Friday, January 18, 2008

Bernanke Testimony


I love listening to this guy cause he speaks in english. Greenspan had a habit of talking in a foreign language.
Here's the link to the transcript. He briefly describes in layman terms, what caused the so call "subprime credit crisis/crunch".
He also talks about the current hot topic (media and coming elections/primaries) in america about fiscal stimulus to stop the US going into recession.
The testimony is normally also televised on cnbc etc, although its about 2am our time. The transcript below does not include question time which is often worth listening to as well.

The Senators are not the smartest people but they ask questions that a typical Jo would ask.

Anyway, I stand by what i have said previously, expect a slow down in the global economy over the next two years. Recession is absolutely on the cards in America (I can't give you a % on this, but will tell you that it depends on China and I have been hearing that China should see single digit growth this year after more than a decade of double digit growth) you may start hearing about a slow down or even recession in Australia by years end depending on how bad the US situation gets and how quickly China does slow down.
If there is a protracted slowdown in the US, this will impact all investment vehicles in Australia which means, currency, commodity prices, equities and yes housing as well.

Having said that, this is the time to be saving up your pennies and looking for an opportunity to jump into the markets. US equities in the second to later half of this year but only selected sectors, I still love tech's. Aus equities in the end of 2009, but i would look at shorting the Aus market now and into the later part of 2009 and into Aus housing about 2010/11 (this does not mean you should not buy property - there will be certain sectors of the housing market that will do OK) which will be about six years from 2004 which was the last peak of the housing market. Housing cycles historically have run 7-10 years. This one will run closer to the 10 year mark.
And if people tell you that Sydney housing doubles every 10 years (agents tell me this non-sense all the time), tell them to show you the numbers. From my study, typically the median house price in Sydney increases approx 50% every 10 years (approx 4% compounded annual growth) (based on historical figures prior to the 1998-2004 housing boom which I believe saw average median housing increase approx 128%). I believe 128% growth is unsustainable unless we (Australia) become the next China some how (which could happen in the future, well into the future at the moment)! I dont know much about the other cities in Australia as I dont follow them so feel free to comment about your end of the world.
NZ housing also I don't have a lot of exposure to but generally NZ runs the same course as Australia with a slight time lag.

On the interest rate front expect the interest rates to increase in Australia in Feb by 0.25% and then interest rate cuts in the first half of next year and probably for the whole of 2009 as the Aus economy starts to loose steam (regardless of what happens in the US - although US will compound the slowdown if they dont see throw their mess).
If interest rates don't go up in Feb, expect the Australia economy to start slowing down earlier than I was expecting and of course the fall out from the other investment vehicles will follow shortly there after.

Anyway, enough of my babble. Feel free to drop me your thoughts.
Hope you all and your family members are well.
You all have a good weekend.

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