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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Joe S Pack who wrote (47631)	3/19/2009 10:33:39 AM
From: TobagoJack	Respond to of 217849

just in in-tray · The recent stock market rally has all the signs of being of the classic bear market kind since it has been led by the financials. The dollar would need to weaken more and the credit spreads to narrow more to convince GREED & fear of its sustainability. · The key issue for markets remains whether American policy makers will address the banking system issue in a more convincing manner. Fiscal stimulus now in the absence of a coherent response to the banking crisis would be the economic equivalent of a “sugar high”. · This week has finally seen the Fed embark on quantitative easing precipitating an all too predictable collapse in US Treasury bond yields. The focus on credit spreads is maintained by increasing the Fed’s purchase of mortgage-backed securities. · As the politicians seek to divert attention on to the bonus issue, the real AIG scandal is that taxpayer money was spent so precipitously to bailout other financial institutions in the name of avoiding “systemic risk” with AIG used as the convenient conduit. · While caution in Australia has begun to grow about the condition of the domestic economy, sentiment remains way more sanguine than in most other parts of the global economy. Australia will prove to be late cycle in the context of the debt deflation bust currently gripping the Western world and now ricocheting through the rest of the global economy. · GREED & fear is convinced that it is right for Asia Pacific ex-Japan investors to remain zero weighted Australian financials in the context of a regional portfolio. This strategy has worked since the summer of 2007 when the global financial crisis first erupted on investors' radar screens. · As for domestic fund managers, GREED & fear’s advice this week has been to be overweight resources relative to financials in Australia because of the continuing view here that the next few months will likely see further evidence of the Chinese stimulus gaining traction in the domestic economy. While the key reason for aggressively underweighting Aussie banks remains the risk of rising NPLs and further dividend cuts. · The offshore wholesale funding dependency still makes Australian financials vulnerable if there is a renewed round of global risk aversion in coming months causing investors to question government guarantees. Other key vulnerabilities are the low level of loan-loss provisioning and the high leverage of the Australian household, which makes Australia vulnerable to rising consumer-related NPLs. · If NPLs are to pick up, the most likely area is in the mortgage market. Still, one significant positive is that mortgage borrowers are immediate beneficiaries of short term interest rate cuts. Another point to consider is the potential distortions posed by the long running Australian policy of encouraging first time home ownership. The obvious risk here is that people are being encouraged to buy houses who cannot really afford them. · The Australian system of superannuation has been a virtuous cycle with the long bull market in Australian equities which ran from the early 1990s to 2007. But the risks are now growing, with an estimated 50% of these super funds in equities and another 10% in real estate. GREED & fear has an instinctive distrust of such compulsory savings schemes. · GREED & fear’s view remains that the bourgeois concept of “retirement”, and indeed the whole system of pensions, will prove to be a victim of the current financial crisis in the Western world. This will be a consequence of the collapse in equity prices and the related collapse in short and long term interest rates which will undermine the assumptions of long term retirement planning. · Australia does have one potential outstanding growth story in the world of equities. That is the gold mining sector. There is great potential for the interest in this sector to grow dramatically, most particularly if gold becomes a much bigger part of the local benchmark index which GREED & fear assumes will be the case. Australian domestic investors should be as overweight gold stocks as they are allowed to be. · Since the sovereign guarantee was introduced in December Australian banks have raised more than A$62bn or about half of their projected offshore funding needs for this year. This has removed the systemic risk from the Australian banks for now. Still GREED & fear views them as risky investments from the standpoint of an equity investor. · Australian banks also remain vulnerable to renewed escalating risk aversion globally. The most likely source of renewed risk aversion in coming months remains Euroland and its periphery. · GREED & fear will use the introduction of quantitative easing in the US, and the visit to Australia this week, to add two further percentage points to the investment in Lihir Gold and a further one percentage point to Newcrest Mining in the absolute-return portfolio. This will be paid for by removing the investment in China consumer stock Want Want.