We’re rich, employed and can earn a decent return on our money. What have Australians got to complain about, writes The Motley Fool.
Is that it? Is the great sharemarket rally of October 2011 over, before it has really begun?
Overnight, the U.S. S&P 500 fell back 1.3%, the Nasdaq slumping 2%. Apple Inc. (Nasdaq: AAPL) shares dropped 5.6%, after profits missed estimates for the first time in at least six years. Is this the beginning of the end of the glory days for Apple? Our own analyst Dean Morel thinks Apple shares are a long-term sell.
Here in Australia, the S&P/ASX 200 index has followed U.S. markets down, dropping 1.2%. Amongst the leading fallers are Oz Minerals Limited (ASX: OZL) and gold producer Newcrest Mining Limited (ASX: NCM). The latter company, Australia’s largest gold miner, produced 16% less gold in the September quarter than the previous quarter. So much for the surging gold price then…
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European concerns are again dragging sharemarkets lower. France and Germany are apparently split on the role of the European Central Bank (ECB) in leveraging a bailout fund. A riot in Athens didn’t help the mood either, with riot police being pelted with petrol bombs and chunks of marble during an anti-austerity march that drew more than 100,000 protesters. Nice.
You can’t blame the Greek youths for being upset. They have no jobs, little prospect of a job and their government is being forced into taking austerity measures. All this to pay for past excesses, including cushy government jobs, rampant tax avoidance, and joining the single euro currency.
How it will all turn out is anyone’s guess. Meanwhile, the unrest in Greece is set to last at least another day. According to Reuters, tomorrow ships will be docked, ministries and schools shut and hospitals will work on skeleton staff in the second day of a 48-hour strike. Sounds to us like just a regular working day in Greece…
The European clock is ticking
“Time is running out for Europe,” said Paul Zemsky on Bloomberg. “The longer it waits to fix itself, the more uncertainty there is.”
Perhaps we won’t have to wait too much longer for some answers.
Bloomberg reports French President Nicolas Sarkozy flew to Germany to join the talks as leaders assembled in Frankfurt in an effort to narrow divisions before an October 23rd summit. The 57 year old Sarkozy didn’t stay long, promptly flying back to Paris to see his newborn baby daughter. Saving the euro can wait for another day.
We suspect this European saga still has some way to go. Bailouts simply defer the pain from today to sometime in the future. In between, politicians, bankers and Greek rioters hope like hell the global economy can grow itself out of the problem. It’s a long road to hoe, as the Americans, with unemployment stuck at 9%, can attest.
Still, here at The Motley Fool, we remain hopeful, realistically optimistic. And many Australians should be feeling the same. According to The Australian Financial Review, Credit Suisse’s Global Wealth Report 2011 estimates the average wealth level in Australia rose to almost $400,000, making us the second richest in the world, behind the Swiss.
The report was completed in mid-2011, before the latest sharemarket sell off. But reassuringly, Giles Keating of Credit Suisse said whilst the volatility feels dramatic, such short-term ups and downs would not affect wealth levels.
We couldn’t agree more. As we said previously, in 10 years, when we look back to now, we’re likely to wonder why the market was so volatile during October 2011. As a nation, we’re wealthy, we’re in the middle of an unprecedented mining boom, interest rates are low, unemployment stands at a tad over 5%, and the iPhone 4S has just been released. What is there to complain about?
The future is bright
And it’s hardly as if corporate Australia is on skid-row either. Just this week we’ve had upbeat statements from some of the country’s top blue-chip stocks, including CSL Limited (ASX: CSL), BHP Billiton Limited (ASX: BHP), Telstra Corporation Limited (ASX: TLS) and Coles owner Wesfarmers Limited (ASX: WES).
Even our banks are well placed to ride any European debt crisis, according to Reserve Bank of Australia (RBA) assistant governor Guy Debelle.
“The Australian banks are much better placed to ride out these periods of volatility than in the past,” he said in a recent speech.
Is that the greenlight to buy Aussie banks? We certainly wouldn’t suggest selling, especially when Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corporation (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank (ASX: NAB) are all trading on fully franked dividend yields of around 7%.
Too good to be true?
One of the reasons why our banks are better placed includes strong growth in deposits. It seems, whether due to the attractive interest rates on offer, or as a flight to safety away from the volatility of the sharemarket, Australians are content to earn a safe and steady 6% on their money.
With the RBA cash rate at 4.75%, annual inflation running at 3.6%, it’s a great deal. Just don’t expect it to last.
Are you preparing for the day when the RBA cuts interest rates? The Motley Fool has recently released its latest free report, The Motley Fool’s Top Stock For 2011-12. Click here now to request it whilst it’s still free and available.
Bruce Jackson has an interest in BHP, TLS, WES, CBA, WBC, ANZ and NAB. The Motley Fool has a disclosure policy.