By MoneyMorning.com.au
This week your editor writes from a location near Victoria’s Ninety Mile Beach.
Officially, we’re still on hol’s. But with some spare time, we thought we’d jot down a few notes and send them to you.
Taking a break with the family is a great time to relax. You can do some of the things you don’t do enough of during the rest of the year… spend entire days at the beach… watch old movies… play board games… and read the type of books you wouldn’t normally read.
Plus, with the new year here, it’s a good time to reflect on last year… and perhaps previous years… such as… oh, let’s say 1982.
That was the year Rocky III and An Officer and a Gentleman were released. Men at Work released the single, Down Under. And Dexys Midnight Runners had the number one hit, Come on Eileen.
But 1982 was a key year for another reason.
According to the British Broadcasting Corporation (BBC):
“Japan’s main share index has closed at its lowest end-of-year level since 1982.”
In a roundabout way, we’re making this point…
Forget talk about Japan’s lost decade, Japan has just entered the 23rd year of a slump that started in 1990.
The roaring gains made during the mid- to late-1980s are history.
Japanese stock prices are trading at the same level as they were 30 years ago!
It’s a timely reminder for those who think a new year means a fresh start.
In Japan’s case, since 1990, the new year has just meant another year of falling stock prices.
This should make you wonder what’s in store for the Australian stock market. As you may know, our bet is the Aussie market will do nothing this year. Sure, prices will go up and down. But by the end of the year, stock prices won’t be any higher (or lower) than they are today.
Forget all the nonsense about the miracle Australian economy. Forget the wishful thinking about Chinese economic growth bailing us out again.
The reality is, Australia’s economy and other Western economies are now into the fifth year of the global economic meltdown that kicked off in 2007… when markets in North America, Europe and Australia reached all-time highs.
The problem now is that for markets to regain those highs, investors have to believe the old ways of making money (and by old, we mean from the 1980s and 1990s), endless credit and leverage can be repeated.
Our view is they can’t.
And that’s why national economies and stock markets are in a bind.
Of course, if everything was clear cut, it would be easy. But when you get two seemingly opposing headlines, that’s what causes the uncertainty.
As the BBC reported on Monday:
“Eurozone manufacturing decline persists, PMI survey says”
“China factories get New Year lift”
One headline suggests European manufacturing is in a slump… caused by a slowing European economy.
While the second headline suggests Chinese manufacturing has gotten a boost.
And while the Aussie mainstream insists on telling you that Europe’s problems are a distant mess, irrelevant to the Australian economy, remember that China and the European Union are now each other’s largest trading partners.
And considering China is Australia’s largest export market for raw materials, it doesn’t take a MENSA member to figure out that what happens in Europe has an indirect impact on Australia… even if Australia’s direct trade with Europe is relatively small.
The upshot is, this may be a New Year… but unfortunately, the issues that troubled national economies last year didn’t have an expiry date. And that means they’re still with us.
But the real risk is, just as Japan’s “lost decade” has quickly turned into a “lost 22 years”, so the West is in real danger of turning what should have been a short and sharp economic depression into its own “lost decade”.
And from there…
If they’re not careful, by the time we look back on New Year’s Eve 2029, there’s a real chance we’ll be looking back at the West’s “lost 22 years”.
Cheers.
Kris.
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From the Archives…
2011: What We Got Right. What We Got Wrong.
2012-01-01 – Kris Sayce
Speculators v Spectators
2011-12-31 – Kris Sayce
Three Reasons to Buy Gold Before 2012
2011-12-24 – Dr. Alex Cowie
Speculative Stocks and the Art of Stock Speculation
2011-12-23 – Kris Sayce
The Great Australian Housing Shortage?
2011-12-22 – Kris Sayce
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New Year’s Eve 2029: Will the Australian Stock Market Lose a Decade of Growth?
