Sent: 18-12-2007 14:00:03
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Dr Don Stammer's article in The Australian last week contained a list of his famous X Factors which he defines as a powerful influence that was "not even thought about when [a] year began." His article lists all his X factors since 1982.
Stammer lists contenders for 2007 as the sub-prime problems, the tripling of China's share market, the sustained boom in commodity prices, the decoupling of the US and the western Pacific economies, the huge financial market moves around the time of mini-panic of mid-August and the RBA's interest rate increase just before November's election.
Stammer votes for the RBA move as his 2007 X factor because it "puts beyond doubt the Reserve banks independence and its desire to restrain inflation" and believes that this move "will not be wasted on the newly installed Rudd government".
Whilst I don't disagree that the RBA's move is indeed important I personally would have voted for the financial market reactions since the sub-prime problems surfaced as an area of interest for the media and journalists.
I also fancy the sustained increase in commodity prices as another potential Factor X for 2007. For sometime now some serious players have been expecting it to end "soon". ABARE - the fed governments agricultural and resource economic forecaster - is predicting that these high prices will continue throughout 2008. As soon as we begin to regularly hear that "this time's it's different", we can be almost certain that we have reached the beginning of the end.
The sub-prime problem had been whispered about before 2007 began and thus I don't think it was a Factor X contender. The impact it would have was unknown but logically one would have expected it to push markets down where they would have stayed whilst the mess was sorted out.
However it is worth remembering that the sub-prime debt problem is 1.4% of total global equity markets. This huge figure will not stop some people predicting prolonged doom and gloom. It especially will not stop those who can make a lot of money out of the problem trying to push markets in directions which maximize their profits.
If one were to believe the mainstream media's implacable commentary, and the experts they call upon, one would expect the US to head into a deep recession sometime in 2008. The data from the US economy does show a slowdown but it doesn't point to a recession. If businesses cannot borrow because the lending markets remain frozen then there will almost certainly be a recession.
The bull and bear sentiments are pushing the markets in their chosen courses. It will be interesting to see who ultimately wins.
As Stammer points out, his Factor X by definition cannot be predicted and hence it is futile to try and guess what 2008's Factor X will be.
Finally, a kind person told me that the ATO has produced a new SMSF Trustee Questionnaire which seeks to test the trustee's knowledge. Apparently it asks trustees to briefly explain the trustee's understanding of the sole purpose test and the fund's investment strategy. Other areas of knowledge are also tested. At the time of writing this comment I had not been able to get a copy of it from my ATO media contacts. If someone has a copy of it, I would be grateful if they could send it to me either via email or fax (02 8569 0119).
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