
    Carl Mortished | October 17, 2007

    HU Jintao wants to make every Chinese twice as rich by 2020. He has done it once,in just five years, income per capita doubled to $US2,000 ($A2,251) – and the only obstacle in the Chinese President’s path is the fuel needed to stoke the boiler in China’s locomotive.

    The president needs more copper, iron ore, zinc and natural gas. Above all, he needs more coal to keep the power stations humming nicely and more oil for Chinese cars and lorries. China accounts for more than a third of world demand for coal and the price in Australia soared this year as the People’s Republic switched from being an exporter to being an importer. If Mr Hu had a message for the world in his address to the Communist Party National Congress, it was this: we will burn our coal and, if we have to, we will burn yours, too.

    What does this mean? Put bluntly, it means that the Kyoto treaty on greenhouse gas emissions is dead and so is any prospect of persuading Beijing to bind itself to other curbs on carbon emissions. We can stop kidding ourselves that China will sign up to any green thingy that hinders his party’s ten-year plan to get rich quick. Instead, the ravenous demand for minerals and metals will continue and the desperate land grab by Chinese state companies in their pursuit of resources in Central Asia, Africa and Canada will become more politically embarrassing.

    Until now, we in the West have been able to sit back and watch the global energy game passively on our Chinese-made flatscreen television sets. We could pretend that wind farms and wave machines could really make substantial contributions, that carbon trading could somehow make the cost of green energy disappear. We did not understand that the real cost of our affluent, energy-intensive lifestyles was being defrayed by sweated labour in a Chinese factory. While the price of clothes, fridges, TVs and toys was plummeting, we could ignore that petrol, transport and even bread and milk were in the grip of an inflationary spiral. “

  30. I have something to smile about.

    Despite the market dropping 133 points so far today, 3 of my shares have managed to go up. Thats a positive.

  31. At the end of the day Shane a sound company with good earnings prospects are just that, good companies to invest in.

    I hate to see people who have worked hard for their money being enticed by record highs as a chance to join in and make what they think is going to be a real killing.

    I simply try to explain how markets operate and what to look for both pros and cons. Unfortunately, human behaviour tends to be taken over by hope, greed and fear when it comes to playing in the market, which sometimes blinds them to the underlying economic reality that tends to correct the market when it gets out of line too much.

    Here’s a definition of an investment operation by Ben Graham that you may find helpful:

    “A true investment is that which thorough analysis shows will offer both safety of principal and a satisfactory return. Anything else is speculation.

    The future value of every investment is a function of its purchase price. The higher price you pay the lower your future returns will be.”

    Tip: Don’t be willing to buy a stock simply because the price is going up. Think like a business person who may be considering buying the company in it’s entirety and that should help you determine what you would consider a fair price to be.’ If the market price seems outlandish, it probably is(for example, some tech stocks in the US in the early 2000’s – before the tech (Internet) bubble burst- had assets of sometimes as little as around $10 million and in many cases much less, and many had yet to make a profit, however, they were being valued at anywhere from $10 – $30 billion on the NYSE – didn’t some punters get badly burned by this type of market insanity – but people were willing to pay for a rosy future that just wasn’t there – everybody wanted in no matter what the price – not unlike the behaviour of people caught up in a housing boom).

  32. john

    I agree, at the moment I am only interested in shares that have a history of paying dividends.

    Speculative shares with no profit history are only to be looked at in times of a growing ASX, unless you are in the know on something.

    I am buying stocks that are falling. I have a list but no cash until dividends come in in a couple of weeks.

  33. The Australian economy – from steak to sausages (En Passant)

    “…Secondly there is no recession In Vaucluse or Toorak. The not so well paid CEOs of major companies – those on say a miserly ten million a year before bonuses, stock options and the like – earn in a little over 3 minutes what those on pensions or the dole earn in a week. The relationship between labour and capital is inherently antagonistic. We want decent wages; they want more and more profits.

    Are there alternatives? Workers didn’t cause this crisis. We shouldn’t pay for it. Cut their profits, not our wages. Demand a 30 hour week without loss of pay. Strike for wage increases and against job cuts. Take over the factories, mines and other workplaces and run society democratically to satisfy human need. But that’s a story for another day.”

  34. kl

    A great read and I agree with most of it.

    I may be buying shares but like I have always said I am happy to accept 5% dividend and retention of staff rather than this slash and burn mentality of CEOs to make unsustainable profit spurts of 15% and destroy the company from within. They do it for short term bonuses for themselves and then suddenly retire. A disgrace.

  35. kittylitter, on January 15th, 2009 at 3:33 pm

    Yes! KL, thetings we have lost over the decades!

    8 hours work, 8 hours play, 8 hours rest for a fair days pay!

    Them Robber Barons are alive and, well – still – profiteering…

    …strange how goverments are about wage restraint but we never hear of profit restraint…

  36. …strange how goverments are about wage restraint but we never hear of profit restraint…

    You’re right TB, everyone has bought into the ‘greed is good’ mantra and now we’re all stuffed. The problem that I have is that most of the workers will accept that they should restrain wages for the good of all, in the spirit of altruism – without even questioning or demanding the same restraint from those who profit from the exercise.

  37. Important Notice:

    DUE TO RECENT BUDGET CUTS, THE STOCK MARKET CRASH, AND THE RISING COST OF ELECTRICITY, GAS AND OIL,THE LIGHT AT THE END OF THE TUNNEL HAS BEEN TURNED OFF.

    WE APOLOGIZE FOR THE INCONVENIENCE.

    Sincerely, The Government

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