Julia Gillard Says Not to Worry – That’s a Call to Action to Protect Your Nest Egg

I am actually a fan of Julia Gillard’s and believe she should have been the PM. But as the Acting PM for Australia telling us all not to worry and referring to a June IMF report pre-dating last weeks market gyrations means she is putting the “spin” on things.

The role of government includes calming the people and reassuring them so they don’t panic. When governments think it is important to reassure us, you need to take action. Sorry, that is just the way it is.

Just look at how many pronouncements have been made in the US over the last year telling everyone it was all under control. They’re not liars as such. It is their job to prevent panic and try and work through the issues.

The problem is

it is usually the public that gets whacked financially and the smart money gets away. So you need to do the exact opposite to what Julia is telling you. Don’t panic but take controlled steps to get control of your nest egg.

Prof Roubini predicted this mess in 2006 in a Dr Doom article. He said at an IMF meeting,

“In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.”

No one believed him in 2006 but most of it has come to pass. Now everyone wants to talk to him about the likelihood of a deep depression.

Julia Gillard was reassuring us our banking system is sound and not like the US. But this may not be the real problem for Baby Boomers with most of their nest egg invested in Mutual Funds not banks. What happens to our stock market is the real danger.

Its the flight of foreign capital that will crash our market no matter how good our financial system or our stocks are. In 2002 35% of our stock market was foreign capital. Do you think it is less today?

Repatriating capital to shore up the US’ or the world’s ailing financial systems is highly likely. That’s what you do when you are hurting financially. You down-size, cash out and get your money close to you. We are a pimple on the financial ocean and the US is the Tsunami about to crash down on us. We are going to be tossed around.

Weren’t we supposed to be decoupled from the US? So why did the banks drop 40%? Our government assured us our banks were sound and well placed to weather the storm a year ago. I suspect even if our banks were/are okay money left the country to shore up problems elsewhere even then.

Australia’s stock market is not the primary concern of huge international investors. So the market could tank even if our economy is sound. So all this talk of resilience is baseless. We need and rely on overseas money to help prop up our stock market. If capital leaves Australia our market will go down even without the shorting rules.

However it is likely that in the short run the US bailout package will give all stock markets a serious pump and then the smart money will dump stocks. Witness the recent rise in stock prices based on just the bailout rumour alone.

This pumping is likely to be the best opportunity Baby Boomers will have to either get their money out or put in place strategies that limit losses, as the bailout relief rally fades. It’s your “Get Out of Jail Free”card so don’t miss it if it happens.

This is what Julia Gillard said yesterday,

“What we know is that here at home in Australia we can be reassured we’ve got a well regulated financial market and we’re in a very different circumstance to what has happened in the US.

“We don’t have the same exposure to sub-prime loans, we don’t have the same regulatory issues, so while obviously we’re in troubled times, and globally there is so much uncertainty abroad, here we’ve got a well regulated financial sector and an economy that’s showing some resilience in the face of this trouble.”

On the other hand I just heard the RBA has done a deal with APRA, ASIC and Treasury to shore up any potential problems with any of the major banks. This is aimed at making sure one or more banks doesn’t go bust. I think this pro active move is very wise to help protect the banking system.

I don’t know whether that information was released or escaped because our government is much less open than the US on these matters.

However our Government should be working to get information out there on how we can protect our nest eggs especially for the Baby Boomers. If they don’t and the worse does come to pass, we’ll all be taking the pension because our super will be decimated.

Social security is going to take a big hit as Baby Boomer wealth is eroded by irresponsible “buy and hold” practices by fund managers and lack of action to protect nest eggs against large losses when this is seriously warranted right now.

The Government needs to be pro-active on this too. Buy and Hold will not work for Baby Boomer about to retire.

So the banks will be protected – hooray! But there is no protection it seems against a possible share market slump with large losses occurring in your super funds. The government is just as sold as the financial industry is on “buy and hold” solving all the problems – in the long term. That’s not much good if a baby boomer needs their money now.

Remember Politicians don’t have a problem. They will still get paid regardless of what happens to the economy. If their super takes a hit they will make good the losses through act of parliament and use our tax dollars to replenish their retirement funds. (I think their pension plans were replenished once before out of tax payers money but I can’t be sure. If anyone knows for sure maybe they can comment below)

At this time I am hopeful if my money is in the banks it will be protected. They don’t say what percentage deposits would be protected though. I’ll try and find out more. If not I’ll move into treasury bonds if I have to.

Compare Julia’s statements to what Dr Steve Keen, Associate Professor of Economics and Finance at the University of Western Sydney in an interview with Eleanor Hall,

“ELEANOR HALL: How bad will it get?
STEVE KEEN: I did not want to call a depression until such time as enough people in the public were saying so, and when Bernanke and so were talking about that scale then I can say that’s what I’ve been expecting all along.
ELEANOR HALL: How vulnerable is the Australian economy if the US economy heads into depression?
STEVE KEEN: Well quite vulnerable because we have ourselves a substantial level of private sector debt. We don’t have the same level of financial corporate sector debt, that’s the debt of finance companies borrowing from each other. Not that large thank god as compared to Americas.
But our private debt levels, household debt are the same as Americas and our corporate debt is not much lower than Americas compared to our GDP.
So we have our own little pressure on the financial system here which is one of these days going to be manifest and of course if the American economy goes down, the usual story if they sneeze we catch a cold, if they get pneumonia, I think we can at least expect to be in the neighbouring bed.”

I’m not saying panic. I’m saying prepare for a serious down-turn which may be prolonged. Make sure you follow the market up if we do get a bounce from the US Bailout and then lock in the recovered losses with a stop loss or at least leave clear instructions to your financial managers on where to get out.

As I have already said but want to re-emphasise, there could be a “get out of jail almost free” card coming your way. If the US can work out a Bailout package which they surely must and if the shorting rules are still cancelled we might see a huge rally.

This rally could be fuelled by the Fund Managers using huge quantities of other people’s money (yours) to run the markets up without fear of any shorting pressure. They want to book some profits for the period to get their bonuses, but they will also get their own money out of the markets too. Then they will sit back and tell you to “buy and hold” as the market drops. Have stop losses or instructions in place to protect your capital.

Make sure you take action to protect your nest egg.

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