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Farewell 2009, goodbye GFC and a Happy New Year to all!

December 31st, 2009 · Greg Atkinson · 2 Comments

Well 2009 is almost over and although stock market investors did it tough in the first quarter, overall the ASX All Ordinaries and S&P/ASX 200 posted healthy gains of around 30%. This means stocks & shares were in fact a good place to have your money over the last 12 months.

Many financial commentators around this time of year try to pretend that they made all the right calls over the previous 12 months but if you go back to earlier this year you will find most of them were talking about the collapse of the global financial system and were trying to scare the pants of people.

You might recall how some people were saying the entire capitalist system was about to fail and that it was only a matter of time before paper money was worthless. They were wrong, end of story.

In contrast I have maintained the view for around 18 months that the global financial crisis was nothing more than a (very) large economic bubble going “pop”. As I have said many times, this current economic mess will be sorted out and we will all merrily help build the next bubble.

Plenty of people have made comments on this site suggesting I was crazy to stay invested in stocks and that the global economy was basically heading for a meltdown. “Invest in gold” has been the rallying cry of the doom crowd but as 2009 draws to a close, gold in $AUD terms over the last 12 months has faired poorly whereas Australian stocks and the much maligned residential property sector however have done quite well.

For sure shares have had a rough few years and the Australian stock market is still well below the highs of 2007, but we will see the All Ords pass though 6500 again one day. My guess is not next year, but I reckon we will be setting new stock market highs in 2011.

Of course there are risks. The crazy dude with the freaky hair in North Korea could start launching missiles again, a war could flare up in the Middle East and Wayne Swan could get the Noble prize for economics, but on balance I would suggest there are more reasons to be optimistic as we head into 2010 than there were 12 months ago,

I know plenty of readers of this humble blog do not agree with my view that the GFC was just a bubble, but I am not the only person on the planet who thinks the same.

In October this year George Soros observed that:

The crash of 2008 was caused by the collapse of a super-bubble that has been growing since 1980. This was composed of smaller bubbles. Each time a financial crisis occurred the authorities intervened, took care of the failing institutions, and applied monetary and fiscal stimulus, inflating the super-bubble even further.

I believe that my analysis of the super-bubble offers clues to the reform that is needed. First, since markets are bubble-prone, financial authorities must accept responsibility for preventing bubbles from growing too big. Alan Greenspan and others refused to accept that. If markets cannot recognise bubbles, the former chairman of the US Federal Reserve asserted, neither can regulators – and he was right. Nevertheless authorities have to accept the assignment.

(from: Do not ignore the need for financial reform by George Soros. Financial Times. October 25, 2009 )

This pretty much sums up my view of the crash of 2008 and bubbles in general. I subscribe to the view that financial bubbles are simply past of the economic cycle in free market, capitalist system.

Of course we like to find someone to blame when a financial bubbles burst, but while they are forming most investors are happy to hang up for the ride. Next year let’s move on from bashing bankers and give our politicians a hard time, it is a lot more fun! Besides while we have all been banker bashing we have let the Government get away with a very average performance to say the least!

My wish for 2010 is that we move on from talking about the GFC and focus on improving the free market system and growing economies across the planet. I know plenty of journalists and politicians like to attack capitalism (when it suits them) but they never come up with a workable alternative. The system is not perfect, but it helps people live longer and healthier lives and this often overlooked.

In any case as the global economy improves politicians will slowly embrace bankers again especially when it comes time to raise funds for their political campaigns. Many of the measures that should be taken to prevent further bubbles will fall by the wayside and in some years time when the next shock hits global markets, we will go through a similar cycle again. (but hopefully not as severe as this one)

Next year will be as uncertain for investors as any other year. There is no such thing as a sure bet as they say, and any investment no matter how good it looks, can fail.

Plenty of people try to make a name for themselves by making bold predictions and over the last few years the way to grab some fame has been to scare people with stories of the Great Depression etc.

In Australia Steve Keen grabbed his moment in the sun by predicting Australian house prices would crash. They did not and he was wrong, but I am sure he will keep making dire predictions until he lucks out one day and claims a win. The doom crowd tend to work that way.

But enough of such talk! Let’s look forward to a new year and with any luck all of us will be successful investors in 2010. (or be successful with whatever your venture is)

Finally let me leave you with some suitable words of wisdom for this time of year:

“I do think New Year’s resolutions can’t technically be expected to begin on New Year’s Day, don’t you? Since, because it’s an extension of New Year’s Eve, smokers are already on a smoking roll and cannot be expected to stop abruptly on the stroke of midnight with so much nicotine in the system. Also dieting on New Year’s Day isn’t a good idea as you can’t eat rationally but really need to be free to consume whatever is necessary, moment by moment, in order to ease your hangover. I think it would be much more sensible if resolutions began generally on January the second.”

(Helen Fielding, Bridget Jones’s Diary)

Happy New Year!

P.S. Sorry for any typing errors, spelling blunders etc. but I had a choice to either proof read this post again or crack open a beer..and well, there was no way I was missing out on a beer!

2 responses so far ↓

  • 1 Senator13 // Jan 1, 2010 at 11:33 am

    Happy new year all. I hope everyone has had a good holiday season.

    First day of the new workplace laws… I wonder how these will impact small business?

    I think all the nasties from 08/09 are behind us and we are just in a shaky recovery phase. The worst may be over but I think it will be a drawn out recovery as there is a lot of debt, rates are rising, and these new workplace laws could have a flow on effect to unemployment and consumer spending. Looks like the Christmas trade was down. Just walking through the shops – it was busy – but did not seem like the crazy rat race of some years past. It will be interesting to see these figures when they come out. Also the roads did not feel as busy either – maybe a few people chose to stay at home these holidays?

    I think the main stumbling blocks will be self inflicted. Things such as the debt burden of continued government spending and pushing through crazy things like an ETS. It is an election year so anything goes.

    Keep our eyes open and have a safe and happy 2010.

  • 2 Greg Atkinson // Jan 5, 2010 at 10:02 am

    Senator it will be an interesting year that is for sure. On one hand we know the global economy is coming off the lows seen in late 2008/early 2009 but we don’t know if this is a recovery or just a spending induced bounce.

    As for Australia I still think it is too early to say the economy will bounce back this year. Perhaps the nation has escaped a technical recession but I wonder at what cost and by doing so has the RBA and Government created our own little economic bubble?

    Australia has not had a recession now since the early 1990’s..can things really be that good?

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