Be grateful for big mercies
by Peter Switzer
Oh yes, and then there are those who are thinking that we couldn’t have escaped this economic and monetary meltdown so easily.
In Australia, we were unbelievably lucky, but in America it’s a different kettle of fish. Unemployment is in the 10 per cent region. In 2007 it was a four per cent plus figure! Chrysler and GM have been decimated, US banks have disappeared, the US Government owns a big chunk of the financial system and a lot of people have lost homes as well as businesses.
It has happened in the UK and Europe and the Japanese are suffering but they’re good at covering up.
The debt levels as a percentage of GDP because of the bail out will be close to 200 per cent in Japan, 70 per cent in the USA and 50 per cent in the UK. Ours will come in under 13 per cent and that underlines how lucky we will be.
Market-wise we have tumbled around 50 per cent and that means we have to come back 100 per cent to get even with where we were when this began in late October 2007. By the way, every super member has really been given a kick in the tail as well — so there has been plenty of suffering. It just hasn’t been Great Depression Mk II and that’s because economic policy has grown up since the naïve days of the 1930s. In fact, economics as a discipline was very underdeveloped — few people had even heard of John Maynard Keynes, who revolutionised economic thinking.
Sure, we have learnt that government intervention comes with a price but it’s not as expensive as doing nothing and seeing economies go to hell in a hand basket. That scenario creates 20 per cent unemployment, soup queues and a social dislocation that isn’t worth thinking about.
US interest rates unchanged
Today we learnt that the US Federal Reserve was keeping interest rates in the low 0-0.25 per cent band but it continues to see an improving economic recovery. The data day-by-day points to it. The progress will be gradual and will determine the overall direction of the stock market.
Money on the sidelines
We have just seen 10 days out of 12 where the market went down but we only lost six per cent. This reflects the fact that the economic future is more optimistic than pessimistic. It shows that the money on the sidelines is creeping into the market and the US economic growth number of 3.5 per cent for the September quarter helped the cause.
What about the charts?
The best news for me was Macquarie’s prediction that the stock market can go up 1000 points over the next year. Against that, the chartists say their charts predict a big slide and to that I have one reply, which I ran yesterday: “Do you think the guys and gals at Macquarie would not have at least one chartist whose counsel would be considered when they stick their neck out and go for a big call like a 1000 points on the ASX 200?”
One final point — if the economic readings were pointing to the negative, well I would have to convey my reservations. But they’re not and so kidding yourself that charts always get it right is something that defies history, logic and good sense.
We can beat it
Like Buffett who put a big bet on America in buying the Burlington Northern Santa Fe for $26 billion, I am prepared to bet that the world can beat this economic challenge.
Sure it will take longer than we might like but we will get there and Australia is one of the best placed to get there first. Be grateful for big mercies.
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Published on: Thursday, November 05, 2009blog comments powered by Disqus