The State of Play 2012

So, here we are back on deck again. The children have been packed off to school (humid and raining of course), the tan lines are slowly disappearing and February detox has begun. Somehow, despite all our best intentions, it’s hard to feel as if the working year begins until after Australia Day.
 

But get our heads back in the game, we must. So, where do things stand? I am harbouring a strong desire to take stock of where we are and to tentatively look ahead to the coming year although making predictions is notoriously difficult (even for the most highly regarded and qualified professionals in economics and finance, to which I can make no claim).
 

A funny thing happened in January. Despite the pervasive doomsday scenarios the markets actually rallied 5% in January for the first time since 2006. Can it be that the markets are looking through and factoring in all the bad news surrounding Europe and US debt crises? Has all the hand wringing and procrastination by the European autocrats in dealing with their problems left the rest of us falling asleep waiting for them to take some decisive actions and pondering if it is all as bad as it sounded at the end of last year?
 

Make no mistake, if there is a cataclysmic event in Europe the reverberations will be felt in markets worldwide. However, there are positive signs emerging in the US economy giving a few analysts something to smile about. I reiterate my statement on predictions – they are always perfect or imperfect in hindsight so I am making no bold prophecy of spectacular share market gains. It’s very much still a wait and see game.
 

All the talk has been of lower than expected inflation and the potential for further rate cuts after the RBA dropped them by 0.25% on Melbourne Cup Day and then again in December last year. I wouldn’t be betting on banks passing on full rate cuts (if any) given their long term funding continues to be higher than expected. To hedge your bets it may be better to look at shorter term deposit rates so if rates do a U-turn in an upward direction you are well poised to take advantage.
 

Again the doomsday scenarios persist (but don’t they make great copy!). There have been drops in the market, no question, however it seems to be in a rather calm and quiet manner not in the precipitous fashion predicted.
 

For homeowners looking to upsize (with the corresponding ability to finance this purchase) – it represents a good buying opportunity. The lower to median house prices have remained relatively steady. It is the premium and prestige properties (not to mention the coastal holiday home market) that have real estate agents recommending to their clients that they “meet the market” and drop their prices. All power to you if you sit in the lucky group of buyers accessing this market.
 

However, I wouldn’t be rushing out to buy an investment property on the basis of strong capital gains over the next few years. It would be a brave property forecaster who started blowing that particular horn. Rental yields have been holding and hopefully if you do own an investment property, the mortgage is not onerous. If not, take your medicine as the Europeans must, and find ways to “deleverage”. If that’s through trimming your budget or doing more on the income side (working on your own economic growth plan!) either way will help get the black cloud of debt off your shoulder. I know, I know, always easier said than done.
 

So that’s my two cents worth on the state of play for this year. Hope that gets you thinking and your head back in the game after any Christmas binge you may have had. I, for one, am certainly feeling the after effects in my purse and in my jeans. On that note I bid you adieu and head off to my 3^rd gym session for the week. Oh yes, my exercise halo has taken on a rather nice shine in the last week. More on that later.