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The G-20, bad news and further stock market falls.

November 20th, 2008 · Greg Atkinson · No Comments

Well the market has continued to fall during the past few weeks and now I am starting to wonder if we will even see the bear market reach a bottom this year. You might recall I was counting on the market to rally by now so clearly events have not worked out as I expected. But there are reasons why we have not seen a major sustained rally and I think it is useful to look at some of these reasons in detail.

Firstly we have a less than desirable political environment with the U.S in transfer mode from the Bush to Obama Administrations. I did hope we would get a post U.S election rally and although we did get a boost after the election, these gains have all since been wiped out and we are back in negative territory again.

On top of this we have just seen a G-20 meeting that did very little to calm the markets as the only outcome was that leaders agreed that things were really bad. Back in Australia we have Rudd & Swan making their usual populist blunders and the largest state economy (New South Wales) is in recession, thanks to years of mismanagement by the state government.

So in summary we have a political mess and it seems we can only hope that President Obama can work some magic early in 2009.

Then we have the almost endless stream of bad news from the U.S car industry being near collapse to Citibank, Babcock and Brown, ANZ and other financial institutions about to make headcount reductions. It seems every industry is being hit in just about every country and I got a sense of just how bad things are as I sat on a plane recently on my way to Seoul reading a couple of South Korean newspapers. Both of these newspapers were full of gloomy economic news about how the South Korean car and shipbuilding industries (amongst others) are are being hit very hard as export demand collapses.

The gloom seems to be everywhere and the efforts of central banks and governments worldwide appear to have had little impact so far. The damage caused by the credit crisis is quickly spreading into the real economies of countries all across the globe and this will make the mood even more gloomy.

As a result we are in a situation where investors are losing faith in the ability of their government to fix economic problems and they are also wary that more companies will fail in the coming months. Therefore we see money continue to flow out of equities, real estate and other investments towards cash and bonds as people wish to protect what ever assets they have left. This is clearly not good for our shares portfolios and in the short term I cannot see any reason to be optimistic.

So until we see some decisive actions taken in the U.S and signs that most company failures are behind us, then I am afraid we may see the stock market drift even lower and dare I say it, test the lows reached back in 2002. Of course I would be very happy to be wrong, so let’s hope we see a late end of year rally that brings all us all some Christmas cheer!

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