Finance ViewPoint

Australia and China - An Uneasy Alliance

andy@savingtoinvest.com (Andy) — Tue, 23 Jun 2009 02:54:00 +0000

Great read in the New york times recently talking about the economic relationship between Australia and China, and who is benefiting versus who is getting exploited. Here are some highlights.

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Since three state owned Chinese companies said they would buy stakes in Australia’s storied mining industry totaling $22 billion — as much as China’s entire investment here in the last three years — some of this nation’s 21.3 million people have reacted with aggrieved nationalism

The government of Prime Minister Kevin Rudd, which generally favors the sales, has been savaged as naïvely cozy with China, a view some in his own military appear to share. Opposition politicians have flogged the specter of an Australian future more or less as a giant open-pit mine in which the locals toil, but Beijing takes the profits.

“It’s the Communist People’s Republic of China, 100 percent Communist-owned, buying up sections of the country and minerals in the ground which they will then sell to the Communist People’s Republic of China,” said Barnaby Joyce, who is a leader of the National Party in Parliament. “And we’re going to live off the commission on the way through. They’ll try to make sure we get as little as possible.”

Australia has always been the West’s outpost in the East, the British penal colony with American spunk and European joie de vivre. But seemingly overnight, China has become Australia’s biggest trading partner, one of its biggest tourism customers, the largest single buyer of its government debt, a major buyer of farmland and real estate.

China’s hunger for steel gobbles up half of Australia’s iron ore exports, and its textile factories buy more than half of Australia’s wool. Over 120,000 Chinese students throng to Australian schools and universities.

Although China’s purchases remain dwarfed by cumulative investments of the Americans and the British, they are growing much faster. And suddenly, Australians are stepping back, realizing that their new best friend is someone they really do not know very well, much less trust.

The Chinese bids for parts of the three Australian mining companies — Fortescue Metals, Oz Minerals and Rio Tinto Ltd. — have been raptly watched for Australia’s answers. So far, they are mixed.

The smallest deal, an $840 million bid for part of Fortescue, a struggling iron ore miner, won Australian regulators’ quick approval. But Australia’s foreign investments review board, the central gatekeeper for overseas purchases, vetoed part of a $1.8 billion bid for Oz, the world’s second largest zinc miner. The reason: Australia’s military raised the prospect of Chinese espionage at an Oz mine not far from an aerospace test site. A pared-down deal was approved after the suspect mine, the core of Oz Minerals’ assets, was excised from the deal.

But it is the proposed purchase by the Aluminum Company of China, or Chinalco, of $19.5 billion in Rio Tinto stock, bonds and mining rights — China’s biggest investment in a foreign company — that has caused the most angst. Chinalco, which bought 9.3 percent of Rio Tinto in 2008, proposed taking a larger stake after the global economic collapse drove Rio into financial straits. If approved, the new investment would give China an 18.5 percent share of the world’s third largest mining company.

Chinalco unequivocally asserts its independence. “Chinalco operates as a commercial entity, at arm’s length from Chinese political processes,” the company’s Australian spokesman said in a written response to questions.

Many Australian experts agree. Modern Chinese corporations are state-run in name only, Ross Garnaut, an economist, former Australian ambassador to Beijing and himself the head of a gold-mining company, said in an interview. In practice, he said, they are just like their Western counterparts — fiercely competitive, and focused on profit.

“You don’t know anything about the dynamics of relations between major corporations in China if you think a major aluminum company like Chinalco would sacrifice its profits to increase profits for one of its rivals in the steel industry,” he said. Even Australia’s antitrust regulators have concluded that the Chinese would be unable to influence the price of iron ore, a crucial Rio Tinto product, were the Rio deal to go through.

Allies of Prime Minister Rudd argue that increased Chinese investment pumps money into Australia’s economy and opens new trade opportunities. But Mr. Rudd’s opponents say he does Beijing’s bidding. Among a drip of well-timed news leaks were claims that Chinese spies sought to hack into Mr. Rudd’s laptop during last year’s Olympic Games, and that his defense minister had failed to disclose gifts from a Chinese friend with ties to Beijing’s military establishment.

Those allegations have been flying even as the Australian military has become more focused on China as a potential rival. A newly issued defense strategy proposes the biggest Australian military buildup since World War II, driven in part by a forecast of rising Chinese economic and military power, and a slow American fade in the Pacific.

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Definitely worth reading the full article if you get the time.

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How to Get Rich and the Many Paths to Get There

andy@savingtoinvest.com (Andy) — Mon, 01 Jun 2009 22:38:00 +0000

We have all thought about being wealthy and rich, and what we would do if we had enough money to fund all our desires and take care of loved ones. However, how can you get rich? In reality there are only a few ways to do so and here I look at the main paths on how anyone ever gets rich. They are in order, from the quickest path to becoming rich/wealthy to the slowest and most likely path.

Luck: As the saying goes, "I'd rather be lucky than good." Think: winning the lottery; winning a slots jackpot in Vegas; big inheritance; being born into a family fortune; winning a big legal settlement. The flip side is being in the right place at the right time—by choice perhaps, but with lots of luck. Think: an intelligent but lucky stock pick (Apple when it was $5); an intelligent but lucky job choice (company goes IPO).

Extraordinary Talent: Some have the god-given talent that they are able to profit from by ensuring it is not wasted. Think: Michael Jordan, Tiger Woods and other top professional athletes; film and song celebrities and authors than can write for the masses. Growing up, it is important to recognize all forms of talent because if you become among the best in your field of practice, there is a good chance that riches will follow (especially in America).

Visionary: Build on amazing vision, unique product/service or new idea that you commercialize. Think: Bill Gates and Microsoft or the founders of Google, Ikea and Wal-Mart. Many of the richest people in the world are those who built a company from ground up, yet had the business sense to profit from their invention. Unfortunately, very few people will come up a brilliant idea AND commercialize it successfully.

Small Business Empire (franchise): Start a profitable small business and eventually franchise it. This way you are able to make money as your franchise grows without having to take much of the business risk associated with putting up your own time and money.

The Full Time Investor: Put loads of money (perhaps borrowed) into risky and high-return (speculative) investments. Think: flipping real estate; buying on margin; hedge funds; investing in hot emerging market stocks. This path could make you rich beyond your wildest dreams, but more likely than not could result in you losing everything you own and then some.

Corporate Warrior: This is the realm of the CEO's, MBA's and investment bankers. The idea is to get an ivy league education, work 70 to 100 hours a week for a big corporate or hedge fund and then retire before you are completely burnt out. Those that follow this path, assuming they have the capability, will probably achieve financial freedom sooner than most, but the personal toll could be very heavy indeed.

Slow and Steady : Sound familiar? It should. Most of us are on this path which involves working for most of our adult lives, saving diligently, raising a family and then retiring after 65. This was a pretty well worn path for many, until the recent financial crisis where all the hard work from years of saving and investing were wiped away. This is also the approach espoused by many personal-finance publications and blogs, because it is probably the surest and more straight forward. Though if you do want to get rich, before you get old, consider the above paths first.

Which path are you on? If you are like most people you are on the corporate warrior or slow and steady path. The top ones are much faster ways to get rich, but available to only a select few. I'll discuss the above paths in more detail during future posts, but early in life you should decide which path you want to pursue and follow it with all your heart.

Picture courtesy the Shane H. This post was originally published at Saving to Invest.

Related:
~ Don't be spooked by crisis headlines
~Property still better than shares & 5 tips to consider when investing in property
~ Your relationship to money

What's in the Australian Stimulus Package for Me - Tax Breaks and Government Spending

andy@savingtoinvest.com (Andy) — Mon, 23 Feb 2009 20:33:00 +0000

The Australian government has announced a A$42 billion (US $27 billion) stimulus package to help the economy avoid recession due to the global financial crisis. The package provides A$12.7 billion in cash payments to Australians and A$29 billion for construction and infrastructure spending. Following are details of the key items in the stimulus package:

TAX BONUS, CASH PAYMENTS: The stimulus provides for cash payments of $950 each to low and middle income workers, farmers, single income families, families with school children and to adults who return to study. More than 10.6 million Australians will receive at least one of the cash payments.

CONSTRUCTION AND INFRASTRUCTURE: Money to fund building projects at 7,500 schools, money to build 20,000 new houses for the poor, funding to provide insulation for all Australian homes and money for road projects and to build boom gates at railway crossings.

Australian Prime Minister Kevin Rudd said the Treasury estimated the plan would boost economic growth by 0.5 percentage points in 2008-09 and 0.75-1.0 points in 2009-10, supporting up to 90,000 jobs.

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Warren Buffet and Markets

andy@savingtoinvest.com (Andy) — Sun, 22 Feb 2009 20:29:00 +0000

Last week I was reminded of a quote by Warren Buffet who stated, following the extreme market pull in 1974, that "we are fearful when others are greedy and greedy when others are fearful". Times have definitely changed, and people have swung from the greedy heights of the long bull-run between 2003 and 2007 to being fearful of the recent bear market.

Research by AMP Capital Investors, however, indicates that the average rise out of a bear market in the first 12 months is 34% but only those who take action will avail themselves of this gain. If we accept that the low that occurred on 21st November 2008 is the end of the current bear market in Australia, then probability suggests that investors who follow Buffet's wise
words should be well rewarded.

Sadly, however, most investors will sit on their hands and do nothing rather than avail themselves of the opportunity, and in so doing will potentially see their portfolios continue to underperform for quite some time. In my opinion, it will be the investors who educate themselves and who take an active approach to their share market investments that will be
profitable in the next 1 to 2 years.

So what can we expect in the market?

As I have said before in volatile markets we can expect the unexpected. While the volatility has eased, I expected the All Ordinaries Index to rise over the past two weeks. And while it did rise last week, this week it is now trading at its lowest levels in three weeks and continuing the sideways trend it has been in since last November. Given this and the fact that the market has so far failed to break above 3762 points to confirm the low of 3201.5 achieved on 21 November was the longer term low, we now need to reassess our position.

Often when a market falls heavily, the resulting rise struggles to gain momentum and instead displays signs of bearishness, which is what I believe is occurring right now. It is possible that the current sideways move will continue for the next month before we see any strong move up into around midyear to levels of between 4200 and 5000 points. There are a number of
good shares that are presenting profitable opportunities for those who are prepared, but as always we need to be careful and wait for confirmation.

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Australia faces a recession despite renewed efforts by the Government,

andy@savingtoinvest.com (Andy) — Fri, 06 Feb 2009 21:47:00 +0000

The Economist brings us a pretty bleak outlook for the Australian economy. Here are some of the key points worth heeding and planning for in the year ahead:

To prevent a recession, the Australian government on February 3rd unveiled a A$42bn (US$27bn) stimulus package. At the same time, the Reserve Bank of Australia (RBA, the central bank) slashed its benchmark interest rate by one percentage point to 3.25%—the lowest level in 45 years. But given the morose global economic outlook, Australia's doubling down on the economic rescue may not be enough to stave off recession this year.

Among developed economies, Australia so far has weathered the global financial crisis better than most. Its economy continues to grow (albeit just barely—at 0.1% quarter on quarter in the three months ending in September 2008); and its banking system remains relatively unexposed to the toxic mess coming out of Wall Street. But the Labor government of Kevin Rudd, the prime minister, clearly feels it cannot be too prudent in the current climate of an ever-deepening doom and gloom surrounding the world economy. As demand abroad for its commodities and consumer confidence at home dive, Australia's economic prospects for 2009 look worrying. In announcing the stimulus plan, Mr Rudd said that the country faces "an unfolding national and international emergency" and that his government "will move heaven and earth to reduce the impact of the global recession on Australia".

That effort will include financing A$29bn in infrastructure building (namely schools and public housing) over the next four years, and A$13bn in cash handouts to low-income workers and farmers. The massive spending comes on top of the A$10.4bn stimulus programme announced in October, which took the form of lump-sum cash payments to pensioners and low- and middle-income families in the hope that it would trigger a quick recovery in consumption spending. The first package did boost retail sales in December, and Mr Rudd believes that the additional fiscal pump-priming—which represents 3.6% of GDP—will ensure economic growth remains in positive territory, saving tens of thousands of jobs in the process.

The government hopes the RBA's simultaneous rate cut will supercharge its counter cyclical effort. The central bank has now slashed its official cash rate by four percentage points in the past six months, despite the fact that inflation, at 3.7%, remains above its target of 2-3%. The RBA has also been complementing its aggressive moves to lower the cost of money by taking steps to improve liquidity in domestic markets, such as widening the range of securities that it is willing to purchase for cash.

The stimulus, however, will contribute to the government's first budget deficit since fiscal 2001/02. The government plans to issue bonds to fund the package, which along with declining tax collection will help drive the budget A$22.3bn into the red in 2008/09 (the current fiscal year began in July). Mr Rudd assured that as soon as economic growth tops 3% again, the government would limit spending growth to 2% a year to try to balance the budget.

He is unlikely to succeed. The proposed spending has wide public support, and even the opposition politicians concede that government action is necessary to prevent the worst for the Australian economy. But whether the stimulus will succeed in averting recession is uncertain. The Economist Intelligence Unit's latest forecast, taking into account the A$42bn stimulus, still sees Australia's real GDP growth contracting by 1% in 2009. The risks for an even worse contraction are significant. With the global economic slump deepening, some of the world's major economies could slip into deflation, prolonging their recessions and Australian exporters' woes. A more pronounced slowdown in China, too, would also have a significant adverse effect on Australia's commodity exports. Domestically, the housing market is a worry. Given the strong price increases seen in recent years, the possibility of a sharp fall in house prices and the negative wealth effect would have a severe impact on consumer demand.

So Australia is being dragged down with the rest of the world. The best thing to prepare for a recession is to have 6-12 months of emergency funds, stable job prospects for at least one working member in your household and learning to live a frugal lifestyle.

Shopping Holiday is over - Reuse and Recycle

andy@savingtoinvest.com (Andy) — Wed, 28 Jan 2009 15:29:00 +0000

Christmas Shopping is definitely over and it may be a while before Australians open their wallets again:

Australians plan to cut their discretionary spending by an average 21% in the first six months of the year, a new survey of consumers' shopping intentions conducted by the Australian National Retailers Association or ANRA showed. The ANRA surveyed 1000 Australians aged 18 and over. People aged between 18 and 34 said they will reduce spending by 15%. Australians aged between 55 and 64 are planning to cut their spending by 35%."
Separately, the ANRA said the fall in inflation recorded in the December quarter 2008 confirms the urgent need for the Reserve Bank of Australia or RBA to continue cutting interest rates. Earlier in the day, the Australian Bureau of Statistics reported that annual inflation slowed to 3.7% in the fourth quarter from 5% recorded in the
third quarter.

I know I have definitely cut back on discretionary spending. Cash is king right now as the economy and employment continues to deteriorate. Have you noticed a change in your shopping habits? Are you planning to spend less this year?

Source : RTT news

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A lousy year investing....

andy@savingtoinvest.com (Andy) — Thu, 01 Jan 2009 16:40:00 +0000

Australian shares delivered their worst year on record in 2008, posting a loss of 41 percent as slowing economies, volatile global markets and a credit crunch slashed the value of the nation's biggest companies.

The S&P/ASX 200 index .AXJO has fallen by 2,671.5 points to end at 3,722.3. Back to levels not seen since earlier this decade. With a tough 2009 year ahead, the first part of the 21st century will go down as a terrible one for most long term investors.

One positive was that on the last trading day of the year, index gained 1.9 percent.

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Is Australia following the US into a Recession

andy@savingtoinvest.com (Andy) — Tue, 30 Dec 2008 03:41:00 +0000

A recent article talked about the plight of some Australian business’ (particularly in the mining sector) due to the global economic contraction resulting from the US recession and a slowdown in Chinese commodity demand. The fear was that the economic weakness, which is currently contained to a few sectors, is rapidly spreading across the rest of the Australian economy and could drive the nation into a recession (negative growth). Here are some worrying signs ahead:

In a matter of weeks, Australia's [commodities] boom has gone bust. Now economists at Citigroup and JPMorgan Chase, among others, are forecasting that Australia's economy will shrink this quarter and next, tipping the land down under into a recession for the first time since 1991. JPMorgan sees the jobless rate — a record low 4% just 10 months ago — rising to 9% by 2010.

The financial crisis is hitting debt-laden Australians hard. "We're headed for a recession for the same reason the USA is in one now — the bursting of a debt-financed speculative bubble," says economist Steve Keen of the University of Western Sydney, one of the first forecasters to sound the alarm. Keen says Australian households have been adding debt — as a percentage of economic output — even faster than their U.S. counterparts over the past 18 years. Now they're feeling pinched and are cutting back. "We have a home-grown recession coming our way, regardless of what happens in the rest of the world," Keen says.

Keen predicts the downturn will unfold a bit differently than it did in the USA, where problems began in the housing market and spread to the broader economy. "We're likely to go into the macro crisis first as debt growth plummets; then a housing crisis as the newly unemployed are unable to maintain their mortgages; and finally a credit crunch where the banks' solvency doesn't look so hot anymore."

China, Australia's No. 1 trading partner, isn't providing as much shelter as expected from the global economic tempest. China itself has proved unexpectedly vulnerable to slowdowns in the United States and Europe. Its economic growth is decelerating rapidly from the double-digit annual pace of the past decade. Last month, Chinese exports fell for the first time in seven years. "China's economy has slowed much more quickly than anyone had forecast," says Glenn Stevens, governor of Australia's central bank. Add in China's plummeting stock market and crumbling housing prices, and "There goes Australia's China blanket," economist Keen says.

The Australian reserve bank and government have responded aggressively to the economic threat by chopping interest rates and spending more than $10 billion to jump-start the economy. However will this be enough? I think Australia has a more solid economy and financial framework than other countries, but because of its small financial size and dependence on America, China and Japan it cannot escape a deep global recession. So buckle down in 2009, make sure you have an emergency fund and above all be prepared for a rough year ahead.

Check out my other Blog...

andy@savingtoinvest.com (Andy) — Tue, 23 Dec 2008 07:28:00 +0000

As you may have noticed, I have not been posting as frequently to this site. This is because I have been focused on my other blog - http://www.savingtoinvest.com/, also a personal finance and investing site. It has a little more of a US flavour (since that is where I am living at the moment) but most articles are just as applicable no matter where you live.

With a full time day job, young kids it is very hard to keep up 2 quality sites, but I do try. So if you get a chance, and want to see some of other finance and money articles check out http://www.savingtoinvest.com/. You can also subscribe to receive regular posts by RSS or Email.

Some recent articles you may like :
- Am I a Cheapskate or Just Frugal?

- 5 Clear Signs your Job is in Danger (and 5 things to do)

- How Long will the Current Recession Last? Not as Long as You Think.

- Leverage - The Real Cause of the Financial Crisis

- A New Goal : $300 Monthly Passive Income

- Why the US dollar is Rising and 2009 Outlook

- Obama and Wall Street Greed

- Teaching kids to Invest

I will still post to Finance Viewpoint though and hopefully will be more regular through 2009.

How I Get Free Magazines. You can as well.

andy@savingtoinvest.com (Andy) — Thu, 04 Dec 2008 19:20:00 +0000

I was recently approached by a trade publications group to help promote free magazine subscriptions in the personal finance and investing space. Initially, I was sceptical about this offer because I thought it was just a way to drive sales for little known publications or to send "junk" marketing materials. However looking at the various magazine and publications offers, and actually subscribing (for free) to a number of them myself I can definitely endorse this offering and one you should look into. Based on your profile you could qualify for a number of subscriptions which are 100% free or allow you to get the magazines for a no-obligation trial period.

Why the free subscriptions? The magazine publishers give out the free subscriptions because it is a win-win situation for you and them. You have a genuine need for the information and products described in the magazines. The publishers can increase their circulation and hence advertising appeal. Most smaller or niche magainze publishers do not make much money in subscription dues (which barely cover printing and distributions costs) and in fact rely on advertising revenue to drive their profits. So the bigger the circulation, the more they get in ad dollars. Hence the free subscriptions.

Which publications are available? Click here to browse the catalog of magazines/publications on offer. I have focused on business, finance and investing, but you can get free magazine subscriptions for all types of industry groups . Apart from magazines, there are lots of extras, including white papers, podcasts, downloads, and more. You can browse by title or by industry. All you need to enter is some basic background information so that the publishers know they are targeting the right audience for the magazines.

Here are some of the most popular publications that I recently signed up for. (Total cost = $0):

Traders Magazine provides unparalleled coverage of the entire trading process, including equities and options, major trends, financial industry news, executive profiles and cutting edge technology developments that keeps Wall Street "running."

Abacus is the accountant-centric magazine focused on small to mid-size accounting practice firms that provides stimulating and provocative articles from a perspective you won't find in other magazines.

Fast Money and Inc. are great Fortune/Forbes type magazines aimed at the the American entrepreneur and business owners. Has some great business stories of real people in dynamic industries.

CIO Insight brings you insightful case studies, round table discussions, research reports and expert perspectives you need to navigate through this quickly evolving business environment.

Take your time and explore the offerings. Subscribe or take as much of the free stuff as you like. And don’t forget to check back regularly for new magazines, newsletters, and other good stuff.

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BHP-RIO, Round 1 over for now

andy@savingtoinvest.com (Andy) — Sat, 29 Nov 2008 17:41:00 +0000

For over a year BHP has been aggressively pursuing a takeover of RIO, however, it surprised the market this week by calling it off. Whilst the announcement was enough to cause a rally in the price of BHP, the same cannot be said for RIO as its shares fell around 35%. RIO has now been left to battle with its significant debt, which has brought into question whether a capital rising is likely in the near future.

Overall I think the decision was a good one as it will maintain competitive tension in commodity prices between the two players, which will potentially result in lower steel prices. That said I don’t believe BHP is finished with RIO. Rather the recent announcement is more like half time at the football, with the game likely to resume sometime in the future. Given the current share price of RIO, it is likely that BHP will reconsider the idea of a merger when the economic clouds start to clear– perhaps next time they may only need to offer 1.5 shares for each RIO share!

So what can we expect from the market this week?

After falling to lows last Friday morning (21 Nov) not seen since August 2003, the All Ordinaries recovered to close higher for the day. The recovery has continued this week with the gains providing encouragement that we may have seen the bottom but we won’t have confirmation of this for at least another month.

The hot question on most people’s lips over the past 6 months has been are we at the bottom? Trying to second guess the inevitable bottom on a share or market, for that matter, is high risk and has cost many people a lot of money over the past 6 months. Remember smart investing is not about getting the cheapest price rather it is about getting in at the safest price.

It is for this reason why I continue to say that it is better to wait for confirmation that a market or share is rising before buying. While I do believe it is possible that we may have seen the bottom last week, it is still too early to tell. That said once the bottom is confirmed, my expectation is that the market will rally for at least two months and possibly up to eight months. For now I still encourage all investors to sit tight as you will be rewarded for your patience.

This was a weekly report by Dale Gillham, a best-selling author, share market expert/educator and the chief analyst for share investment firm Wealth Within.

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Tips to Pay off your Mortgage Sooner

andy@savingtoinvest.com (Andy) — Sun, 23 Nov 2008 16:08:00 +0000

Anyone who has ever had to pay off a mortgage will tell you they would love to pay it off before the term, but most people will continue to chip away at their loan on autopilot. A proactive strategy can cut your loan term from 30 years to less than half in some cases. Australian Mortgage Options managing director Robert Projeski offers ways to own your home sooner.

1. Pay your mortgage as you receive your income eg. fortnightly or even weekly. Doing this cuts down on interest payable and will save you a lot of money over the course of your home loan. If you are super focused, pay your mortgage weekly which will reduce interest further again.

2. Set up an automated recurring payment for your mortgage payments. This is usually free of charge and means that you are always on-time and can’t over-spend on other things leaving you short to meet your payment obligations.

3. Park the large lump sum into your mortgage account eg. if you get $2000 back from your tax return, receive dividends from other investments or get bonus payments from your job, make a large payment towards your mortgage. These large lump sums can cut years worth of interest off the loan.

4. List your regular expenses and you will find 1 or 2 items that you can do without. This will make a big difference to either your cash flow, freeing up disposable income to park in your mortgage account.

5. Increase your repayments while rates are coming down. You can cut up to 2 years off the life-span of your loan by paying an extra $20 to $50 on each payment. This may just mean cutting out an extra cup of coffee here or there or once a week taking lunch to work rather than buying it occasionally.

6. Have your wages paid directly into your home-loan account - you will need a loan with re-draw or line-of-credit type of facility so you can have unlimited access the funds for living expenses etc. This will greatly reduce the interest that you pay as the interest is debited at the end of the month and usually calculated daily.

7. Offset your loans with a savings account. This is called mortgage offsetting, where as the amount in your savings account (earning interest) is calculated/subtracted against the actual interest charge against the loan amount, then the interest is calculated only on the balance. For example, if your loan is $400 000 and you have $100 000 in savings, this equate to $300 000 on which you actually pay interest. This of course greatly reduces the amount of interest you effectively pay and will save you years on your home loan.

8. Perform a mortgage health check. Sometimes you just have to admit your loan might not be the best for you anymore. Your loan may have been superseded as a product. Interest rates may have changed drastically, leaving you better off with a variable rate than a fixed one. In that case, look at re-financing whether it is with your existing lender or a different one. Go to a home loan lender or broker to make sure you do get the best deal. Don’t just go to one provider as usually they will only offer you their products. To get a full scope of available options talk to a specialist who has access to various funders and lenders. They are in a competitive market and will try to gain your custom – let them earn it.

9. When re-financing, consider pooling or consolidating any other loans eg. (car or personal) and credit cards (of a much higher interest rate) into the one loan as the savings often will outweigh the slightly higher loan amount.

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Be Grateful for your Job

andy@savingtoinvest.com (Andy) — Tue, 18 Nov 2008 04:00:00 +0000

At times, like most people, I find myself exhibiting signs of losing interest in my job. I even find myself browsing job sites (while at work!) to see what is out there with the hope that the "grass is greener" on the other side. However, in this tough economy with thousands of people losing their jobs, I should instead be grateful that I have mine and appreciate the associated benefits. Here are five things to remind myself as to how lucky I am to have a job for now:

1. I get a paycheck which allows my family and I to live and and have fun outside of work. We all wish for a higher paycheck, but having a steady paycheck is better than none at all.

2. I can afford private health insurance and unlike millions of others, don't have to worry about waiting times, financial hardship and treatments if I get sick. This piece of mind is priceless.

3. I work with people who have the same struggles as me and everyone goes through highs and lows. I should be happy that I am a valued member of my team/company and if I wasn't, I wouldn't have this job now. In some way I directly or indirectly help people and thereby make a difference.

4. I have access to resources, facilities and people. which means with a little bit of effort I can learn something new every day. Also, the free coffee is a nice perk!

5. I do not have to deal with recruiters, the job searching process and inefficient government unemployment agencies.

[Feel free to suggest some more]

So when you are feeling low or having a down day, make a list. I know lots of people are looking for "fulfillment" from their jobs, but remember it is called work for a reason. In fact I would argue that if your job defines you and it is the only way you can find happiness then most likely you are not focusing enough on the important things in life - family, health, learning - which should be the real sources of your fulfillment.

However, if you cannot make a list of at least 5 things you like about your current job, then maybe it is time to move on. Just ensure you take into account all the factors associated with changing jobs. Gotta get back to work.....

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Australian business' doing it tough

andy@savingtoinvest.com (Andy) — Wed, 12 Nov 2008 04:03:00 +0000

With a tough economy, weakening dollar and lower consumer spending, Australian businesses are finding the going tough. Business confidence fell to a record low in October, according to a National Australia Bank survey. The bank's confidence index fell to minus 29, down 21 points from September, its lowest reading in the survey's 19-year history. So it is not a surprise to see the S&P/ASX Index of stocks down 2% today, extending this year's decline to 38%. Similarly the Australian dollar has plunged 32% since reaching a 25-year high of 98.49 cents on July 16 (US dollar parity is now a pipe dream). With one in four businesses finding it harder to borrow, expansion and hiring plans are also on hold for a number of companies.

"Fear reigns supreme,'' said Alan Oster, chief economist at National Australia in Melbourne (via Bloomberg) "Continuing volatility in global equity markets, emergency financial packages, falling commodity prices and continuing talk of a global recession have finally broken business optimism. Most concerning is a drop in forward [manufacturing and retail] orders to near recessionary levels."

This story is similar all over the world as the global recession spreads. Talking to business owners back in Australia, there is a definitely a sense of apprehension in getting through these tough times and no doubt some won't make it through. However the ones that do will be much stronger and be able reap the benefits of lower competition when the economy starts to improve.

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America: Where all things are possible. President Barack Obama

andy@savingtoinvest.com (Andy) — Sun, 09 Nov 2008 18:50:00 +0000

Even if you live outside of America, it is worth listening to Barack Obama's victory's speech (25 mins). I watched it live and even wathcing a replay is moving.

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Interest Rates and the Economy

andy@savingtoinvest.com (Andy) — Wed, 05 Nov 2008 20:23:00 +0000

The economist brings a good summary on the outlook for the Australian economy and interest rates:

Australia's central bank, the Reserve Bank of Australia (RBA), has made its second drastic interest-rate cut in the space of a month. The move is a further sign that, despite still-high inflation, the RBA's overriding concern now is to do as much as possible to limit the economic impact of the global financial crisis by loosening credit. The move comes amid growing fears about weakening domestic demand, falling commodity prices and recession in key export markets.

The RBA cut its policy rate, the overnight cash rate, by 75 basis points from 6% to 5.25% on Tuesday (with effect from November 5th). In line with a succession of very large emergency rate cuts by central banks around the world, the RBA's decision comes only a month after a previous rate cut of 100 basis points. The RBA had started its monetary loosening in early September, with a 25-basis-point cut. As a result the overnight cash rate has fallen by a cumulative 200 basis points in two months, to its lowest level since December 2003.
Consumer price inflation is at a multiyear high of 5%, according to data published only two weeks ago. Moreover, the currency has weakened dramatically against the US dollar in the past several months, falling by 28% since the end of July. Both conditions—high inflation and a weak currency—would normally discourage rate cuts. Yet the RBA's willingness, nonetheless, to loosen monetary policy aggressively reflects the extent of official concern about the fall-out from the global crisis. Australia is in a similar position, in this respect, to South Korea, which has also recently slashed interest rates despite still-high inflation and a sharp fall in the US-dollar exchange rate since the start of the year.

Although inflation appears to be far above the RBA's comfort level, as defined by its target range of 2-3%, the actual or expected impact of the global financial crisis on domestic demand, commodity prices and exports will lessen inflation risks. As the RBA admits, the depreciation of the Australian dollar means that the inflation rate is likely to take longer to fall to within the target range than would otherwise be the case. But what it calls "global disinflationary forces" will naturally cause inflation to ease.

Certainly, the sharp fall in many commodity prices since the onset of the crisis will have a moderating impact on inflation. So too will a softening of domestic demand, as anxiety over the financial crisis causes highly indebted households—already feeling poorer as a result of lower equity prices—to try to save more. Lenders will remain extremely cautious about credit risks, given the salutary recent experiences of overextended US and European banks. With salvation from the external sector looking increasingly unlikely—Australia is even worried about a slowdown in Chinese demand for its exports—economic growth looks set to slow sharply. This is despite lower interest rates and the recent announcement of an A$10.4bn (US$7bn) stimulus package. The Economist Intelligence Unit forecasts real GDP growth of 2.4% in 2008 and 1% in 2009, down from 4.2% last year. We expect inflation to ease to an annual average of 3.5% in 2009, from 4.7% in 2008.

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Is Cash really a good investment?

andy@savingtoinvest.com (Andy) — Sun, 02 Nov 2008 15:27:00 +0000

During the past month investors have sold investments and moved their funds into cash following the announcement by the government to guarantee cash deposits in an attempt to allay fears from the fallout of the credit crunch. But you have to ask whether moving funds into cash is really a smart move for investors? In my opinion cash is not a good investment vehicle for building wealth, rather it is a vehicle for holding liquid assets while you wait for opportunities to invest. In my book, a good investment must deliver capital gains and income, with shares and property being the ideal investment for individuals wanting to build wealth.

Currently the inflation rate is around 5 per cent, and with cash deposits earning between 6 and 7 per cent investors are really only treading water by placing their assets in cash. If we add in the fact that investors will pay tax on the interest they earn on their cash you can see why I believe there is very little validity for considering cash as an investment. For investors with a long term view, it makes more sense to buy and hold solid blue chip shares such as Commonwealth Bank that pay a dividend yield of 6 per cent tax paid. After all, if the banks are safe enough to deposit your cash with, surely owning the bank is just as safe.

So what can we expect in the markets? November 1st was exactly one year since the all time high of 6873 points was achieved on our market, and since then it has fallen an unprecedented 3179 points or 46.25% making the past year one of the worst in history. Over this period we have had 33 weeks in which the market closed lower than it opened and if this week closes higher only 15 weeks that it has closed up, with 4 weeks closing roughly around where it opened.

This week, the market has rebounded a little over 7 per cent since forming a low on Tuesday, and although this is promising it is not enough to convince me that we have seen the long term low in our market. It is likely this is a false move up and that we will get one more move down over the next week with the market falling to a low of between 3400 and 3500 points. Once this occurs I believe the All Ordinaries Index will trade up until late January or early February 2009. A word of caution for those looking to invest and that is to only buy shares in the top 100 as these will be much safer and more profitable.

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Home Delivery Debit Card Scam

andy@savingtoinvest.com (Andy) — Thu, 30 Oct 2008 19:25:00 +0000

I received this email (edited for this post) from a reader about a Debit card scam that is apparently real and spreading across the country. Just another sign of tough economic times as criminals go to extreme measures to make a buck by taking advantage of the unsuspecting and innocent. What was striking to me about this scam is how easy and effective it is. I know I could easily have been a victim.

I want to let you all know that Frank (my husband) and I have been the victims of debit card fraud this week and felt I should warn you all about the horrible but effective scam we fell for. Here's how we got scammed:

Last Wednesday I had a phone call late morning from Express Couriers to ask if I was going to be home as they had a delivery for me. They said a delivery agent would there in roughly an hour. The agent turned up with a beautiful basket of flowers and wine. I expressed my surprise as I wasn't expecting anything like this and said I was intrigued to know who was sending me such a lovely gift. He (the delivery agent) said he was only delivering the gift and the card was being sent separately (the card has never arrived). There was a consignment note with the gift.

He went on to explain that because the gift contained alcohol he has to charge the recipient a token amount of $3.50 as proof that he has actually delivered to an adult, and not left it on a door step if the recipient is out, to be stolen or taken by children. This seemed logical and I offered to get the cash. He then said that the company required the payment to be electronically so that he's not handling cash and everything is properly accounted for. Frank was there and got his debit card and the delivery agent swiped it on this small mobile machine that also had a small screen upon which Frank entered in his pin number. A receipt was printed out and given to us.

Between last Thursday and Monday $4,000 was withdrawn from our savings account at ATM machines around our local area. It appears a dummy credit card was made using the details in the machine and of course, they had Frank's pin number. The bank has stopped our cards and I've been to the Police this morning where they confirmed that it is a definite scam and many households were being hit coming into the holiday season. I have filed a claim with the bank to get my money back and it is currently under review. However with our tight financial situation, not having access to four thousand dollars worth of savings is definitely going to make us late on some bills, which means more late fees.

So PLEASE be wary of accepting a gift you're not expecting especially if the card is not with it and they are asking you for a debit or credit card verification payment. We've all received gifts like this and would never dream that it could be such a despicable act. Please also let others know about this terrible scam [You can email this article to them]. Hopefully, these fraudsters have ceased this activity by now but you never know. P.S. I don't think I'll ever drink the wine - I'd probably choke on it!

Editor: It is an unfortunate that the worst of times brings out the worst in people. So be on the look out and never ever give your financial information or details to people/companies you do not know. It is better to be safe than sorry.

Why the US dollar is rising so fast

andy@savingtoinvest.com (Andy) — Tue, 28 Oct 2008 02:20:00 +0000

Despite global economic woes, the US dollar has been on tear over the last month resulting in a 25% plus appreciation against the Australian Dollar. The dollar index (DXY), a measure of the greenback against a trade-weighted basket of six major currencies, has strengthened by over 20% in this time. However, the question is will this trend continue? To answer this, one must look at the current factors driving the US dollar.

Why the dollar is rising

A number of analysts had predicted the continued demise of the US dollar thanks to the financial-sector bailout and weakening economy but its sharp upside has surprised many. The dollar's recent climb is part of a massive reversal of long-standing investing trends (due to the global economic slowdown) such as buying emerging-market stocks or wagering on rising commodity prices. When investors retreat from such investments, they are often selling them in exchange for US dollars. The U.S. currency remains the most popular among global institutions, accounting for 55% of the assets and liabilities they hold in foreign currencies, according to the Bank for International Settlements. It has been further boosted because banks around the world are scrambling for dollars after inter-bank borrowing between banks all but ceased to function during the past month thanks to the liquidity crunch

After sending money overseas for years, U.S. investors now are bringing it home in a flight to safety. In July and August, the latest months for which Treasury Department data are available, U.S. investors sold $57 billion more in foreign stocks and bonds than they bought -- the largest-ever such repatriation. Dollar demand has also been reflected in the rise in purchases (and hence the price) of U.S. Treasury bonds, seen as the safest haven of all. The most recent data shows that such holdings of Treasury's increased by about $100 billion over the past four weeks. Other countries are also feeling the effects (even more than the US) and so are slashing interest rates to try and boost domestic economic activity, so the expected yield differential with the US is falling. With this trend set to continue, investors will continue to flock to the dollar.

The US economy is likely to recover faster than other economies because unlike other central banks, the Fed more than a year ago began lowering interest rates, which punished the dollar. Now it could be a positive, as other central banks catch up. In the U.S., "a lot of the heavy lifting has already been put in the pipeline," says Stephen Jen, global head of currency strategy at Morgan Stanley, in the WSJ. "The same cannot be said of Europe." The same old reasoning still applies: The U.S. is regarded as being able to weather a recession much better than the euro zone

Given the rapid rise in the dollar in synchronization with the escalation of the global financial meltdown and tightening credit markets, it stands to reason that as credit and stock markets stabilize so too will the dollar. This means it will give back some of its gains, but should be able to maintain current levels well into next year. If the government implements much needed long term regulatory reform and adopts a more fiscally conservative policy once the economy has recovered, then there is a chance that the US dollar could maintain its strength for a number of years to come.

From an Australian perspective there are benefits and drawbacks from a higher or lower US dollar depending on your perspective. However the most important thing for the global and hence Australian economy is a stable US dollar which implies a stable economy. So in the short to medium term the focus should not be on the daily currency moves but rather on the range of the moves.

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House Prices going down world wide

andy@savingtoinvest.com (Andy) — Thu, 16 Oct 2008 17:04:00 +0000

It's official the IMF, released a report showing house prices are declining all over the world and Australia is no exception. Fortunately for the Aussies, the decline has been much less severe than other parts of the world. In the US, home price have declined more than 30% from their peak and even more in certain states. 2009 will probably see more declines as well. One positive from this for home owners is that at least home prices are holding up better than the stock market.

Do you think this trend is reflective of where you are living?

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The Australian Stimulus Plan: Short term relief for long term pain

andy@savingtoinvest.com (Andy) — Tue, 14 Oct 2008 19:26:00 +0000

The $10 billion fiscal stimulus plan unveiled by the Australian government to bolster the economy in the face of the global financial crisis, may provide a short term boost to consumer and home spending, but in the long term it will just drive hyper-inflation and lead to a massive devaluation of the Australian dollar. Short term relief for long term pain.

The stimulus plan, which is equivalent to 1% of Australia's GDP, includes A$4.8 billion for pensioners and A$3.9 billion for low and middle-income groups. First-time home buyers will receive about A$1.5 billion in additional support measures and about $187 million will go toward a labor-skills program. From an individual perspective this is equivalent to doubling the first-time home buyer's grant (to $14,000) and triple it to A$21,000 for those who purchase a new home. Low and middle income families will receive a Christmas bonus of A$1,000 per child, pensioners living alone will receive A$1,400 and pensioner couples will receive A$2,100. The bonus payments are to be made on December. 8.The Australian stimulus plan, follows additional support to the economy announced recently, including a one-percentage-point interest-rate cut the past week and weekend measures to guarantee banks' deposits and term funding.

"Australia is exposed to the potential drag from the global downturn and its already begun to weigh on the commodity markets which are the lifeblood of their economy," said David Cohn, director of Asian Economic forecasting at Action Economics in Singapore, in a recent article. Some analysts said the measures ran the risk of stoking asset-price inflation. "The major contention that we have with it is the measures to boost the first-home ownership scheme," said Glenn Maguire, Asia Pacific economist in Hong Kong with Societe Generale. "The government seems to have completely overlooked the fact that the entire reason we are in this mess is too many people in the U.S. were given access to first homes, which led to asset inflation and when the cost of servicing that became impossible it led to deflation and the massive defaults that we are seeing now."

I agree. The government is trying to force consumption and boost housing, and all this will lead to is inflation in the longer term with some short term gains. By trying to artificially breathe life into the housing sector we could be creating an Australian sub prime like housing crisis by 2015. Sacrificing prudent long term economic planning for short term savings is a sure fire strategy to getting us all into the poor house.

Newsworthy: Bank Deposits, Stock Markets and the Dollar

andy@savingtoinvest.com (Andy) — Sun, 12 Oct 2008 23:30:00 +0000

Here is coverage of newsworthy items from the global media that affects Australian finances and markets:

> Yet another example of Australia leading the world in dealing with the global financial crisis. Apart from having the most robust banking system in the world, the government and regulators have been on the ball by being the first to announce an interest rate cut and over the weekend they said they will Guarantee Bank Deposits for Three Years. Between A$600 billion ($US 386 billion) and A$700 billion of deposits are held in Australia at any one time. A great step towards restoring confidence in Australian markets. Now if only the world will follow the Aussie lead.

> For many of us who only heard about the 1987 crash through movies or reading about it, we got the unfortunate experience of living through an even more horrendous series of crashes - much worse than the October 1987 market crash. About A$800 billion has been wiped off the value of Australian shares in the past five months as the collapse of the U.S. subprime mortgage market triggered credit markets to freeze. The benchmark has tumbled 42 percent from its Nov. 11 peak. Ouch. My superannuation balance looks like it did in 2001.

> Get a recap of the financial crisis in this pictorial review. Everyone around the world is worried about the impending global recession and fear about savings, the job market and about being able to afford retirement. As a person interviewed in the story describes the current fall in asset values, "It’s like being in a hospital bed and watching yourself dying. Whatever the bottom is going to be, I wish it would just get there. It’s the every day, watching the blood drain out of it, that’s hard to take.”

> The Australian dollar faces more pressure after falling sharply to a five-year low over the past week amid the global economic crisis, analysts said.. "A softer outlook for both global growth and commodity prices and continued weakness in equities will weigh heavily on the Australian dollar in coming weeks," said ANZ economist Alex Joiner. A combination of steep falls on the Australian stock market and low liquidity conditions had been the main contributing factors to the Australian dollar's fall, said CMC Markets foreign exchange dealer Tim Waterer. Whatever the cause from a US perspective, we are 30% poorer thanks to the exchange rate differential. However the outlook is better: "If you start to see a wee bit more stability come through in Asian equity markets, the chance of a bit more stability in the Australian dollar is actually quite high,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. "Central bank easing at some point should begin to have a beneficial impact on risk assets and the markets.''

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Is Commonwealth Bank (CBA) a Buy

andy@savingtoinvest.com (Andy) — Sun, 12 Oct 2008 17:37:00 +0000

Talking to friends and family back home in Australia, one stock that has come up as a potential good long term buy is CBA. It pays a very healthy 6%+ dividend yield and is faring better than most of the other financial institutions in Australia. However, it cannot avoid the global financial meltdown and here is a timely WSJ article I came across which highlights the potential risks in the Australian banking system.

Consolidation is proceeding in Australia's banking sector as the nation's leading banks mop up smaller players, but such signs of strength shouldn't divert attention from those top institutions' funding.

The sector's so-called four pillars -- Commonwealth Bank of Australia (CBA), Australia & New Zealand Bank (ANZ), Westpac (WBC) and National Australia Bank (NAB) -- are among only 18 banks around the world that retain a double-A credit rating.

To date, the banks' high credit rating has given them access to wholesale markets -- particularly to international interbank lending facilities -- which provide up to a third of their funding needs. But the action of the U.K. government this week to guarantee term funding raised by that country's banks might prove harmful to their counterparts down under.The limited funds available globally for interbank lending may flow more to British institutions which effectively have a sovereign guarantee that trumps even the Australian banks' high ratings.

According to Fitch Ratings figures, around 60% of the top four Australian banks' wholesale funding matures within 12 months. An unintended consequence of the U.K. government's action could be to heighten the cost and availability of refinancing for Australian banks. At the same time, the strength of Australian banks' loan books -- still viewed as robust by agencies like Fitch -- is under threat as the country's economy slows. Unemployment is edging up, while business and consumer confidence levels are at decade-lows. A survey by Fujitsu Consulting found 800,000 Australian households were experiencing "stress" in making mortgage payments by August, a fivefold increase from March 2007.

In the banks' favor are signs Australia's economic authorities are getting on the ball. The coordinated rate cut this week by global central banks was heralded by a 100 basis point rate cut from the Reserve Bank of Australia the day before. More pro-activism may be needed. Australia now lags behind many other countries in the generosity of its bank deposit guarantees. And given its banks' reliance on wholesale funding, Australia should be at the front of the queue of countries if the U.K. government's measures to support bank funding are to be reproduced around the world.

So be wary before buying any financial stock right now, even if you are planning to buy for the long term. Also, go with a mutual or index fund, rather than specific stock to diversify your risk

Aussie dollar and stock market fall off a cliff!

andy@savingtoinvest.com (Andy) — Fri, 10 Oct 2008 03:05:00 +0000

What is going at the moment? As an investor I am getting destroyed in the US and Australian stock markets, plus the exchange rate is doing me no favours since most of my savings are in Australia. The Dow Jones (US stock market average) has fallen by more than 12% this week, with the ASX down even more sharply by about 15%. The reasons for this market capitulation are simple, fear and uncertainty. Investors, especially professional traders, have lost all confidence in the market due to the twin threats of a frozen credit market freeze (i.e. banks are hoarding rather than lending money) and an impending global recession. Until the uncertainty is resolved in US and global markets, the Australian stock market has little chance for recovery any time soon.

The Australian dollar has been caught in a perfect storm as well. The global resource boom driven by China and India drove our stock market and dollar to very high levels over the last few years, but with a global recession around the corner and a fall off in the demand for our resources – the tide has swiftly turned. Further, the rapid cutting of central interest rates by the Reserve bank, with more to come, has meant that the yield differential between Australia and other countries has narrowed significantly, making investing in Australia less attractive for foreigners. Added to all this, the flight to safety towards the US dollar and Japanese Yen, has basically crushed the battling Aussie dollar which has lost more than 30% in value over the last month alone.

Outlook and What to do

Unfortunately there is nowhere to hide. If you are invested in the stock market and don’t need the cash right now your best bet is probably to ride out current stock market tsunami and hope that stocks recover. Otherwise keep your savings in cash at one of the many high interest savings account available (HSBC and ING are my recommended ones). A 6% risk free return is better than a -20% return. The Australian dollar is not going to recover anytime soon either, but should go back towards US$ 0.75 once things calm down a bit. Also, keep investing in your superannuation, because it is your most effective form of long term investment and the benefits of dollar cost averaging should mean you should come out fine in a few years. In the event that economic conditions get worse, make sure you pay down debt now, build up at least 6 months of emergency funds and starting cutting back on discretionary expenses where you can. Tough times are ahead and it is best to be prepared for the worst.

Market Indicators signal major collapse ahead

andy@savingtoinvest.com (Andy) — Tue, 07 Oct 2008 23:09:00 +0000

Last weeks global stock market falls seems like a distant memory and a much bigger sequel looks to be in the works in this week. The world has caught up to the US, and the domestic credit crisis has officially become a Global one. Who knew that struggling home owners in small town USA facing foreclosure due to dodgy mortgages could impact the financial well being of people living here in Australia, so heavily and so quickly. The doom and gloom news is pervasive in the media and here are some that have really got me worried:

Bailout Failure: U.S. stocks have tumbled as the world's financial crisis didn't appear to be repaired by the $700 billion rescue plan. Since the bailout plan was approved the Dow has dropped more than 12%! So if the bailout plan fails to stem the tide, what is plan B? Do we even have a plan B?

Dow Falls Below 10,000 on Credit Fears in Europe and Emerging Markets Drop Most in 20 Years. European and Asian stock markets have had 4% - 10% drops on top of the big drops last week. The MSCI World Index lost 6% overnight, it lowest level in 3 years. The credit crisis has even spread to the oil rich Middle East with Dubai, the Construction Mecca of the world, finding it hard to get funding for new projects. Some European governments have had to guarantee bank deposits to avoid a panic among consumers. The figurative run on the bank is a real possibility in a number of countries, perhaps even in Australia.

A vicious deflationary cycle is about to ensue: Banks worldwide, stung by $588 billion in write-downs related to toxic assets -- especially mortgage-related securities -- will further reduce the flow of credit, strangling growth. That will push house prices lower, forcing additional losses and making banks even more reluctant to lend. As the credit crisis worsens, businesses will find it almost impossible to raise prices. They will then be forced to close or start laying off employees, which will in turn reduce consumer demand and thus create a vicious downward economic spiral.

Full of doubts, consumers cut spending. This will be the final nail in the coffin of any economy. Consumers have already cut back spending, and further cutbacks coming into the holiday season (which account for more than 50% of retail sales) will mean big job losses and a deep recession in the new year.

Oil drops below US$90 a barrel for the first time since February, and Commodity Prices plunge the most in 50 years. Normally this would be good news and a time to cheer. Unfortunately this is just a confirmation that global demand is expected to slow and as a result the demand for oil and other commodities is expected to fall dramatically. Commodity rich countries like Canada, Australia and South Africa have seen much sharper falls in their markets and currencies than in the US. Gold spikes and $US1000 is back in range this week. Gold, which is traditionally viewed as an investor haven rather than an industrial resource, was a notable exception to the commodity sell-off.

The US dollar and Japanese Yen are rallying because of its perception as a safe-haven currencies. With predictions of a severe global recession in 2009, Investors and financial institutions across the world are reversing positions out of the euro and emerging market currencies that had been financed by shorting the U.S. dollar.

More to come...but the news is not good. A global recession is fast becoming a reality and there is little anyone can do to escape it. My bet is the US Federal reserve and other global banks (like Australia has already done) will soon announce big interest rate cuts to stem the credit crisis - but could be a little too late as looks like the financial crisis has become too big.

Sources: Marketwatch.com, WSJ.com, New York times (Picture), Bloomberg.com

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