Dear Sir/Madam,
Is The Sky Falling?
'Be fearful when others are greedy and greedy only when others are fearful'....... Warren Buffett.
Welcome to the Winter 2011 edition of your Chrysalis Newsletter. In this newsletter I have addressed the concerns you may be having about the markets, your money and where we are in the cycle. Please also read the Q&A sheet attached from MLC which I think you’ll find helpful.
I’ve had a number of clients contact me, some asking whether this volatility is a precursor to another global financial crisis. Some wondering how long we can expect market uncertainty to last. Interestingly, a select few have asked if it’s a good time to buy investments cheaply!
Getting a balanced view
Globally, the appetite investors have for risk has significantly fallen since late April, which has seen global share markets fall by around 18% (at 9th August am). For the most part, this has been a reaction to the building concern for the slow but sure spread of the European debt crisis and the recent US debt situation. In both cases, the delay in action by policy makers has taken its toll on investor confidence. You’ll have seen in the news the political football that saw President Obama’s debt deal agreed on the last possible day.
In isolation, these media reports are disconcerting but there are a number of reasons I have confidence in share markets. While government debt is large, there are companies around the world faring much better. In the US alone, there’s $1.5 trillion in cash sitting on company balance sheets. These companies are less concerned about cutting costs and more focussed on increasing their capital expenditure (spending money on buying assets/equipment for the company). And, thanks to the learning’s from the GFC in 2008, banks are generally stronger, more transparent and the market has more certainty about where the banks are invested.
Because of this, I think there are some great opportunities for those with a medium to long-term time horizon.
What this means for your investments
The Australian Federal Government continues to maintain its AAA credit rating and, although the economy has softened in 2011, we do have the benefit of strong export partners such as China and India. Let’s not forget that the booming India and Asia regions make up 2/3rd of the world’s population and the US/Europe about 1/3rd. However, we aren’t insulated from the global uncertainty and that's reflected in large falls in the Australian share market too.
How your money is being managed is even more important during times of global market uncertainty. At a recent teleconference I attended, markets are expected to remain jumpy for a while. Fund managers have increased their focus on investing in quality companies with low levels of debt and strong cash flows. These companies will fare well even in this environment. There was caution around market growth. They expect it would be slow and volatile for some time, but this was quickly followed up by the statement that, even in this difficult environment, they see opportunity.
Any questions?
I hope you find this information helpful in adding some context to what is currently going on. As always, I’d be very happy to meet or talk with you over the phone or respond to your emails.
Kind Regards,
Philip Windsor
Director Lifestyle Planning
Chrysalis Advice team
Chrysalis Lifestyle Planning
Website: www.chrysalislp.com.au
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