ASX shares, and the AUD are hammered again. You can run, but you can’t hide, writes The Motley Fool

Some days, investors just have nowhere to hide.

Everything gets slammed, from the biggest – BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) – all the way down to the more speculative end of the market.

ASX companies like WHL Energy Limited (ASX: WHL), Bathurst Resources (ASX: BTU) and Alkane Resources Limited (ASX: ALK), for example, are all taking on the chin.

It’s ugly out there.

The urge to preserve

The temptation is to sell out, before it’s too late. We get it. We understand the urge. Preservation of capital, particularly for those nearing, or in retirement, is paramount. When sharemarkets come crashing down, cash in the bank is a wonderful relief.

Wall Street tumbled 3% overnight Wednesday. Few shares were spared, tech giants Oracle Corporation (Nasdaq: ORCL) and Hewlett-Packard Company (NYSE: HPQ) being the notable exceptions.

These words from the U.S. Federal Reserve did the damage…

“There are significant downside risks to the economic outlook, including strains in global financial markets.”

Gee whizz. Tell us something new, Ben Bernanke.

We bet you can’t guess when the Fed released that statement…

Good guess.

Just like the IMF, and many other economists, Bernanke is telling the market something that is already bleeding obvious. Greece is likely to default, the Eurozone is in one hell of a mess, and the U.S. economic recovery is anaemic.

ASX Below 4,000

The sharemarket is already a few steps ahead of the Fed. As of writing, the S&P/ASX 200 index is trading back below the psychologically important – albeit irrelevant – 4,000 mark.

Year-to-date, the index is down close to 16%. Since the April highs, it’s down close to 20%. This is a bear market in anyone’s language.

As we said above, some days there is no place to hide.

Even gold, that so-called safe-haven, fell 1%, back to $1785 an ounce. It’s now down almost 7% from its recent peak. Some safe-haven, huh?

Bye, bye parity

The Aussie dollar (AUD) slumped back to around parity with the U.S. dollar (USD). We’ve been bears on the Aussie dollar for some time now. Could this, finally, be the beginning of the end of the really cheap overseas holiday?

We hope so. The strong Aussie dollar is hurting large swathes of the local economy, specifically the manufacturing, retail, tourism, wholesale and construction sectors.

What odds the next move in interest rates now being down? Hold that though for a moment…

Thanks, China

China’s insatiable appetite for our resources has both pushed commodity prices to record levels, and helped Australia get through the GFC without technically falling into recession.

It even helped Treasurer Wayne Swan become Euromoney magazine’s finance minister of the year.

We won’t get into the silly, childish political bickering about Swannie’s award, instead noting Euromoney themselves were spot on when they said “…grumpy Australians don’t seem to appreciate how good they’ve had it.”

Grumps

As a nation, we might just be about to get even grumpier.

Our sharemarket is in the doldrums. Our superannuation funds are bleeding. Retirees are seeing the value of their retirement fund slammed.

Unemployment is edging up. It could be set to get even worse. Westpac Banking Corporation (ASX: WBC) senior economist Matthew Hassan is predicting “a significant rise in unemployment in the next 12 months.”

Ouch.

House prices are falling too…

House prices are falling, at the same time (not coincidentally, of course) as mortgage stress has risen to an all-time high, as reported on Fairfax…

“A quarter of Australian homeowners are experiencing mortgage stress and rental vacancies remain tight, driven by higher interest rates, rising costs and a shortage of rental properties in some cities.”

Even our national rugby union team is struggling – not that people in AFL-finals-gripped Victoria and Western Australia would know about it.

Grumps the lot of us…

Here come lower interest rates…

Put all that together and you’d reckon lower interest rates are a done deal. The market is already pricing it in. Over to you Glenn Stevens…

The elephant in the room is commodity prices. Finally, they are showing signs of cracking.

BHP Billiton has warned a slowdown in China could hinder its growth. You don’t say, huh?  Sales to China represent 28% of its total revenue.

“A slowing in China’s economic growth could result in lower prices and demand for our products and negatively impact our results,” BHP said in an assessment of risks to its earnings.

The end of the mining boom?

Take away the mining boom, and what is Australia left with? The word ‘grumpier’ springs to mind.

And it’s not just BHP that are cautioning on commodity prices.

U.S. coal supplier Alpha Natural Resources Inc. (NYSE: ANR) pared its outlook for full-year production because of a drop in Asia demand and lower-than-expected output at some mines.

“That’s a point of evidence that the global economy is slowing down,” said Peter Tuz of Chase Investment Counsel on Bloomberg.

Stephen Wyatt in The Australian Financial Review goes one step further, declaring “The resources boom is over.”

What’s an investor to do?

So, in the face of all this doom, gloom and plain old grumpiness, what’s a sharemarket investor to do?

As usual, first do nothing. Don’t panic. When the whole market slumps 2 or 3% in a day, there is simply nothing you can do but take it on the chin.

As The Motley Fool’s Investment Analyst Dean Morel has consistently been advising, keep your cash levels quite high. And start preparing for falling interest rates.

The stockmarket looks ahead. It has been predicting a recession for some time now, way ahead of economists, Ben Bernanke and the IMF.

In The Wall Street Journal, fund manager Ronald Muhlenkamp summed up the current sentiment perfectly…

“I’m caught as an investor between seeing good companies selling cheap, but also know that they could get much cheaper,” given the political uncertainties in Europe and the U.S.

Timing the bottom of the market is impossible. But buying good shares on the cheap is possible. Just don’t go all-in at once.

Do you want to know what to do if the market crashes again? Request a new free Motley Fool report titled Read This Before The Next Market Crash. Click here for instant access.

Bruce Jackson has positions in BHP, Westpac and Oracle. The Motley Fool’s disclosure policy is never over.

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