The view looking forward LEVEL ADELAIDE STREET BRISBANE Phone by mattarmstrong


									                                The view looking
         LEVEL 7                Volume 2, Issue 3                                                                  December 2008
      320 ADELAIDE
         STREET                                                   have continued our theme of
      BRISBANE 4000          Welcome                              looking back at the Great
                                                                  Depression and the lessons
   Phone: 07 3229 7005       Welcome to the summer 2008           that were learned from that
   Fax:   07 3229 1996       edition of our client newsletter.    period. We hope that this
                                                                  information and our update
                             Since our last newsletter invest-    on the progress of economic
        E-mail:              ment markets have continued          recovery will provide some          their volatile path as corporate     reassurance that economies
  Web:        failures and tight credit markets    and governments are working
                             have continued to spook inves-       their way through this eco-
                             tors with an increasing number
                                                                  nomic cycle.
                             of investors moving their assets
                             to cash.                          In recent months I have had
                                                               the opportunity to speak with
                             Governments and regulators a number of groups on the                   Our office will be closed for
                             around the world have contin- current state of our invest-             Christmas from 17th Decem-
                             ued to act in an attempt to re- ment markets and have found            ber 2008 and will re-open 5th
                             store investor confidence by that there is a good deal of              January 2009.
                             guaranteeing the deposits of interest in the mechanics of
                             investors, decreasing the cost economic policy. In the inter-          I would like to take this op-
                             of borrowing by lowering inter- ests of keeping this newslet-          portunity to wish all of our
                             est rates and by providing finan- ter brief I have posted a pa-        clients a Merry Christmas, a
                             cial assistance to households.    per on our website written           safe holiday and a more
                                                               by Saul Eastlake – Chief             prosperous 2009.
                             These actions by governments Economist for ANZ which
                             are designed to keep the eco- looks at the differences be-             Kind regards
                             nomic wheels turning and avoid tween a recession and de-
                             the serious consequences of                                            Andrew
                             stalling the economy.             http://ww
Special Points of            In this last edition for 2008, we
                             Dealing with an Economic Slowdown — Lessons from History
Dealing with an Economic 1
Slowdown —                   “Nothing in life is to be feared,    For a time we can cope with       USA, who adopted a market
Lessons from History
                             it is only to be understood.         volatility, but when it contin-   approach to managing the
                             Now is the time to understand        ues for an extended period of     economy otherwise known
Looking Forward         2    more so that we can fear less” –     time, we start to get doubts.     as a Laissez Faire approach.
                             Marie Curie                                                            The market was considered
                                                                  In this article as with our       an efficient vehicle to deal
                             As human beings we are               spring newsletter, we will look   with inefficiencies that may
                             “programmed” for survival,           at the lessons of the past and    appear in the market from
                             which at times is at odds with       gain some understanding of        time to time. During this
                             investing in shares. Our intellect   what is going on around us.       time personal tax rates
                             tells us we should invest and we                                       dropped and the gap wid-
                             should remain invested over the      The 1920s was a period of         ened between the rich and
                             long term.                           Republican Presidents in the      poor.
Volume 2, Issue 3                                                                                                  Page 2

                                called the New Deal.                The government is hoping that
 The period was dominated by    The approach being applied in       this money will inspire people
 a stock market boom, which     the current crisis was proposed     to spend and keep the econ-
 ultimately ended with a spec-  by economist John Maynard           omy going.
 tacular crash and the failure  Keynes, who is considered to
 of many banks.                 be the “father of modern eco-       Where an economy slows or
                                nomics” in his book The Gen-        enters recession, Keynesian
 This is where the similarities eral Theory of Employ-              theory would suggest an ex-
 end between the Great De- ment, Interest and Money                 pansion of the money supply
 pression and the current (1936).                                   or relief payments as we are
 Global Financial Crisis.                                           seeing today in Australia.
                                Keynesian theory provided that      In more serious circum-
 To put into perspective the in response to recessions and          stances, such as a depression
 magnitude of the decline       depressions, governments have       getting people to spend               “Nothing in
 during the Great Depres- a responsibility to provide eco-          money is more difficult so                life is
 sion, between 1930 and nomic stimulus to the economy               greater measures are re-
 1933 the US economy con- to get things moving once                 quired.                                   to be
 tracted by a staggering more.                                                                               feared,
 33.4%. In the current eco-                                         Interestingly Keynesian eco-
 nomic climate, the Interna- The rationale for this approach        nomics supports government
                                                                                                               it is
 tional Monetary Fund esti- is that one person’s spending is        budgets going into deficit to              only
 mates that the US econ- another person’s income.                   stimulate economic activity in            to be
 omy will contract by 0.3% Should one person decide not             these circumstances. This
 in 2009                        to spend, this would have a         point is also relevant in light of    understood.
                                detrimental affect on the sec-      the current economic debate              Now is
 The President of the day ond person’s income. Or put               between the government and
 Herbert Hoover took three another way when people or
                                                                                                            the time
                                                                    the opposition.
 years to put in place any ma- organizations stop spending and                                                   to
 jor economic stimulus, which hoard money, the economy              A Depression requires “pump           understand
 allowed fear to reach epi- slows, businesses decline and           priming” of the economy
 demic proportions. Herbert unemployment rises.                     where the government will               more so
 Hoover was succeeded by                                            look at major public works to            that we
 Democratic President Frank- This approach is relevant in our       stimulate economic activity,            can fear
 lin Roosevelt who set about current situation with the gov-        that is the government will
 stimulating activity in the ernment making cash payments           spend the money when the                  less”
 economy implementing a to parents with young children,             consumer will not.
 series of economic programs carers and pensioners.
                                                                                                         – Marie Curie
                                                     guaranteeing the operation of banking
           Looking Forward                           institutions has resulted in banks again lend-
                                                     ing to each other and a reduction in the
 Here in Australia the current projection for our
 economy is that it will remain positive through     interbank lending rates (LIBOR).
 this volatile period although growth will be
                                                     Whilst we still have a way to go things are
 greatly reduced. The government is providing
 stimulus to the economy via relief payments         starting to head in the right direction as
                                                     governments follow a program of economic
 and the reserve bank is lowering interest rates
 to take pressure off mortgage holders and free      stimulation that has smoothed out the
 up cashflow in Australian households.               boom and bust cycles of the past 60 years.

 Actions by governments around the world in          Here’s to a more prosperous 2009.

 General advice Warning
 This advice may not be suitable to you because it contains general advice that has not been tai-
 lored to your personal circumstances. Please seek personal financial advice prior to acting on this     We’re on the web
 Andrew Lyon and Dialogue Financial Management Pty. Ltd. ABN 21 091 114 260 are Authorised
 Representatives of Godfrey Pembroke Limited ABN 23 002 336 254 Level 1 105-153 Miller Street
 North Sydney, an Australian Financial Services licensee.

To top