How will you remember 2008?

At risk of stating the obvious, most of us will remember 2008 as the year the financial market collapsed and share markets crashed. It’s not nice reminiscing. But honestly speaking, the stock market has almost halved in value. Real estate prices and auction clearances are soft. Superannuation funds are deep in the red. All in all, the collective financial mood seems as pessimistic as it’s ever been.

So what will 2009 hold for you and me?

Well here’s a contradiction, there are good reasons why optimism will gradually overtake the gloom in 2009:

1. RBA is finally learning from its mistakes
At last, the RBA has realised increasing the interest rate in late 2007 and early 2008 was the wrong policy. Why? Because like many central banks at the time, RBA directors were looking backwards at inflation (instead of forwards at the looming recession). Indeed, isn’t hindsight a wonderful thing? Thankfully, rates have now fallen considerably. And they are expected to fall even further in the next few months. In fact, some economists are predicting a cash rate of just 2.75% by the end of the current financial year.

2. The pattern of the stockmarket
In the next twelve months, it is unlikely the stockmarket will repeat the horrors of last year. For a start, prices have fallen to such a low level that there isn’t much room for them to continue falling! And if we watch the signs, history tells us that share prices often start rising early in an economic slump. This is inevitable, as the world watches in anticipation those who hold the crystal balls and predict the market’s recovery.

3. Rapidly falling oil prices
If nothing else, this should buoy household incomes. It’s hard to believe that just six months ago, crude oil was trading at almost US$150 per barrel – and it is now selling for US$40 per barrel (or less)! Naturally, a falling oil price means cheaper petrol and diesel, which in turn means cheaper transport costs. This is critical to an expansive country like Australia, which is so dependent on road freight.

4. The truth about unemployment rates
Okay, so it is true the unemployment rate will continue to rise in 2009. But experts doubt it will exceed 7% (compared to a current 4.4%). Of course, this increase of 2.6% will be a tragedy for those who will lose their jobs. But if, as suggested in a recent survey, one in ten people expect to be unemployed next year, this outcome isn’t so bad. And if the recent Government policy initiatives regarding the failing car industry are anything to go by, there’s no need to fear! Kevin and Alan will be quick to spend public money to save those who have fallen in hard times.

So all in all, whilst the news ahead is not great, there are plenty of reasons to be (cautiously) optimistic about the year ahead! Wishing you all the best for 2009.


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