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

To: Cogito Ergo Sum who wrote (68970)	12/2/2010 10:44:04 AM
From: TobagoJack	1 Recommendation Read Replies (3) \| Respond to of 217860

Just in in-tray, per greed n fear · The €85bn Irish package announced on Sunday is not the climactic finale of the Euroland sovereign debt crisis. The decisive issues will be whether Germany ultimately agrees to some collective form of responsibility for Euroland sovereign debt, paving the way for some form of fiscal union, and the level of discounts that will ultimately prevail in the seemingly inevitable debt restructuring. · From a financial market perspective, investors should assume continuing euro weakness for now as the drama plays out. Spain remains the big banana in terms of triggering a more realistic policy response from the Euroland establishment. · The other issue is the growing percentage of banking assets in the PIGS banking systems being funded by the ECB in exchange for doubtless increasingly dubious collateral. Although the ECB continues to shun outright quanto easing, these ongoing liquidity support operations will likely prove in practice to be the back door to full-scale monetisation. · As regards concerns about Chinese inflation, GREED & fear continues to believe that this looks more like a re-run of 2007/2008 when the main driver was food rather than anything more fundamental. The main risk in China, as in most of the rest of Asia, remains asset bubbles rather than a rerun of 1970s style inflation. · The China inflation story is clearly a tactical risk to the Aussie commodity trade even if current fashionable inflation concerns prove to be overdone. Meanwhile, the mining boom in Australia is not feeding into the general economy as much as might have been expected. · There is no doubt that Australian home prices look high relative to history while the household debt to disposable income ratio is also high, most worryingly compared with other leveraged household sectors in America and Britain. Still there is no supply overhang in housing in the context of the relatively depressed trend in residential construction in recent years and continuing population growth. · Most of the leverage seems to be concentrated at the higher end of the Australian housing market. The prime motivating factor here is that people can deduct interest payments against their income tax where they have borrowed money to make investments, be they investments in investment property or equities. This creates an incentive to borrow which creates an obvious long-term risk. · GREED & fear got the impression this week that the Australian central bank is in no rush to raise rates again; most particularly with the lack of evidence of a spillover from the mining boom to the general household sector. The central bank has felt obliged to tighten this year in part because of the demand shock posed by the mining-driven investment boom which is now kicking in. · GREED & fear is comfortable maintaining a long-standing zero weighting in Australian financials in the Asia Pacific ex-Japan relative-return portfolio because of the likely continuing structural decline in the sector’s RoE as a consequence of the long-term deleveraging of the business model. There is also the risk of growing domestic regulation of the banking sector’s cosy oligopoly, in addition to internationally driven regulatory pressures for greater capital backing. · Iceland did not bail out its banks though it did protect domestic depositors. Yet the country is past the worst of its downturn and is now on its way back. This shows that the biggest outrage of the financial crisis is the self-serving lie perpetuated by the obvious vested interests, namely that the global economy would have collapsed if bank creditors had not been protected from losses. What Iceland shows is that this is a complete nonsense economically. · The disastrous consequences of the flawed policies in America and Euroland will not only be economic in terms of the failure to achieve genuine recoveries. Such policies will also undermine popular support at the street level for market economics and capitalism in general. This is because it is impossible, politically, to defend a system where ordinary people get marked to market but the banks and their creditors do not. · When local politics in Hong Kong gets uglier as a seemingly inevitable consequence of the latest over-the-top “anti-speculation” measures, the HK Government may well find that Beijing is more concerned by the political issues stirred up than the issue posed by the Hong Kong residential property market where the fundamental problem remains not speculation but the lack of supply in an economy pegged to US dollar interest rates. Please consider the environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.