FYI | Dec 24 2009
By Greg Peel
At yesterday’s closing price of 4739, the ASX 200 stock index is up 27% from its December 31, 2008 level of 3722. From the low of 3145 in March, the index is up 50%. From the all-time high close of 6828 marked in December 2007, the index is down 30%. From the December 2007 high to the March 2009 low, the ASX 200 fell 54%. As of yesterday, the index had retraced 43% of that fall.
Before deciding how to sign off for 2009 I was tempted to look back at my sign-off for 2008, which read:
“I will be taking my first break in twelve months from today and will return on January 27. I have been involved in financial markets since 1986 and I have never experienced a year that comes close to this one. Not even 1987, when I was but a dumbstruck greenhorn trading index futures. To say it has been a busy year does not come close, as FNArena has attempted to manage its own development and growth while trying to stay on top of the turmoil and hopefully ahead of the curve. Unlike some of our competitors we have been determined to exploit our independence and tell it like it is, with no one behind us saying ‘you cannot be negative, it’s bad for subscriptions’. I hope we have achieved that, even if it has meant being doomsayers for most of the year.”
At the equivalent point in 2009, I can safely say that 2009 definitely wasn’t a repeat of 2008. It was nevertheless another tumultuous year, albeit this time with the focus on a stock market rally rather than a stock market crash. That’s always a nice thing, and I hope that FNArena’s fiercely independent view point has proven valuable for our readers over the past twelve months.
The highlights of 2009 have included a remarkable turnraound in the fortunes of the Australian banks, driven by Australia’s relative immunity to all things G-F-C, and the unexpectedly swift rebound in commodity prices, including that of oil. Gold has had quite a year, and as we move into 2010 with the US economy still heavily weighed down by excessive public debt, and the most accommodative interest rates in history, it should be another interesting year for gold. Another feature of 2009 has been the explosion of liquid natural gas (perhaps that’s a bad choice of words) developments on both sides of the country, with coal seam methane the new kid on the block. It will be interesting to see how the natural gas ramp-up will play out in 2010, with a lot of money being thrown at what already looks like excess supply.
My thoughts for the markets in 2010? Well the first thing that comes to mind is “quieter”. 2008 was the year of volatility and it took all of 2009 to see historically high levels of volatility slowly subside. Assuming we don’t have any more major shocks ahead, such as the UK defaulting on its sovereign debt for example, then I believe 2010 will see a more consistent return to more normal levels of market volatility. I experienced a similar year in 1993.
The recession of 1991-92 brought about a not dissimilar response in stock markets to 2008-09, except that this time around the level of global volatility was much higher. This time around, however, we didn’t hit recession after one big stock market crash (a la ’87) but rather experienced an accelerating descent into hell. Yet now that the dust has settled, we can honestly say the recession in ’92 was much worse in Australia than the “recession” of 2009 has proven to be. A stock market rally brought us out of ’92 as a leading indicator of a return to economic growth, but then in 1993 everything went very quiet. It wasn’t until 1994 that we started to see the next bull market taking shape.
The signs for 2010 are nevertheless positive at this stage, although the slow pace of developed world economic recovery, particularly in the US, will provide a drag. It’s all up to China and friends, who were not around in the market of 1993. We must also note, however, that central banks in the late eighties and early nineties had not yet learned to focus on controlling inflation, and as such the monetary policy response was nowhere near as swift as it has been in 2008-09. Nor was fiscal stimulus much of a highlight back then, with then Prime Minister Keating shrugging off 1992 as “the recession we had to have”. The response of global governments and central banks to the GFC has been unprecedented.
Which basically means we haven’t solved too many real problems, just postponed them. The next couple of years will be all about attempting to ensure another GFC can’t happen, and regulatory developments will no doubt be a knee-jerk too far in the other direction. But it wouldn’t be the first time.
To wrap up, I’d like to wish all FNArena readers and subscribers, from all of the team here at FNArena, a very Merry and safe Christmas, a relaxing summer break, and an enjoyable New Year period. We wish every investor a prosperous 2010. Personally, I’d like to also wish my colleagues a very Merry Christmas.
Thank you to all those supporting FNArena over the year, to the many email correspondents, to those providing feedback both positive and critical, and particularly to those wishing to share their own thoughts and offer interesting alternative research.
I will once again be taking my first break for twelve months from now and returning on January 27. The FNArena news service will go into hiatus now until January 11, at which point our esteemed editor Rudi Filapek-Vandyck will have returned to again take up the reins. The news service and all regular columns, including the Overnight Report, will return at that time, and the daily email service will be restored.
In the ensuing period, the Broker Call service will be kept up to date but over the next two weeks very few reports will be produced by local brokers. Live and delayed prices will continue to update and overnight prices will be updated each morning. The calendar will also be kept up to date and access to the FNArena website will remain open at all times.
All the best,
Greg Peel (acting editor)
