Archive for category: Oliver’s Insights

Whenever there are sharp falls in share markets like recently, there is a temptation to wonder whether we are seeing a re-run of the last major crisis. Fortunately, the conditions today are very different to the run-up to the global financial crisis (GFC) which originated in the developed world, notably the US. The developed world hasn’t seen the sort of excesses that preceded the GFC: there has been no generalised bubble in investment spending (housing or otherwise), there has been no asset bubble, there has been no easing in lending standards like that which occurred with sub-prime debt and there has been no build up in inflation pressures or monetary tightening. So it’s hard to see the sort of unravelling in global financial markets that started in interbank lending and credit markets, threatening a seizing up of the global financial system and spreading through all growth assets that we saw through the GFC.

 

The turmoil in global investment markets has continued into this week, although the last few days have seen a bit of stabilisation and improvement in several markets. From their highs to their recent lows major share markets have now had the following falls: Chinese shares -43%, Asian shares (ex Japan) -23%, emerging markets -22%, Eurozone shares -18%, Australian shares -16%, Japanese shares -15% and US shares -12%. Such falls are painful for investors. This note looks at some of the main issues.

Since its 2011 high, the Australian dollar has fallen 34% in value against the US dollar. For some time our view has been that it will fall to $US0.70 by year end with probably an overshoot into the $US0.60s. However, as we all know forecasting precise currency levels is a mug’s game. The key is that the direction remains down and we are likely to see a classic overshoot. This note looks at why and what it means for investors.

I am now getting very wary about going on holidays because invariably markets hit a rough patch whenever I do. That has certainly been the case over the past week with both a sharp pull back in Chinese shares and an intensification of uncertainty regarding Greece.

Two weeks ago it looked like Greece was heading for a deal with its creditors. Then at the last minute Greece’s Prime Minister, Alexis Tsipras, decided he didn’t like what was on offer from the Eurozone, the IMF and the ECB and called a referendum on it. This has seen Greece miss a June 30 €1.5bn payment to the IMF (which the IMF so far has called being in “arrears” albeit a declaration of “default” is likely by the end of July) and its banks shut with limits on ATM withdrawals (as Greeks have naturally been taking their money out for fear their deposits will be redenominated into a less valuable currency than the Euro) and on the verge of insolvency if something is not resolved soon.

The referendum has now been held and the No vote has won, with roughly a 60% of the vote. This note provides an update on what it means and the key things to focus on regarding Greece.

Tax reform is a hot topic in Australia with lots of strongly-held views. There are three main reasons. First, despite the tax reforms of the 1980s, 1990s and 2000s the Australian tax system is still far from ideal. This is highlighted by the Government’s Tax Discussion Paper. Second, some see tax reform as a way to plug the budget deficit; in other words tax reform is actually a euphemism for boosting the tax take. Third, some see various aspects of the tax system as being significant causes of problems in the economy.