Friday, January 18, 2008

Which Way Is Up?

After ten consecutive days of falling sharemarket prices there can be no doubt that the United States economic crisis is having an impact here. Despite all the assurances from politicians and expert commentators, the Australian market remains vulnerable to American influences.

While it is true that the Australian economy continues to be strong, and Australian companies continue to be profitable, it should always have been obvious that if King Canute cannot hold back the tide, neither can the Australian sharemarket. The real concern now is that the problems could well extend beyond the stock exchange.

While it is a great comfort to know that Australia does not have the same budget deficit problems that will haunt the United States for years to come, we cannot expect to be completely insulated from the fallout. In fact, some of our own domestic conditions are also cause for concern. For example, inflation is rising, interest rates are rising, personal debt is rising, and consumer confidence is falling. The residential property market is grossly overpriced in relation to incomes, but incomes themselves have been rising with the economy. I believe it is becoming increasingly certain that there will be a property correction, just as we are now experiencing a sharemarket correction. We have already seen it in the United States and in parts of Europe. We will see it here.

Now, don’t panic, it’s not the end of the world. But for what it’s worth, I believe now is not the time for an aggressive investment strategy.

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