Shareswatch Australia

An extended stock market market downturn such as the one we are experiencing now provides long term investors with an opportunity to gauge how well companies have been able to deal with harsh economic conditions.  So today let’s have a look at four consumer spending related Australian listed companies and see how they have fared over the last five years.

According to many experts, Australia is in the midst of a mining boom and the government often tells us that the Australian economy is performing better than most if not all, of the world’s major developed economies.  Certainly the commodities boom has delivered record profits for many companies,  generated massive tax revenues for the federal and state governments plus created many thousands of jobs.

It may appear to some investors that the Australian stock market has started 2012 in the same volatile manner as we have become use to over the last few years, however trading so far this year has been fairly calm.  An optimist might believe that this is an indication that the markets are finally settling down though I fear we are simply enjoying a period of calm before we enter a stormy phase again.

The interest rate cut yesterday by the Reserve Bank of Australia suggests that finally the RBA understands that the Chinese economy will not keep expanding at a rapid rate while its major trading partners are struggling. But even if the Chinese economy slows more than most economists expect this is unlikely to send the global economy back into a GFC-like slump.

The continuing debt crisis in Europe is a reminder to investors that we are still in the midst of the Global Financial Crisis (GFC) which first gripped the markets back in 2008.  The G20′s first cunning plan to spend their way out of trouble didn’t do much to fix the root causes of the GFC and so they are gathered once again for another talkfest which at best, might give the markets a kick upwards for a few days.

Prices for hard commodities such as copper, iron ore & coal have risen strongly over the past decade and are now trading well above their long term historical averages.  This in turn drove the ASX All Ordinaries Index to a bull market high in 2007 and has helped put some support under the market ever since.  But is it realistic to expect high commodities prices will keep propping up the Australian stock market?

This week the Australian stock market slid into what I would call a bear market although some would argue that it has avoided such fate by a whisker. The reality is however that the ASX All Ordinaries did close below 4000 recently and that represents a drop of just over 20% from levels seen in April. If it looks and feels like a bear market, then for me it is a bear market.

In the midst of all this market madness it might be useful for investors to sit back and look at what various sectors of the Australian stock market have being doing over the last ten years to see if we can spot any emerging trends.  We all know for example that the resources sector has been generally kind to investors over the last few years but will it continue to be a strong performer in the years ahead?

Often finance writers comment that the investment world has changed since the Global Financial Crisis sent stock markets around the world tumbling in 2008 and 2009.  Maybe that is true or maybe it’s just that investors stopped paying attention to the risks and focused too much on the possible profits? In any case, it’s time to think about what might happen in the next 5 years or so and contemplate making some changes to my Australian stock market investment strategy.

Over the last few months media commentary regarding the Australian economy has turned decidedly gloomy. The wonders of the mining boom are now being questioned,  the U.S. and European economies matter again and people are starting to wake up to the reality that an economic strategy that basically relies on China dragging Australia along for the ride might not be that clever.

This week was quite a ride for stock market investors with the ASX All Ords and ASX 200 both trading at one stage under 4000 points.  However as the week progressed the markets started to claw their way back up and things are not quite as worrying as they were a few days ago.  What investors will be trying to work out now is if the stock market rout is over, or is it just having a rest before it once again sends stocks falling?

As I write today the Australian stock market has slumped around -4% so far after the Dow Jones fell -4.3% and markets in Europe also ended sharply lower. As per usual, many finance journalists are hurriedly pumping out scary stories and dramatic headlines to gain readers attention so it’s time to grab a cup of coffee, relax and focus on the facts.

As the year has progressed I have noticed that my view of the Australian stock market and economy has become increasingly at odds with most of the mainstream market commentators back in Australia.  Whereas they see reasons to be optimistic and feel the economy is robust, I feel the situation is quite different and believe the Australian economy is dangerously unbalanced and possibly primed for a nasty correction.

Over the last few weeks most of the financial media have once again managed to draw the wrong conclusions on a range of issues from Australian dollar to the strength of the Australian economy.  Talk of the so called two speed economy seems to be back in vogue whereas I believe we should be focused on and worried by, the unbalanced nature of the Australian economy.

If you are confused about the conflicting  reports regarding the Australian economy and outlook for the stock market you are not alone.  Much of this confusion is caused by financial journalists who one day are talking about a double dip recession and then suddenly switch to chirping about a robust Australian economy once some positive economic data appears.

Well the Dow Jones closed this morning below 10,000 and for those financial writers who focus more on grabbing reader’s attention rather than on facts, that can only mean one thing: the U.S economy is heading for a double dip recession! Of course the fact that the U.S economy is actually expanding, as are other major economies like China, Japan and Germany, appears irrelevant to many market commentators who seem intent on making investors fear that another economic crisis is at hand.