In 25 years of analysing and forecasting the Aussie economy in major newspapers, on radio and on the box, the current set of economic tea leaves are the hardest I have ever had to read. And when you throw in the related impact on the stockmarket and property prices, it completes the business and investment picture from hell.
These are tricky times for advisers, but provided your offer is fair dinkum, your business and reputation should do okay. Apart from the impersonal encounters of the media with a more remote audience, I have been entrenched on the business speaking circuit since 1992, which was a challenging year to debut as a platform speaker.
Then, the actual economic numbers said we were out of recession. But for anyone who remembers that time, and owned a business, it sure did not feel like the worst was over. The hangover of the 1990 recession was so severe that even in 1996, when the Howard Government took power, unemployment was more than double current levels of 4.1 per cent.
Now is different, and no one with expertise in economics is talking recession here. But economists are changing their tune. Our last reading on economic growth was closer to 4 per cent, and a small adjustment into the 3 per cent-plus region was the consensus for 2008, but this forecast is being downgraded. The most recent NAB survey noted a decline in business confidence, and this led to growth being marked down to 2.75 per cent. On the same day, AMP’s economic guru, Shane Oliver, admitted to adjusting his growth forecast to around 2.7 per cent.
After 16 whole years of continuous economic growth, we are sliding, but no one is reaching for the R-word yet. However, the sell-off on the stockmarket suggests that the consensus view of share players is that we are in for a rough ride. At the time of writing the S&P/ASX200 was down 18 per cent, yet the S&P500 in the US was off only 12 per cent! Come again? The guys who caused this monetary mess — the sub-prime creators in the USA — have lost 6 per cent less market value than we have. How does that work? And didn’t we have protection against a big slide, thanks to China’s robust demand for our resources?
That was the story, and still could be, but the punters on the sharemarket are adhering to the old view that when Wall Street sneezes, we catch a cold. My economist’s view is that China will offer us protection from a recession, and that the share sell-off here is over the top.
You can blame short sellers, hedge funds and crazy trading rules that help speculators profit from exploitation, for the excessive share price slump. You can also point the finger of blame at the Reserve Bank of Australia, which has over-tightened monetary policy because they underestimated the strength of the credit crunch. This is serious, and Macquarie Bank proved that when they got out of mortgages.
Securitisation is a hard game to play for the moment, and the banks now have gone from providing 80 per cent of loans to having 90 per cent of the action. (It beats me why the share prices of these big mortgage players have gone down so far when they have just picked up a lot of great business from their non-bank rivals who were taking market share year by year.)
So what do we tell our financial planning customers? It’s simple: you are long-term investors. We have created a diversified portfolio for you, and cycles in asset markets happen. And anyway, our job is not just to invest wisely. We know your goals. We know your risk profile, and our plan has been designed to ensure you meet your goals. These include estate planning, insurance, tax considerations, debt management, and so on, and general peace of mind.
Provided you have provided your services for a fair and reasonable price, these challenging economic and market gyrations will be forgotten in the fullness of time.
Peter Switzer is the founder of Switzer Financial Services, a financial planning, accounting and coaching business.