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Australia’s Financial Tsunami… Please Read On!

Disclaimer:

As always AND before I go on, I’m not offering financial advice; you should always get qualified professional advice when making financial decisions. What I am doing is letting you know what has worked for me and giving you the opportunity to check it out for yourself. This message is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this message as a substitute for specific legal or financial advice. All material is copyright 2008

From day one those of you who know me intimately can appreciate that one of my underlying messages in Life is that, it’s all about Focus not Hocus Pocus… at the end of the day it’s all focus isn’t it? Hmmm interesting!  Just the other day I was having a good old yarn with one of my associates/friends and I felt compelled to share with you some of his “pearls of wisdom” and I asked him if he would be kind enough to email such “pearls of wisdom” and below is part of what I have just received. I know for most of you this will be very very enlightening, Enjoy! 

Hi George, 

hopefully your clients will get some value from our recent discussions. According to our media and leaders

Australia may be swamped by the international financial crisis.  Emanating from Wall Street and spreading across the northern hemisphere it will soon strike us down, and lead to a recession in

Australia. The Good News – Australia is different!Australia is different for five major reasons;

1. APRA.  “The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. APRA currently supervises institutions holding approximately $3 trillion in assets for 21 million Australian depositors, policyholders and superannuation fund members.”  As you can see APRA regulates just about every type of financial institution.  Prior to APRA, the states regulated building societies and credit unions, and separate federal bodies each oversaw the rest.  APRA introduced comprehensive regulation that covers nearly every type of financial institution.  Australia is very well regulated.

2. Federal Budget Surpluses. 

Australia has been running Federal Budget Surpluses for more than a decade.  As such we have been banking money in the good times which can become available in the bad.  We have not been running massive federal budget deficits, and have no Federal Government Foreign debt.  This means the government is not in competition with its citizens for money.  You may have heard of the US Treasury market.  There is no equivalent in

Australia any more because the Federal Government does not need to borrow.

3. Our major banks are well capitalized, efficient, competitive and safe.  The crisis has not caused any Australian Bank failures, unlike Europe and the USA.  There have been no pictures of persons queuing at Aussie Banks for their money.

 

4. We have room to move with interest rates.  The RBA is in the position to drop interest rates (should they so desire) to help borrowers, many countries do not have this flexibility as their base rates are already very low.  Remember because of budget surpluses the government does have some room to move to help those who are not borrows like pensioners for example.

5. Superannuation Guarantee.  This is a beautiful thing.  Australians have savings which they can’t touch until they have reached retirement!  It is not the government’s money it is ours!  It is a massive amount of money!  The Commonwealth Bank recently purchased Bank West for $2 Billion dollars.  The deal was done in days, the funding in new capital not debt, and more than likely provided by the superannuation industry (probably in less than an hour).  If all of our four major banks lost their current total equity (less than $100 billion) the Australian Superannuation Industry could buy new shares in them to recapitalise the banks.  It is unimaginable that our banks could ever get to this situation, (there are reputed to be between 13 and 18 banks in the whole world with credit ratings of AA and better, four are Australian!) but if it were to happen it is comfortable to know that Australian Private Superannuation holds over a Trillion in Assets and a substantial portion is in cash. 

The USA has 401K superannuation plans, they are not compulsory, and you can get your money out at any time, albeit with a tax penalty.  Other countries have superannuation taxes, but unlike

Australia the money is held by the government and often has been spent on the day to day operations of the country.

 

As our prime minister has been saying,

Australia is very well placed to weather the storm, much more so than any western developed country in the world.  So what is our problem?There is no doubt that our country will be impacted and the economy will slow, but is it the end of the world as we know it?  Or will we even enter recession. At the moment our biggest issue is “Grandstanding” and fear perpetrated by the prime minister and the media. 

Grandstanding The Government. “We will provide unlimited guarantees on regulated financial institution deposits.”   Why, which deposit taking institutions were at risk, have you heard of any?  Better to state because we have not guaranteed deposits we have an efficient, safe and competitive financial system.  Better to state that no bank depositor has lost their deposit moneys since World War II, nor have they lost access to them.  Even when a government owned bank failed like the State Bank of Victoria, no depositors lost access to or lost money.  Guaranteeing deposits was not necessary (certainly guaranteeing 100%) it only added unnecessary fear that banks may be risky.  Government grandstanding has raised fear, and fear causes persons to spend less, which slows the economy and hurts everyone.  The governments grandstanding could be adding to the economic slow down, by in reality, increasing concern instead of adding confidence.  The Christmas bonuses for pensioners, carers and others are great.  But the spin could have been something like “The government understands that sectors of the community have suffered more than others with the rising cost of fuel, interest rates and food.  The government has decided to redress the imbalance by providing Christmas bonuses” Compare this to “I’m your prime minister and I am saving you from world financial disaster and the tough times ahead”.  That’s grandstanding and is not desirable or helping the situation. The Media.  “450 Ford workers are the latest casualty of the global financial crisis” What about all the Mitsubishi workers losing their jobs in

Australia, when the company announced the closure there was no world financial crisis.  Why isn’t

Toyota laying off as well?  How can Honda manufacture successfully in the

USA and Ford and GM can’t.  Corporate mismanagement has little to do with the global financial crisis.  Beware the press not all bad news (in fact at the moment very little) is due to the global financial crisis. It is “fear and greed” that drive the markets.  The key is not to let “fear and greed” drive yourself.  Ask questions “was Ford stuffed before the financial crisis”. How Bad is it?  How bad is it and will it get worse?  Let’s look at some history.  The share market was down around 42% at its lows and has been in a downward trend for nearly one year.  In 1987 it fell 50% in two months, the world did not end.  From the highs in the late sixties it fell around 60% into 1974, the world did not end.  The last metals and energy share boom ended in 1979 and the market fell about 40% into the 82 lows, the world did not end.  Even the great depression (which was initially badly managed by government and to a large extent government actions were a cause of the severity) where the DOW fell over 80%, many suffered but the world did not end.  These events are not unusual, the are common and are part of our economic systems, fear and greed always rule, normally most decades contain a downturn, certainly every twenty years we have a big one, its just a fact of life.  From the downturn normally comes recovery. I say normally.  The Nikkei Share index (the “all ordinaries” of the Japanese stock market) peaked in 1989 at 39,000 points and today nearly 20 years later is still only around 9000 points, or down 75%.  It can happen.  But the Japanese still enjoy one of the world’s highest standards of living, their world has not come to an end either.  The main reason this has occurred in

Japan is the lack of growth in their domestic economy.  The primary reason for this has been population decline and population stagnation.  No baby boom, low birth rates, and no immigration.  So long as we can keep growing our population a truly extended market (property and shares) downturn is not possible.  At the moment we have very strong immigration, and the birth rate exceeds the death rate 3 to 1. How happy you are depends on many factors not just money!  Enjoy life everyday, while the world will not end, everyone will die, so get on with life, use commonsense and have some fun. Finally when it comes to money the richest man in the world (Warren Buffet) made his money through investing.  As George has previously shared with you all… His Credo is;  “When people are greedy, be fearful.  When people are fearful be greedy”. How do you think people are feeling now? Cheers Glenn 

Yours with Ethics and Passion George Mihos  Melbourne Australia, October 22, 2008    

Disclaimer:

As always AND before I go on, I’m not offering financial advice; you should always get qualified professional advice when making financial decisions. What I am doing is letting you know what has worked for me and giving you the opportunity to check it out for yourself. This message is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this message as a substitute for specific legal or financial advice. All material is copyright 2008

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