Ten years after GFC, experts prepare for repeat

“STUFF happens” … and it will happen again. Ten years on from the global financial crisis, investment experts are raising the spectre of another bust. And they say, inevitably there will be another one after that.

If there’s one thing we should have learnt from the crisis, it’s that such busts are normal. And although there’s little we can do to stop them, there are some tricks to recognising when one may be nearing and to minimise losses.

“I suspect we are facing into a storm which looks worryingly like the GFC — high debt, over-leveraged households and risks in the banking system,” said Digital Finance Analytics principal Martin North.

“It’s worth remembering that within six months of the (start of the) crash, the Fed in the US and regulators in Ireland both declared their banks were strong, home prices were not in a bubble and there was no need to be concerned about the level of household debt.

“They were wrong on every count. Now take a look at recent local comments from our regulators and there is an eerie resonance.”

Mr North said Australian banks had been using mortgages to keep growing their balance sheets, which resulted in an over-reliance on expensive short-term money markets, and meant they were increasingly exposed to international interest rate rises.

AMP Capital chief economist Shane Oliver said investors should get used to the inevitability of economic cycles.

“Stuff happens. While after each economic crisis there is a desire to make sure it never happens again, history tells us that manias, panics and crashes are part and parcel of the process,” he said.

“The big ones, typically, come along every 10 years or so. It’s inevitable that they will happen again as each generation forgets and must relearn the lessons of the past through another bubble.”

That said, Dr Oliver believed the next bust was still some time away.

But investors should still heed the lessons from previous crises. His key lessons are: THERE is always a cycle. Long periods of high returns invariably are followed by something going wrong. EACH boom-bust cycle is different but asset values are usually pushed to extremes before every fall. HIGH returns bring high risk. BE sceptical of products that are over-engineered and hard to understand. AVOID too much gearing, or debt, especially margin loans that may force you to sell when you should be buying. DON’T sweat the small decisions, such as whether resources shares are better than bank shares. It’s the mix of assets such as shares, bonds, cash and property that matters most.

Kirby Rappell, chief executive of research house SuperRatings, said the average balanced superannuation fund fell 24 per cent as a result of the GFC, while growth funds tumbled 31 per cent. But within four years, most funds had recovered their losses.