Financial Tools
  Client Portfolio Access
  New Client Kit
  Enquiry / Seminar Registration
Hot Issues
An investor's personal trainer
SMSF trustee penalties going up
Contraventions rife among non-advised SMSF trustees
Dealing with investor uncertainty
Reserve bank gives the economy a lift
Retirement planning: the gap between intention and reality
Market Update – April 2015
Budget 2015 - some professional opinions
Australian Government - Budget 2015
What does the ATO want from you?
Making sense of the new excess contribution rules
Greying, working and contributing
Simple-yet-smart investment housekeeping
Market Update – March 2015
Customer-centred innovation underpins high satisfaction among financial advice customers
Two sides to the age profile of SMSF members
Actuaries call for end to superannuation policy tinkering
ATO urges caution on pensions
Market Update - February 2015
Aussie economy shifts gears as structural changes take hold
The catch 22 of retirement savings
Are there reasons to help the tax man do his job?
Some financial terms explained
Small business paradox
Good financial planning finally has a value: 23% more income in retirement
Articles archive
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Quarter 3 July - September 2014
Quarter 2 April - June 2014
Quarter 1 January - March 2014
Quarter 4 October - December 2013
Quarter 3 July - September 2013
Quarter 2 April - June 2013
Quarter 1 January - March 2013
Quarter 4 October - December 2012
Quarter 3 July - September 2012
Quarter 2 April - June 2012
Quarter 1 January - March 2012
Quarter 4 October - December 2011
Quarter 3 July - September 2011
Quarter 2 April - June 2011
Quarter 1 January - March 2011
Quarter 4 October - December 2010
Quarter 3 July - September 2010
Quarter 2 April - June 2010
Quarter 1 January - March 2010
Quarter 4 October - December 2009
Quarter 3 July - September 2009
Quarter 2 April - June 2009
Quarter 1 January - March 2009
Quarter 4 October - December 2008
Quarter 3 July - September 2008
Quarter 2 April - June 2008
Quarter 1 January - March 2008
Quarter 4 October - December 2007
Quarter 3 July - September 2007
Quarter 2 April - June 2007
Quarter 1 January - March 2007
Quarter 4 October - December 2006
Quarter 3 July - September 2006
Quarter 2 April - June 2006
Quarter 1 of 2008
Good times to return, date to be advised
Fed offers $US100 billion more to banks
Reality strikes.
Wash Sales
Investment Markets Data - To 29th February 2008.
Face the reality of super savings
Inflation tipped to stay above target.
Tax Changes under Labor
Investment Markets Data - To 31st January 2008.
Market Update.
How investors will be impacted by a Rudd Government
Stage two of the super revolution.
Investment Markets Data - To 31st December 2007.
Good times to return, date to be advised


The Governor of the Reserve Bank, Glenn Stevens, is not into market timing.

This might seem at odds with his role as the country's most influential banker that requires decisions based on forecasts of future economic activity.

But if you look at his speech this week at a financial markets conference in Sydney which gives a great context for the international financial market turmoil of the past six to eight months you also get a sense of why precise timing of market moves is such a difficult thing to pull off.

First the good news. Despite the impact of the US sub-prime collapse on the financial services sector the Australian system has stood up well and while there are clear signs of pockets of stress across companies and households there is no evidence that a sub-prime type collapse is lurking beneath the Australian banking system landscape.

Stevens traces the genesis of the recent market turmoil to back to the 1990s - in part he argues that the Asian crisis of the late 1990s and the determination to avoid a repeat of it was a factor, along with the sudden rise in Chinese incomes.

Stevens says that that combined with an unusually stable period on the macroeconomic front which resulted in a "great moderation" in volatility that saw default rates on corporate debt, even sub-investment grade, fall to unusually low levels during the past decade all helped fuel the situation.

"In my mind there is little doubt that this lowered perceptions of risk �" Stevens says.  "In this environment, the search for yield continued. This saw end investors consciously begin to accept more risk in order to find the returns they were seeking."

Stevens says this provided the backdrop for the development of new financial instruments. "The innovative financial community obliged and provided ever more sophisticated ways of achieving the returns desired by investors. The innate complexity and, in some cases, opacity of these instruments made their properties hard to assess. With this reduced transparency, it was easy for investors to underestimate the risks that they were taking on," Stevens says.

Regulators, central bankers and private bankers were not blind to this, according to Stevens, and "eventually something was going to occur that would trigger a reappraisal of risk".

He says any number of events from credit rating downgrades on some major US companies' debt, a default on foreign debt by Argentina, the large rise in the oil price or the tightening of US monetary policy in 2006 could have triggered the reappraisal of risk but barely dented financial sentiment until the full scale of the sub-prime mess became clear.

So if you accept Stevens' argument then a group of some of the world's top central and private bankers knew the situation could not be sustained - they just didn't know when the credit merry go round would end or what the eventual trigger might be.
And it is the sentiment swings that are clearly the hardest to try and time decisions around.

Our Reserve Bank Governor now sees the pendulum having swung dramatically the other way. While he is not downplaying the challenges that still lay ahead and says that financial institutions and investors have continued to be wary of what credit losses may yet be unearthed.

Despite that "it appears that some very high-quality assets are valued at prices that embody extremely pessimistic assumptions about returns".

"Real savings are still flowing into pension funds, insurance companies and other institutional investment vehicles. This is genuine capital, seeking a productive use. But these investors appear to be taking a more cautious approach to risk, given the short-term uncertainty over asset valuations.

"At some point investors who are currently on the side-lines will need to summon enough confidence to take up the opportunities for profitable exposure to risk."
He does outline what he believes investors will need before we can call an end to this saga. Investors will need a reasonable level of confidence that the bulk of the losses have been disclosed and risks to asset growth from the slowdown in major countries are manageable and within normal parameters.

Bottom line is that Glenn Stevens believes this credit crisis and economic cycle will pass - it's just the timing he is unsure of.


By Robin Bowerman
Smart Investing
28th March 2008
Principal & Head of Retail, Vanguard Investments Australia




  Financial Advisor | Financial Planner | Financial Adviser | Financial Planning | Financial Planner Sydney