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Market Update:
12th August 2010
Here's a quick summary of three items that were in the news this week that impact property investors.
Quick Summary:
US Economic Wobbles
Some concerning economic wobbles are emerging in the US economy.
Overnight the Dow Jones Index (US stock market) fell by 265.42 points - it's biggest one day fall since June 29 last year and is now lower than where it started at the beginning of the year.
The drop was fuelled by an announcement by the US Federal Reserve warned that the US economy was stalling and that it would take fresh stimulus measures to get it back on track.
It's hard to see how this approach, which hasn't worked well thus far, will magically work going forward.
Our own experience here in Australia is that governments can hand out cash, build halls and pay for new insulation in homes - but it is paid for from borrowed money which must be eventually repaid.
The US national debt is currently over US$13,000,000,000,000 ($13 trillion), which is more than $120,000 of debt per US taxpayer.
See for yourself at: http://www.usdebtclock.org/
With the US Fed's cash rate at near zero (the RBA rate is 4.5%), it's hard to see what whiz-bang stimulus measures are left to pull the US economy out of the doldrums. Surely Plans A & B have already been used, so will Plan C work where the better ones haven't.
Here in Australia, we could be forgiven for thinking that we're immune to the financial woes besetting the US. We're not, of course.
In today's global economy bad news spreads quickly, and having been through one big downturn in the past few years, a US led double-dip recession will have deeper and longer economic consequences due to the compounding impact of fear.
Think about this - the bulging population of baby boomers who are fast approaching retirement can't afford any more cracks in their nest eggs. So, if the markets take a hit, the fall will be faster as people will react sooner to preserve their capital.
Now, before anyone goes out in a panic, let me say that a few economic wobbles is long way away from a full scale disaster. But, all investors need to know two things:
1. Financial markets and economic activity declines as consumer confidence falls; and
2. Confidence falls faster and further coming into a second correction to financial markets.
Aussie Economic Data
News of interest this week includes:
Unemployment Rises Unexpectedly
Somewhat surprisingly, the unemployment rate increased to 5.3% in July as more people sought work.
Clearly, higher unemployment speaks to job market weakness and casts doubt how well our economy is travelling.
Negative Gearing In The Clear
Earlier this week, both major political parties confirmed that they won't be tinkering with the rules pertaining to negative gearing.
This removes some immediate doubt, and gives confidence that there won't be a new tax slugged on investors without notice.
Housing Finance Falls
The ABS June Housing Finance stats revealed the value of owner occupied and investment housing finance fell by 1% and 3.6% respectively, or 1.9% overall. The actual number of dwellings financed fell by more.
Personally, I would have thought that housing finance would have recovered by now, however the lack of improvement is must mean there are less people buying property which is indicative of flat or declining property prices.
Business Confidence Weaker
The rather large $3.5b trade surplus last week hasn't seemed to impress business owners as the NAB business confidence index for June dropped by 2 points and is now at the same level as June 2009.
Big Profits For The Commonwealth Bank
Had they have asked CBA shareholders about their satisfaction, the reading would be off the scale after the bank announced a massive $5.7b profit. You have to wonder, how much is enough and why has the government allowed this ridiculous uncompetitive monopoly?
Highly Recommended Reading
Terry McCrann wrote a great article in yesterday's Hearld Sun. I highly recommend you read it. Here's the link
Steve McKnight's US Trip
Resident expert Steve McKnight is off to the States next Wednesday for three weeks on an investing trip. I'm looking forward to gaining a first hand glimpse of how bad things are over there, and seeing what great deals are available.
If you'd like the inside scoop on what I'm up to then then make sure you join PropertyInvesting.com's Facebook and / or Twitter fan pages as he'll be providing regular updates on the good, the bad and the ugly.
Furthermore, if you'd like even more details (including photos and summaries of deals he looked at) then make sure you're at my next round of live market updates which will be in October / November. More details will be available in mid September.
Accessing Past Updates
You can access previous market updates at: http://www.propertyinvesting.com/weekly-updates
If you would like to have these updates emailed to you then please join as a member.
