BACK TO BASICS

business

Current global recession

I was having dinner last night with a good friend of mine from interstate and invariably the conversation turned to the state of the economy. I mentioned the current global recession and the GM situation. The GM issue as he saw it was not just the financial crisis, which had its beginnings in lax lending and cheap credit,  it was that GM came into this tough period already weakened by past mistakes.

I’m inclined to agree with this view and maybe the “good times” have hidden bad business decisions which are now coming back to bite us. Perhaps now is the time to go back to basics.

Full of Fear

With the crisis becoming part of our everyday conversation most people you talk to have a fearful view of the future. This attitude feeds on itself and the result is that discretionary purchases or business expansion has been postponed. This appears especially so in the case of demand for consumer durables.

What does this mean for the ordinary person?  

Well maybe the prospects for demand will be restrained for a few years and when global growth resumes, it will be modest. The massive government debt in some of the major economies will be a limitation to growth. I think that a slower long-lasting expansion phase will be more beneficial than the growth over the last decade.

Back to basics

  • Moderation

Make temperate restraint a principle of your life. Do nothing in excess and you won’t suffer from the problems associated with extremes.

  • Diversification

Have good quality investments. The share market has been around for hundreds of years and is a good long term creator of wealth. Sure even the good quality shares took a knock but they have the potential to come back.

  • Inflation

Long term inflation growth is about 3% per annum so that for those of us retiring if assets are left in cash over a 10 year period our nest egg’s purchasing power will halve so having your assets in cash is not really an option.

  • Future of share market

Expectations are that the share market could climb by another 5 per cent or more by the end of 2009. However, in an article in the SMH it was noted that the future will not be without its volatility and market analysts warn that a market correction of up to 10 per cent could be prompted by weaker corporate earnings and poor offshore economic data.

There are other commentators who, based on reasonable economic performance being achieved over the next two years , expect the long term position of the market to be up 40 per cent from its current position.

It is interesting to note that the Australian S&P/ASX 200 is now up more than 25 per cent from its March low.

Sean

(c) 2009 simple and easy information

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