It's been a while since we've been settled and easy about world financial markets and the global economy. The last few years have rather been dominated by feeling unsettled and uneasy. The global financial crisis brought about a credit crunch, a collapse in the value of assets, a crisis of confidence and a transfer of debt ownership from the private to the public purse. The focus now of course is on governments but their job has now become even harder with natural disasters dominating headlines.
Australia is considered to be relatively well off at present. We didn't suffer from the same sort of financial hardship as did the rest of the world during the crisis (never actually entering recession) and we're now benefiting from the resources boom. However today the Westpac Leading Index shows our growth profile has pulled back markedly as a result of the recent natural disasters. The Index grew at an annualised rate of 3.5 per cent in January, down from growth of 4.6 per cent in December. You cannot overemphasise the point that without China our economy would be struggling.
The real issues remain abroad though. Just this morning we had Moody's cutting Portugal's credit rating and left the outlook at negative (there's a chance it will cut further). It's clear the ratings agency is not happy with Portugal's fiscal progress. The European nation is one of five now in serious financial difficulty.
And the US produced some modestly good economic numbers overnight but the Federal Reserve is still bailing water from the ship. They've announced they'll continue to buy longer dated securities (print money) and keep shorter ones (or the cash rate) close to zero. The Fed's just giving the market what it wants. It's got little other choice but that's essentially what it's doing.
And then there's Japan. An economy already on its knees now dealt another blow. The key issue for Japan is proving to be with its nuclear facilities. The country now needs to overcome a nuclear reactor crisis, a blow to its industrial output, reduced liquidity in the markets and the emotional toll that a catastrophic event like this takes on the human condition.
So when do we get a break? Well the simple answer is that combine economic and natural disasters and you really are left with some battered and bruised economies - economies not really capable of producing lucrative returns within their asset markets. The positive news though is that...as they say in the movie Wall Street, "money never sleeps". There are still gains to be made out there - you just need to stay on your toes and be prudent. You have to do your homework and be patient.
Better times will come, but they are a way off yet, and they will look very different to what we've been used to in the past - possibly with a new world order.
David Taylor
