wrap up of 2013 and outlook for 2014

paul-clitheroeWith the festive season just behind us, the traditional summer break coming to an end and many of us getting back to business-as-usual for the remainder of the year ahead, now’s a great time to have a look at what 2013 presented to us and what’s likely in store for 2014.

In 2013, the US economy, the world’s biggest, made solid progress – despite wildly bickering politicians. There was significant improvement in unemployment, a big jump in consumer confidence, improving housing values and solid growth in new home building. US company profits are very strong, and the sharemarket hit record highs as 2013 ended.

While our media fretted about the state of the Chinese economy, with some dire warnings about slowing growth impacting on our exports, growth in fact was running at around 7.6% at year’s end. Incidentally, China is now our biggest export market by a large margin. I don’t see this changing in my lifetime and I suspect my children’s as well.

Here in Australia during 2013, with relatively low levels of unemployment, historically low interest rates, low inflation, strong share market returns and rising property prices, it would be difficult from a financial perspective to paint a gloomy picture. Sure, as always there were winners and losers, and I do appreciate that retirees have not been enjoying the low interest rates on their savings, but hopefully this was more than offset by strong share and property prices. This has always been a powerful argument as to why we should diversify our investments as we move into the capital preservation stage.

I have been saying for some years that as interest rates fall and property prices have struggled just to keep pace with inflation, that property, in particular inner suburbs close to public transport, cafes and lifestyle facilities, was due for a run – and sure enough, in some of our capital cities at least, that happened. Also, with falling interest rates, shares with their high dividends looked to be well priced, but the 1,000 point increase from the mid 4,000’s to the mid 5,000’s made 2013 a very nice year for investors and super fund members.

The obvious risk to any forecast for 2014 is the totally unexpected catastrophic event, but pending an absence of asteroid strikes, major terrorist attacks, recurrence of bubonic plague and the like, 2014 actually has less uncertainty than 2013. At the beginning of last year I was a little anxious about the state of Southern Europe, but to my great interest Greece, Spain and Portugal, while still suffering from very high unemployment, tough government budget cuts and a severe recession, have shown tentative signs of improvement. Even Spanish bank shares, which have been selling at prices that effectively reflect a bankrupt company, have started to improve.

So while there will be lumps and bumps across the global economy, the evidence is of growing consumer confidence globally as 2014 kicks off. Locally, with such low interest rates, high levels of employment, good wages and a growing population, the situation augers well for decent shares and well located property. My one caution is in regard to interest rates. It is very obvious to all of us, but globally interest rates are at historic lows. Sure, if there are some bumpy moments this year, interest rates in Australia could drop another quarter or half percent. But seriously, as 2014 begins the official cash rate is 2.5% – so clearly there is not a lot of room to drop, but a lot to go up! The message is clear – don’t be over-geared!

Overall, I am more confident about a pretty good 2014 than I was about 2013. In fact, 2013 surprised me on the upside. So barring the really unexpected, I am looking forward to a positive 2014. Time will, of course be the judge, and we’ll review the reality of what 2014 brings us, twelve months from now. Meanwhile, I wish you a happy, healthy and prosperous year ahead.




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