Back where we belong … and falling
By Alan Kohler
October 27, 2008

PORTFOLIO POINT: The market has cleared the debts it had borrowed from the future. Now it’s time to repay the interest.

Believe it or not, the sharemarket is back to a level where returns are at their normal long-term average. And they will stay there if the cycle ends now: a bull market followed by a 12-month bear market.

Of course, it clearly has not ended and will not end for some time, for these reasons:

  • Commodity prices have crashed by half in three months.
  • Hedge funds are now dumping a wide range of risk assets, including the Australian dollar, at almost any price to meet redemptions.
  • Residential real estate values are now falling significantly, especially at the top end.
  • China is slowing, possibly sharply.
  • The government has mucked up the protection of bank deposits and continues to do so, sowing panic among managed fund investors.
  • The US, UK and Europe are entering a severe recession that will reduce corporate profits, but is not yet reflected in share prices.
etc etc etc.............