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It was a blitzkrieg, but don't mention the war

Tim Colebatch

July 1, 2008

IT WAS the year the market melted. Australian investors saw their wealth rise, fall, rise again, then fall, and fall again. It was the worst financial year on the stock market since 1981-82. And it ended with the worst June on the market since 1940.

June 1940 was the month France fell to Hitler, and German planes started bombing London. Few people would think it's that bad now. But in financial terms, it's a long time since we've seen wealth destroyed so fast.

It's also a long time since rising prices have nibbled away so much of the value of what we earn and own. At the end of March, a typical basket of food that had cost $100 a year had gone up to $105.70. Housing costs had risen just as rapidly, while petrol prices nationwide had risen 19%.

And that was in March, those balmy days when you could fill your tank for $1.39 a litre. The three months since have brought angst to motorists and governments worldwide as speculators and stockpilers have driven oil prices above $US140 a barrel, 10 times what it cost a decade ago, and nearly three times what it was in January last year.

Yesterday, according to the RACV, the average price in Melbourne was 163.1 cents a litre, 26% more than a year ago, with most of that increase taking place in the past three months. To fill a 60-litre tank now costs almost $100, making gas guzzling an expensive hobby.

It's not just petrol that is much more expensive than a year ago. Bread and cereals cost about 10% more, rents are significantly more expensive - and, of course, so are mortgages.

If the performance of the Australian economy over the past decade has been something of a fairytale ride, 2007-08 has been the year it turned into something more like reality.

In 2006-07, share prices rose 24%, making it the best year since 1986-87. Just as that boom quickly turned into a bust, the same has happened this time.

The market index peaked at 6828.7 points on November 1. Over the next eight months, it lost almost a quarter of its value.

If your shares were worth $1 million on 1 November, then on average, they're worth just $764,000 now, as the market has moved back to where it was two years ago.

Falling share values have also eroded Australians' wealth in superannuation, although so much money is flowing into super accounts that the bottom line looks little different.

Your house is worth more than it was a year ago, but it's not clear whether those values will last. Different measures are giving very different figures for the Melbourne market, but those closest to the ground - the agents trying to sell houses - say prices are heading down.

So far the losses have been modest compared with US cities, some of which have seen falls of 20% or more.

But if you're renting, you're in strife. Record population growth combined with sluggish home construction has given Melbourne its worst housing shortage for decades.

In 2007, according to the state Office of Housing, rents rose 12.5%, and double-digit rent rises remain the norm.

And what will 2008-09 hold? See if you can find someone who correctly predicted what would happen in the markets in 2007-08, and ask them.

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http://www.theage.com.au/

It was a blitzkrieg, but don't mention the war

View DEMO Charts Technical Indicators Last Update :- 21st JULY

http://www.theage.com.au/

It was a blitzkrieg, but don't mention the war

View DEMO Charts

Technical Indicators

Last Update :- 21st JULY