Key point1: Recession unlikely, but stagflation much more so in Australia:
Will there be no recession in Australia? No. But looking ahead for economies, you’re going to hear a lot of reference to the word stagflation... What we’ll see this year is very small bear again but there will be a lot of talk.
But one of the things to muse about this year, are the long-term effects of central bank easing. The most aggressive easing I think you’ve seen in your lifetimes occurred in the US, probably more to come. And what are the long-term effects? I’ll come back to that later.
Key point2: Complex and opaque investments are dangerous:
The recent shakeouts we’ve seen in investments markets have become the cleaning up process and began to restore the appreciation of risk. But the big lessons of the last twelve months are the dangers in investments which are complex, highly-geared and opaque.
A lot of people have lost a lot of money on those investments. And you know the irony? Because these investments are so complex, some of them now are selling now at prices well below their intrinsic value.
Key point3: 2008 is beginning with excessive pessimism:
So looking ahead, I think there’ll soon be too much gloom in investment markets. I think we’ll have more days as we did on the fifteenth of August and the twenty second of January. And the key theme is that just as 2007 began with excessive optimism, 2008 is beginning with excessive pessimism. And I think by the end, there’ll be some return of better sentiment.
Key point4: US Fed Chairman will face big challenges in unwinding the recent easing:
I say again that the market’s re-awareness of risks and curbing of excesses, and becoming more selective are welcome. And I do think the US central bank will face a lot of challenges unwinding the recent easing. And in fact, I think Ben Bernanke faces two big challenges. One will be unwinding of the time in a correct way; the easing instead of the now undertaken. And the second is from time to time, getting out of Greenspan to shut up, and let Ben get on with the job.
