Special Market Update

Here are my comments with regard to the recent market volatility:

• The All Ordinaries Index was 4.5% lower this afternoon.

• Since the April 2011 high of 5,069.50, the All Ordinaries Index has fallen 18% to 4,157.20.

• The Standard & Poor's 500 Index last night fell 4.8% which is the biggest one-day drop since March 2009.

• The VIX (Chicago Board Options Exchange Volatility Index) jumped 35% to 31.66 in New York, the highest close since July 2010.

• The MSCI All-Country World Index of stocks in developed and emerging markets slid 4.1% to 311.60, falling 13% from its May 2011 high.

• The slow and steady US recovery now appears to be unravelling to a certain extent as investors are now fearing:

  • A US recession given the weaker economic data.

  • Concerns about the ongoing European debt situation.

  • The lack of resolve in regard to the debt ceiling issue in the US.

  • High unemployment.

  • Slowing consumer demand.

  • Declining house prices.

  • The likelihood of decade long austerity measures that may further crimp economic growth.

• There is speculation the US Fed will start a third round of quantitative easing or QE3. However, the effectiveness of any additional fiscal program in terms of generating sustainable economic growth and reducing unemployment remains questionable given the lack of change post QE1 and QE2.

• Economic growth momentum in Asian regions may slow, however the overall growth rate is expected to continue supporting commodity prices.

• China is expected to remain the major driver for economic growth for Australia in 2011/12.

• Australia has the strongest GDP growth, lowest unemployment, highest interest rates, highest terms of trade, and strongest AAA rated Federal balance sheet in the OECD.

• Australian corporate and household balance sheets are in good shape after 3 years of deleveraging.

• I read a broker report where they believe the events of this week in markets and commodities will ensure the Australian RBA slashes cash rates.

• All the reports I read confirm a positive medium term outlook for Australian shares although the short term will be a difficult period.

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.