Fear brings opportunities

‘Fear brings opportunities’ was the title of a recent Share broker’s presentation recently with Peter Q the speaker. PQ is as analytical as any speaker we have heard.

Lets summarise his main points

• The Eurozone is a collection with only 17 countries using the Euro & there is no common financial discipline. This is the current strong need with German leadership direction to resolve.

• Greece is broke [dead] & will be left out & Italy isn’t much better.
• Ireland & Portugal are good & back on track.

• The banks need 300B Euros & not the ‘laughable’ 150B the ECB suggested.
• Hence there will be another 3 months before Europe recapitalises with Europe having a recession for a year.

Is this a good time to travel there?

• The crisis will get worse before it gets better & then the ECB will be forced to help the solvency challenge. Germany doesn’t want to but will cooperate.
• The problem is the politics which is universal.
• Global profits are lower but there is only a 20-25% change of a global recession.
• Hence inflation will be lower & so interest rates will be lower.

• Valuations for equities will appreciate over the next 2 years but there will be another 6+ months of volatility. This follows the Normal pattern after a banking crisis.

• The total value of all government debt is greater that the world’s wealth.
• The ‘developed’ countries can’t grow & it will take 10 years to return to normal growth.
• The so called developing world will grow @5% for next 2-10 years but with a 20+% change of a global recession.

• The Chinese government plans on another 36 million new houses. It is prepared to spend 2% of GNP to boost their position.
• This means Australian resources will be good but other sectors are poor. Australian resources will make up 2/3 of Australian growth.

• There is another 6-9 months of volatility before equities growth of 55%.
•
• Why is it that global stocks have moved 55% up from GFC & Australian only 27%?
i. the strong currency due to the high interest rates & hence overseas investors are selling because of the currency gains.
ii. overseas investors believe & comment that the current government is BAD.
•
The current global PE ratios is 10 vs. a long term average PE of 16.

So what does all this mean?

It means as we suggested to Paul today to head off to France & do some more skiing in France. I.e. forget the headlines & don’t run into trees.

Meantime concentrate on the high income that are available e.g. the banks are yielding ~7% before you take franking credits into account.

It certainly beats banks term deposits. I.e. own the bank rather than lend to the bank.

Now is the opportunity where ‘others fear to tread’ to get set.
I.e. resources for the medium term & the high income earners available now.

As we read today the Euro has dropped below 1.30 to the $US.

I.e. there will be a flight to the ‘Perceived’ safety of the $US. [for the moment]

Gold @1500 & silver @ 29 will be very tempting.

This means the $US will appreciate for sometime & hence commodities which are generally priced in $US will fall. This means more equity downside especially resources stocks.

I.e. beware the Bears.

The Christmas holidays are the opportunity to prioritise & not be distracted by the noise.

I.e. the Central bankers & the politicians affecting your asset values.

The big priority is always to reduce DEBT & TAXX & our PCMS provides a symbiotic structure for you do to both.

As house values have fallen & debts not then it is time for new year resolutions to be acted on.

We wish you all a very Happy Christmas & a happier 2012 & a free Christmas cake when you drop in to pick it up.
John McAuliffe