The team at Majella Wealth Advisers wish you a very Merry Christmas and a Happy New Year.

Will 2009 be better?

Many of you had a great year from a business, career or lifestyle point of view, but from an investment point of view, it was painful. With the Australian share market falling 51% from its peak on 1 November last year to a low point in mid November this year, the crash of 2008 will be etched in our memories for many years. 2009 has to be better.

For one, the cost of living will have fallen for many of you:

• Official interest rates are at their lowest since 2001, having been cut by 3.00% in the last three months. This has made home and investment loans considerably cheaper. The savings due to the rate drop on a $300,000 home loan is approximately $7,000pa.
• Petrol prices have fallen, potentially saving you $1,000 a year.
• Child care expenses fell mid this year for many as the Government started rebating 50% of the out of pocket expense on a quarterly basis. For a family with 2 children at day care 3 days a week, this may be giving you an extra $3,000 a quarter.

Find more information here.

The Government is also giving first home buyers more money to buy their home ($14,000 verses $7,000 in the past). If you are buying a newly built home in NSW, you can receive more, up to $24,000.

Find more information here.

And there are opportunities on the investment front...

As pointed out in the presentation at our client function on Tuesday night - see below - there currently appears to be investment opportunities for those willing to accept the inherent risks of the sharemarket:

• Australian shares are currently offering a yield of 6.5%, or 9% if you include the value of the franking credits - very attractive relative to cash at 4.25%
• Australian and international shares are currently very cheap

Majella client function - December 2008

Thank you to all those who attended our recent client function in the lofty heights of Governor Phillip Tower overlooking the botanical Gardens and out to the heads. Not only was the view great, but all agreed the presentation was most informative. Our presenter, Andrew Cook, the Chief Investment Officer of Goldman Sachs JB Were Asset Management, gave us a great overview of what is currently happening in the global economy and in Australia the the ramifications for the investment markets.

Andrew believes that, while there is no doubt that the US, UK and Europe are in or moving into a severe recession, this is less clear to be the case in Australia. He believes that our economy is either lagging the G7, or our recession will be less severe. He also put the current stockmarket crash into perspective with other market downturns - this one was pretty bad - and showed the bounce back in the first 6 months after the trough is typically strong. It averaged +22% after the past 9 bear markets in Australia. Unfortunately, he could not tell us when the market will trough (except it happens before the macro-economic indicators such as GDP bottom), or whether it has bottomed.

He does warn us to expect bad headlines regarding the economy in the new year as unemployment will increase and economic growth will slow, but did point out that asset prices are already pricing in a severe recession. On one of his slides, he says:

"Valuation metrics are universally supportive:

• inflation adjusted PE lowest in 30 years
• Equity dividend yield 2% above Government bond
• Credit spreads highest since great depression."

If you would like to see the presentation, you can download a powerpoint version of it here.

Investment Returns Update

This newsletter and prevous issues can be read on our web site.