Money
Issue No. 45 - Feb/March 2009
Springtime won’t wait for the robins
by David Middleton
Good riddance to 2008, a year that will not be remembered fondly.
It was the year when fundamental investment values didn’t matter – the price of shares fell more dramatically than they ever have before.
It was the year of increasing despair as US and European financiers’ fear of their own bad deeds in 2007 and earlier years fed upon itself and afflicted the real economy and good companies. A year when, in retrospect, there were investment opportunities but also reasons for caution.
Last year we said: “2008 is a difficult call. There is every reason to be confident about the long-term future and every reason to be cautious about the short term…. We have seen excesses in real estate pricing and overbuilding in some sectors….we have difficulties in loan markets, especially in the USA but with worldwide implications….
There are inflationary pressures building in the domestic economy…. The prognosis is for higher energy costs, higher water costs, higher food costs…. The Reserve Bank is aiming to contain domestic inflation by increasing interest rates and there is always a chance they will go too far and tip the economy into a slowdown.”
While the signs were there, no one was clever enough to foresee the extent of the difficulties or the way they compounded on each other – we certainly weren’t. This collapse was different. It is common for the banking sector to suffer as a result of recession but rare for the banking sector to cause one. Share market valuations were not excessive, and while deep value was difficult to find, there was no hint that underlying value was about to be ignored. Just as it is impossible to predict irrational greed, it is equally impossible to predict irrational fear.
Caution was insufficient, concern would have been >better, and downright fear would have been right on the money. Hindsight!
For investment ideas we look to the future. No-one can say what will happen in the short ...
