Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want – and their kids pay for it. – Richard D. Lamm

Welcome to our first newsletter of 2010
The quote above highlights the concerns that many have about how the deficits incurred by governments over the past 18 months are going to be repaid. Has our government mortgaged the future of our children? The key question is whether the economic recovery can continue as governments wind back their stimulus packages.

With the All Ordinaries knocking on the door of the key psychological level of 5000 many investment experts are bullish in their outlook for 2010.  The following is a link to the predictions of some of the worlds’ biggest investment banks and investment gurus: Investment Outlook 2010 Summary

As we enter a new decade I can’t help but wonder if all this bullish sentiment is overly optimistic. Rising interest rates and high unemployment levels remain a concern and whilst the market has shrugged off concerns about high debt levels I expect that volatility will remain throughout 2010. As always the key will be company earnings.

Australian has been largely insulated from the effects of the GFC due to continued demand for our commodities and the financial strength of our financial institutions. However global economic growth is weaker than in past recoveries and much of that growth is attributable to government stimulus packages. What will happen as this stimulus is wound back is anyone’s guess.

My advice is to proceed cautiously and invest on a regular basis with a long term view. Whilst the 80’s and 90’s delivered high double digit returns the GFC at the end of the noughties corrected those excess returns.  I expect that investment returns over the long term will be closer to the historical average of approximately 11%. A lot of cash remains on the sidelines as the markets “climb a wall of worry” but this cash hoard should provide support for the market in the event of a correction. 

I am looking forward to 2010 and the opportunities and challenges that it brings.



Michael Lannon
Managing Director