Without a doubt there are a lot of scary economic numbers out there and as far as the Australian economy goes, things seem to be heading downhill fast. But as strange as it seems, the bad news recently has not been all that bad and actually there has even been some good news. So is it possible that at long last that the bear is back in its cage?
Personally I am not brave enough to say the bear market is over, but I am starting to feel confident that the worst might be behind us as far as the stock market is concerned. The Australian economy will of course take further hits as it comes to terms with the impact of poor management and the slowdown in the global economy, but as far as stocks are concerned I think we might start to see a gradual and sustained recovery. (with of course the usual corrections and profit taking dips along the way)
You may have noticed I mentioned “poor management” as a reason the Australian economy is suffering and that is because it seems most Australians appear to have overlooked a few areas where the economy has been mismanaged notably:
- New South Wales: In the “premier state” the economy was already in trouble well before the global financial crisis and people tend to forget that even in the “good years” Australia’s biggest economy was mismanaged. NSW should be a good enough reason why we should not be giving more spending power to any government and living proof that you cannot blame everything on neo-liberals.
- The “War on inflation”: As I have mentioned before in Government economic blunders of 2008, Rudd & Swan decided to put the brakes on the economy just when they should have been supporting growth. I guess we will ever know how much damage was done by this blunder because I doubt the Government or Reserve Bank will ever tell us, (or even admit they got it wrong) but damage was done to the economy that is for certain.
I am sure we all expect that 2009 will be pretty tough on the real economy in Australia but looking ahead to 2010 there could be signs of life in the U.S. and this might be enough to give Japan and China a kick along as well. As of today, many market indicators are showing some reassuring trends such as oil (see graph below) which looks to be reaching for $60 USD a barrel and the Baltic Dry Index, which has crept up off the floor and appears like it could gain some upward momentum in the next few months. So there are some faint signs of recovery out there.
Brent Crude Oil Futures
(click on the chart for a larger view)
Of course the global economy is in such a weakened state at the moment that even a bank running into problems in Tuvalu could sent markets plummeting worldwide, so at this point for the benefit of the doom & gloom crowd I will insert this warning on their behalf.
Seriously though, at times you just have to treat the doom crowd with some humour because they do get carried away with everything from predictions of war to the end of paper money just because of an economic bubble. (yes it is nasty, but is not the first and it will not be the last) Some even try and link the Great Depression to the rise of World War 2 as they duck around small little historical issues like World War 1 and the Treaty of Versailles
for example. (never let the truth get in the way when you are trying to scare the pants off people!)
So if you dare to think that the planet is not about the explode; that your cash will be still accepted at the shop tomorrow and maybe, just maybe, that the global economy will stabilise then there will be a point at which the global economy will bottom out. What I am starting to hope is that we are around that point now…give or take a few months.
Of course most mortals will accept that they are not able to accurately predict when this bear market will end, but I am sure quite a few “sign up to my tech charting course” types will say they know exactly what is happening….though they make so many calls it is hard to keep track of them. The truth is however that none of us can predict when the worst of this crisis will be over but at least we can monitor events and do our best to try and ride the next bull market. (if you believe that is, that there will be one)
I am not suggesting anyone rush out and buy stocks and/or invest in other asset classes, I am simply saying that investors should keep their eyes and ears open, even if it seems we will be in this economic hole forever. For just as we can can be caught up in the rush to invest during a bubble, we can also be frozen by fear during a downturn and thus miss buying opportunities that only come around once every few years.