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US Market vs Aussie Market

Discussion in 'The Economy' started by AsxBroker, 19th Jan, 2009.

  1. AsxBroker

    AsxBroker Well-Known Member

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    Hi,

    I was wondering what everybody's view on the US and Aussie economies and their share markets.

    I am perplexed as to why the Australian sharemarket has dropped 50% (close enough) and our economy isn't nearly as bad as the US sharemarket which has dropped 30% and the unemployment numbers are huge.

    Does it mean that our market is oversold? Does it mean the loacl media was successful at scaring people away from equity markets?

    Cheers,

    Dan
     
  2. Chris C

    Chris C Well-Known Member

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    Australia is more reliant on Asia for exports, ie Japan, China, Korea etc. and the Asian tigers are HUGELY reliant on wealthy developed countries for their exports, ie the US and EU and with those economies going head first into some deep recessions the Asian economies are in for an even harder landing because they don't have the domestic consumers to sustain their producition levels.

    Taking China as an example, China exports 40% of all its production, and for every 1% drop in consumer consumption in the US traditionally corresponds to about a 2 - 3 % drop in Chinese imports. So with the US and EU consumer spending almost being no exisitant with a grim future, this does not bode well for the up and coming Asian countires and arguably their recessions may well be a lot deeper compraritively as a lot of foreign investment disipates in the "flight to quality".

    I'd argue that our market isn't oversold, given that I think most have conceeded that Australia will not be immune to this global slowdown, it's just that we are still waiting for the ripple effects to reach our shores. I personally don't see a lot of good news or positive signs coming out over the next 6 months, so I'm not going to be looking for any sort of rebound unlike mid year.

    I think it is also worth noting that corporate profits are projected to drop anywhere between 30 - 50% over the next two years, so the PE ratios of most companies still have a long way to fall given that they are currently trading on inflated profit projections.

    I do think that Australia is slightly better placed to rebound than most developed countries, despite the recent commodity price plunge, though I also think we probably won't be returning to the prosperous times of the last decade any time soon given that we, like the US, have a real household debt crisis and a current account deficit we need to work on rectifying to enjoy sustained growth in the future.
     
  3. Billv

    Billv Getting there

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    Dan

    The market has already priced in lower profits and potential write-downs.

    Yes Oz stocks have fallen a lot but I think this results in a healthier market.
    When the time comes our market will bounce back harder than the US.

    IMO prices are now about right considering that we are bouncing near the bottom of a bear market.

    cheers
     
  4. AsxBroker

    AsxBroker Well-Known Member

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    Hi BV,

    I think the same thing, when banks are yielding 13% grossed-up all I can think is wow! In the United States there are 7540 banks, in Australia we have about 150 banks, building societies and credit unions. They have 50 times the number of banks as we do! With the US having a population of 300m and Aus having 21m.

    That would mean that Australia's banks/building societies/credit unions would have an avg customer base of 140,000 and the US would have an avg customer base of 38,400. This is a very simple view as the 14 banks in Australia would cover the majority of the population, eg, the Westpac Group (including St George) has 10m customers.

    With Australia's stricter lending rules and larger customer base it just seems crazy that bank shares can yield double digits. Haven't people heard you make more money owning the banks rather putting your money in the banks?

    The last time a bank in Australia went bankrupt was 1931! And the Credit Unions/Building Societies was Pyramid Building Society in 1990...According to Advance "...Crucially, the banking sector is very strong, thanks to the level of regulation in existence. All our major banks are highly profitable and of the 20’AA’ rated banks in the world, four are here in Australia..." Advance Asset Management - FAQs – your investments

    In the US banks are falling over left, right and centre, already this year (20 days!!!) two have gone under First two bank failures of 2009 - Jan. 16, 2009

    Cheers,

    Dan

    PS This is general information, before making an investment decision speak to your FPA Financial Planner.
     
  5. Billv

    Billv Getting there

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    Dan,

    I agree the yields are great, however we don't know if the dividents will be maintained
     
  6. AsxBroker

    AsxBroker Well-Known Member

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    Time will tell.

    When are the next company reports coming out?

    Cheers,

    Dan
     
  7. Chris C

    Chris C Well-Known Member

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    I forgot to mention that Australian is also a very commodity heavy country, and commodities have been smashed in the last 6 months. Many speculators look to Australia as a proxy for many major commodities, though with commodity speculations comes risk, and in the current environment of flight to safety means we have large capital outflows from our country.

    Though I expect if the UK's pound deteriorates like I think it will given the cost of propping up their failing system, and the USD follows suit, you will probably see an increased movement away from currency safe havens into commodity based safe havens like that of Australia.
     
  8. Billv

    Billv Getting there

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    I believe they come out 6 monthly around the 2nd week
    of February and August
     
  9. AsxBroker

    AsxBroker Well-Known Member

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    Hi Bill,

    It looks like some reports are coming out a couple of weeks early...

    IBM beats earnings estimates, misses on sales - Jan. 20, 2009

    Johnson & Johnson 4Q profit rises - Jan. 20, 2009 ...Maybe sales of bandaids are up as people are licking their wounds from the sharemarket crash?

    David Jones corks the champers as sales slump

    DJS says that margins remain fat...and "reiterated its dividend payout policy of at least 85% of profit after tax"

    Of course whenever DJS says something Myers is close by...

    "Myer said sales in the first quarter of the 2009 financial year were down 4.8%, but improved to drop only 3.1% in the second quarter, which the company attributed to Christmas and stocktaking sales."

    Myer claims it has gained market share over David Jones

    Saying that things aren't too good in Canada...TD Securities to cut Australian operations

    In mining areas things aren't looking rosy with BHP reducing staff numbers...BHP Billiton cuts WA jobs | Ravensthorpe nickel mine closed | Mt Keith cut back; ASX: BHP

    Warners Bros is cutting some staff as well Warner Bros. to cut 800 jobs in coming weeks - Jan. 20, 2009

    And Bank of New York Mellon has had issues as well BNY Mellon profit tumbles 88% on mortgage losses - Jan. 20, 2009

    With lower interest rates people are starting to refinance on lower rates Mortgage applications surge on record low rates - Jan. 14, 2009 "The prospect of affordable home financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression". Apparently the US 30 yr fixed rate is 4.89%. Our standard variable with discounts are around the 6.19% and we are expecting further rate cuts (depending on who you ask between 0.50% to 0.75%) with the recent volatility it may even be more, who knows?...

    It looks like the light at the end of the tunnel is there, we just don't know how long it is going to take to get to it. Saying that, there will probably be another event to upset markets before we do get through all this uncertainty.

    Cheers,

    Dan

    PS This is general information and not advice to buy, sell or hold any securities.
     
  10. Billv

    Billv Getting there

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    Dan

    Yes, I think we will see a few surprises before long and some will be good and others bad.

    At work we are restructuring so that probably means some jobs cuts but as you know the majority of Australian businesses are operating very efficiently so there is no much fat to trim therefore IMO we should ride this one out without too much pain.

    cheers
     
  11. Chris C

    Chris C Well-Known Member

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    The explosion in UK & US bond yeilds causng bond prices to collapse as these two economies surge toward bankruptcy should be a good couple of curve balls the market were wishfully hoping wouldn't eventuate.

    The exodus of the UK pound has already started, the US is a couple of bailouts of "too big to fail" firms away from convincing most that they should reinvest their money in safer shores.

    Though they will both probably not happen for quite a few months, but I'm confident they will happen.
     
  12. Billv

    Billv Getting there

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    Chris
    You are using very strong words there mate...
     
  13. Chris C

    Chris C Well-Known Member

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    I know what words I'm using, I passed grade 12 english.

    I'm not saying that these countries WILL go bankrupt - I mean technically governments don't go bankrupt they just print more money or tax their citizens more - what I am saying is that they are moving in the wrong direction at a great rate of knots and their are very dire implications to consider.
     
  14. AsxBroker

    AsxBroker Well-Known Member

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