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Normally our old pal, Diggers & Drillers editor, Dr. Alex Cowie writes to you on Mondays. But today the Doc is standing in the cold outside the Holden factory in Port Melbourne.
What’s he doing there? Protesting job cuts? Looking out for the latest Commodore? Or something else? We don’t know. But we’re sure he’ll tell you about it soon.
Until then, how are you enjoying the global recession? Well, get used to it, because one top money-man says it’s got at least another six years to run…
Last week International Monetary Fund chief economist Olivier Blanchard told reporters:
‘It’s not yet a lost decade. But it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.’
That’s gonna hurt.
Of course, Mr Blanchard’s revelation won’t surprise you. Because we’ve written about the Western world’s lost decade from the moment the world economy collapsed in 2008.
We even compared what would happen to the West with what’s happened in Japan. At the time we were pooh-poohed, ‘Oh Kris, Japan is different, it’s blah, blah, blah…’
Not so different huh?
Broken for 18 Years
But we still think Mr Blanchard is being optimistic. As recently as 6 June we wrote an article titled, ‘How This Bear Market Could Last Another 18 Years…Just Like Japan’s’.
We wrote that article on the back of a Bloomberg News story that the Japanese stock market had hit its lowest point since 1983. The article referred specifically to the Topix index. We don’t have a chart of that index, but we can show you the Nikkei 225, which tells pretty much the same picture:
The Japanese market peaked in 1989…at the end of a credit bubble. Since then, things haven’t looked so good. As we wrote in the 6 June article:
‘It has been a rough time for Japanese stock investors.
‘An entire generation of Japanese have lived through a bear market. Japanese investors who were 18 when they bought their first shares in 1989 are now 41 years old.’
The good news for those 41 year olds is that they’ve still got plenty of years to make up for lost time. But it wouldn’t have been quite so good for the 60-somethings who were about to hit retirement in the 1990s.
To put that in context, an 18 year old who bought their first shares when the market hit an all-time high in 2008 is now 23. So five years of falling or sideways stock markets means nothing to them.
Australian Stock Market to Halve
But in 2030, those 18 year olds will be 41. They could be parents by then…some could potentially be grandparents. And if the Japanese experience is anything to go by, the Aussie stock market is heading back to 1990s levels:
By the time these young people hit middle age they’ll have experienced nothing but falling stock markets, central banking money printing and government intervention.
To them, that will be normal. They won’t know what it means to work in the private sector, earn wages and make profits.
Even so, at 41 they’ll still have time to learn the meaning of free markets and entrepreneurialism. And they’ll still have time to invest to make up for the lost decades.
But if you’re nearing retirement today, or you’re already in your 40s, you can’t afford to wait any longer before making some key decisions on saving for retirement.
If the market is set to halve over the next 20 years, for someone in or near retirement, it will likely cover the rest of their life.
As professor Eswar Prasad told the Financial Times:
‘The global economic recovery is on the ropes, battered by political conflicts within and across countries, lack of decisive policy actions, and governments’ inability to tackle deep-seated problems such as unsustainable public finances that are stifling growth.’
See, governments are incapable. The only positive thing they can do is get out of the way. But that will never happen. Governments will always try to do more.
In short, the one thing you can’t afford to do is rely on government pension handouts. So what can you do?
Plan for Retirement Now
We’ve highlighted many times over the past four years a simple course of action. That is to take more responsibility over your own life and your retirement savings.
We’ve suggested that you start segmenting your wealth. Divide savings into ‘safe money’ and ‘punting money’.
Buy gold, stick cash in a term deposit, buy dividend producing shares. That’s your ‘safe money’.
The amount left over is your ‘punting money’ (say 5-20%). You use this to buy growth assets: small-cap stocks, trading blue-chip stocks, or even buy gold and silver for short-term gains (or short-sell it if you think it could fall for a time).
But maybe you’re after something more specific. Well, we do what we can in Money Morning. And we’ll take things up a notch in Pursuit of Happiness where we’ll tackle some of the non-financial issues that impact your life.
But as for something more specific, we could have something for you soon. Our old pal Nick Hubble has spent the past year working on a project that covers the very issues we’ve mentioned above.
That is, how to save and invest for retirement during a bear market and global economic recession.
We’ll have more updates for you on Nick’s project soon.
Cheers,
Kris
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