Times are tough all over, and that MIGHT just be a good thing.

The end of 2008 and the start of 2009 see all the big economies, the US, Europe, China, in a slowdown mode. This is a flow-on from the ‘credit crunch’ which has made it much harder for companies and individuals to get credit.  Consequently this is affecting consumer spending and hurting share markets because consumers aren’t buying at the level expected by companies and so their profit outlook, and their share prices, are falling.

Many Australians have found it tough both financially and mentally especially here in the UAE due to the current uncertain economic environment (loss of job security, fall in investment values, negative equity). Questions most people and not only Australians are asking themselves are;

·         Should I stay in the UAE - Middle East or go back home?

·         What are the tax implications for me staying or going? 
·         I have some available cash right now earning me very little are there some better options available to me?
As I continue to tell my client base it is important to view all of these questions in light of the bigger picture and look to the past when we have seen conditions like this before.

We have all read in the international and local papers about the massive job cuts that are taking place. The UAE has experienced a combination of extremes in employment, rapid recruitment and now drastic job cuts. In Australia as well we are seeing a rise in unemployment in what we thought was a bullet proof industry, mining in the north (Rio Tinto/ BHP). 

This is not only happening in the UAE/Australia, world wide as well there has been discussion to the predicted US unemployment rate for the end of 2009 hitting 9% (it was previously around 4%) before it turns around at some point in 2010. The actual rate is not the problem the problem is the rate at which they are being lost if we look at the USA some 1.1 million Americans – young and old, male and female – have been fired from their jobs. 

Now, I know 9% unemployment seems like a truly dreadful figure. Certainly it is enough to stimulate many governments around the world into taking action and we have never seen before or are likely to again. In most European capitals, mind you, they would call 9% pretty much full employment. And if you look at one country in particular, Spain, the unemployment rate stands at 24% at the time of this article. 

Our economies in the past have been primarily driven by borrowing and spending, and realistically speaking, an additional 5% of Americans cutting their spending by half due to joblessness (even the unemployed have to eat, right?) is not really enough to scuttle that economy. As for the rest of the people who are employed (in the USA 91% are still) they are actually increasing their savings and not spending it on things like holidays, clothes which keeps the economies of the world moving forward.  

This has lead to the governments looking to boost employment by implementing Stimulus Plans. In the last month the US unveiled the Financial Stability Plan, Australian launched the Tax Bonus Payment (unfortunately we don’t qualify for the $950 unless you where a tax paying resident in 2007-2008) and the EU governments will launch similar initiatives as well. All this is aimed at making the 90-95% of us employed more comfortable about spending our hard earned money and maybe this will get this ball rolling again. Tax rates will be another part of this plan in the coming years and expect to see some changes in the 08/09 budget.

Given the actions over the past few months, what are the indicators investors need to watch? Around the world we have seen some big interest rate cuts, my own mortgage payment has reduced by a large amount, however these always take time to feed into an economy. What we really need to watch is the effect of the interest cuts we have already seen and how quickly economies around the world react to the different stimulus packages already provided. 

The green shoots are starting to sprout and markets have risen since the bottoms of December 2008 which is usually the first signs of recovery. If you look at recessions in the past economists predict this one will last around 20 to 22 months, which would make it the longest since the Great Depression. Given that the start of the problems occurred in December 2007, we are between 13 and 15 months into the downturn. Markets typically bonuses back an average of almost 20% from market trough to end of recession in the past five US downturns. 

However for the continued growth of the markets the banks need to continue lending which most are not. When they start to put money to work again, things will start to improve. The other big litmus test is the US housing, which is a huge problem for the US economy. Personally I’d like to see some more stability as the reduction in value has wiped out a lot of personal wealth for the home owners out there. Once there is a drop in forced sales and foreclosures – which means people are again able to meet their loan repayments – we’ll know that the stimulus measures are having some impact. 

One of things that really hits home as a lesson from all of this is diversification – both in funds and within your overall portfolio. Most people have been overweight in property over the past few years and if we all had 20 - 20 hind sight we would have sold this last year however it is important to have a balance.   Just as now a lot of people are sitting on cash right now. Given the current interest rates world wide now would be a good time to start to get back into the markets in order to diversify your asset base. Just as it was a mistake to be obsessed with shares in the boom times, it’s a mistake to be obsessed with cash now. Cash isn’t always a king, but it is often your friend. 

This is often a question we are asked by many expats, the timing of the move. Sometime this is taken away from you, as some expats have lost jobs and we have to manage as best we can, and sometimes it comes down to careful planning. Right now if I look at the options for many of my clients here financially, one year in the middle east is probably worth three back home if the money is budgeted and invested correctly. In terms of your own situation it is best if the advice is done on a one to one basis. If you can move to another offshore jurisdiction and remember the reasons why you first came overseas, carrier development, an experience more money, to save a deposit, now is a time to really refocus your goals. 

Typical questions for non Australian Citizens who are seeking to migrate to Australia and also Australian Citizens who are looking to return to Australia, are the following:

It is important that you speak to someone with regards to all of these issues! If you leave it until you arrive in Australia it may be too late. 

What am I doing for 2009?

There's no doubt that focusing on your long-term goal is easier to do when markets are growing and are strong. When markets start falling, however, it's not uncommon for some investors to get nervous and try to halt the falls, usually by moving their investments out of growth assets like shares and into more defensive asset classes, like cash.

I believe (as many of you should) that whilst times are tough all over if we look at our current position and feel that we are safe then cash is not a great long term investment and we should consider other alternatives for our regular monthly surplus and/or lump sums. 

In 2009 there will be many opportunities, after reviewing my own goals and objects for this year I have started to get back into the markets on a monthly basis. I might not be investing at the bottom however I will be there when the markets do recover as they do in times like this. If you are moving back to Australia there are some questions you need to ask yourself (highlight above) and we can manage this for you going forward.