Posted on 11/06/2008 4:19:45 PM PST by Lorianne
Barack Obama’s emphatic presidential victory failed to inspire the anticipated bounce on global share markets this week, but investors know his incoming administration will begin the herculean task of restoring credibility and discipline to markets shattered by the sub-prime debacle.
Obama promises a re-think too of the tired, discredited and divisive foreign and domestic policies of the Bush era and to lift the morale and confidence of the American people, thus assisting recovery from the recession into which the nation has slipped .
The potentially positive influences of his election, however, will be outweighed in the immediate term by the breathtaking scale of the unwinding of trillions of dollars in debt and the parallel decline in previously inflated asset values that is underway in the corporate sector. This process has another year, perhaps two years or longer, to work through.
Much of the negativity of this deleveraging has been priced into markets and investors are looking for opportunities to buy selectively those stocks likely to weather the slowdown. With the US and most of Europe going backwards, Australia’s Reserve Bank’s panic rate cutting has probably come too late to prevent a continuing slowdown and rise in unemployment in this country.
Any rallies in the sharemarket over coming weeks will provide canny investors - previously unprepared to sell at the four-year lows our markets have been experiencing (20-plus years in Japan) - an opportunity to sell.
This will limit the capacity of any revival to gain any traction.
The de-leveraging process in the corporate sector took a big step in Australia with the calling of administrators into the Allco Finance Group, which has been on a drip feed from its banks since January while it desperately tried to sell assets to repay its $1.1 billion in borrowings. The banks finally ran out of patience this week.
While stricken groups such as Allco, ABC Learning, Octaviar (formerly MFS), Centro and Babcock & Brown have their debt repayment schedules hastened by their lenders directly or by calling in administrators, there is no surprise at these situations. Their collapsed share prices have indicated for months that, at some stage, these groups will be put out of their misery.
The gorilla in the room that nobody wants to talk about is Australia's heavily over-geared household sector. With debt having mounted to 170 percent of income, more than doubling in 10 years, Australia's households are the second most indebted on earth, after Holland.
The debt binge has coincided with sharply rising house values in the late 1990s to early 2000s. The sword of Damocles hanging over Australia's households now is falling house prices, and the real threat that values could drop to a level where there is negative equity — ie, the debt on the house is higher than the value of the property. The surge in borrowing by households against the value of their homes means the value of the house, and the equity held by the mortgagor, is critical to the ability of the borrower to maintain their debt levels.
In the US, 20 percent of mortgage holders now have negative equity in their properties, according to research by First American CoreLogic and reported in Morgan Stanley's Downunder Daily. Most people who bought homes in 2005, 2006 or 2007 in the US are likely to have more debt secured by the property than the value of that property. The US is starting to see the deeply worrying phenomenon of tent cities of people who have been thrown out of their homes.
The property declines in Australia have not been as sharp as in the US, where in many cities values have fallen 20 percent or more. Australians are more indebted than Americans, however, and the property declines that started in Sydney in 2004 are now affecting Melbourne, Perth, Brisbane, and Canberra. Australian Bureau of Statistics figures show that home prices fell on average 7.4 percent in the September quarter compared with 2007.
The RBA will have its fingers crossed its rate cuts over the last three months will slow the decline and prevent a catastrophe of the scale unfolding in the US.
As our share and currency markets have discovered, Australia can never be immune from global volatility in debt and equity markets of the type we have experienced since the beginning of the year.
Inevitably, the losses on Wall Street as a proxy for all global share markets translate to business difficulties and rising unemployment on Main Street a few months later.
The likely share market surge that will greet Barack Obama's presidential election victory will give hope to many that the grim losses of 2008 are coming to an end. More likely, it will be like all the other rallies this year which have proven to be short-lived and ended with the market falling further each time.
The fundamentals still look bad. Shares will bounce around, but the massive unwinding of debt and retreating asset values globally are taking their toll on the world's real economies. Notwithstanding government stimulus packages and interest rate cuts, Australia cannot resist the irresistible impact of these dark forces.
I hate to be a heartless SOB, but part of me wants to laugh at the Obama voters who will be laid off or fired because of the economic policies of “The One”. They will get exactly what they voted for.
That’s what the reality will be. But I’m afraid Obama will get a pass and the whole idea that Obama “inherited” this mess will take root. Technically he will inherit this mess but we know CRA and the policies he supported and sued for are the real cause of this.
I think the press will spoon feed these ZOMbamies and they will be lead to believe he’s the next FDR and it takes time.
Bush will be the new Hoover.
OSama is already saying it won’t take 1 year or even 1 TERM. It’s going to have to be so bad to penetrate him I’m afraid.
I hope I’m wrong. I hope OSama becomes Carter and the people aren’t fooled.
ping
Yes, you’re heartless, LOL, and so am I. I so look forward to all the small businesses letting the Obamabots go when they downsize. I look forward to Hussein dealing with the economy when most of us on our side are laying low, not spending, cashing out our retirement plans and even bank accounts, un-investing. We’ll be scaling back on donations, and just helping the “poor at our gates”. No more donations to the starving Ethiopians, or whatever the cause du jour is. Growing our own food to at least some extent, even it’s just a garden patch in the yard or for city dwellers, salad in large pots. There are all kinds of things we can do to disengage, if we are willing to put up with some inconvenience at the least. If that’s too much to ask, we don’t deserve to be free.
Gives me a greater understanding of WHY the FLDS’ers moved to Texas and built a fort.
Well, I don’t know whether either cash money OR gold will be worth much to us after a while. As much as people can learn how to produce food for themselves and how to barter, they need to do so. - Heritage seeds so we can save our own seeds and not have to use anything to BUY anything is wisdom I think at this time.
The only problem I can see with the government theft of the private 401k plans is that while the legislators would be casting their vote for the idea, their families would be dying at home.
Is it worth it as a legislator to do something that you were not elected to do if it would result in the death of your own family?
The contrast in the extreme bias of this “journalist”, and actual financial experts is simply stunning.
The market is showing that even the possibility of a socialist Amerika is bad for business, across the globe.
Well lets get it started. Its up to us. Where do we begin?
Not FLD.
FLDS.
Fundamental LDS.
The case down in Texas where the CPS removed all the children.
I don’t think I mentioned the Alamo, but I do agree with your thoughts on it.
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