PIGS & Bears & a Bull

PIGS & Bears & a Bull


We advised our clients in late January that there might just be a high in the markets. This was that everyone was optimistic & we had said previously when we hear the word ‘boom’ next we sell. We haven’t gone that far but to use another’s term we are being ‘strategically cautious’. Hence we are lightening our portfolios.

There are several major global concerns for 2010 and you don’t want to be caught in between the PIGS & the Bear.

1. ‘G’ which stands for Greece has a total debt of 113% of GNP & last year’s budget deficit of 12.7% of GNP. Hence the need to fund these deficits means the yield is 7.162% today & the insurance against sovereign default has also risen. P = Portugal & S= Spain are no different. I = Ireland & UK where they have had serious house price falls are no different.


What does this mean do you? Well it means that money retreats from the Euro & Pound to the global reserve currency $US and this appreciates against all as the $US is ‘less bad’. Hence you may see the $AUS fall 10c from today’s 90c.

2. The big players in Wall Street will use their strengthening $US to also retreat to. They have made plenty since the $AUS was ~62c & arrived here when markets were very low. Did BHP hit $24? Now is the time for them to repatriate their funds & repeat the downswing or maybe a 2nd leg of the W. This is called the ‘carry trade’. Even when companies produce good results funds are ‘selling the fact’.


3. A third factor is China which has been the ‘Bull’ in the 2009 year. However after all the easy stimulus & credit expansion of 2009 [31% in 2009] the 9 men on the China ‘board’ have decided that is enough. It has caused inflation there to be 1.9% pa in December 09 which is triple November 09. Hence they have reduced lending target by 20%. A reduction in China demand will have a reduction in AUS resource prices.

4. A Victorian stockbroker has listed 50 reasons to be very aware of the Bear & these include bank bashing everywhere, Resources taxes, Woolies with fewer sales after stimulus and other.

5. Here is another 20 reasons why the global debt time bomb may explode soon from another commentator.


It is interesting that the RBA did not raise the official cash rate on 2nd February 2010. Just maybe they don’t want the $AUS too high & harder for exporters but great for travelers. On the other hand after reading that first house buyers made up only 13% of the market the RBA didn’t want property to become even more unaffordable. They may have read what ‘mortgage stress’ these first home buyers are under after being manipulated by government grants [why didn’t you get one?] & low interest rates. A family needs 100K income to live & support a loan which must limit house prices. They can’t keep going up as incomes have a ceiling.


Hence we repeat our theme; ‘control what you can control’ reduce those debt levels as our clients have done. Our active wealth strategy means as a first step with a principal loan reduction of 1K to 2k to 3k on average per month.

Of course if you have a super fund that isn’t proactive then you need an ‘active’ adviser.


Welcome to call on 07 3848 1088, email or book on our websites.


John McAuliffe