Mining People 20 YearMining People Banner

Tough month June, has been so far anyway.

Thursday, June 14, 2012
Winter is hard enough without a bitter dessert of Tax Loss selling and more Greek elections topped off with a cheery of Prime Minister Julia Gillard and Reserve Bank Governor Glenn Stevens telling us that business leaders should be talking up the economy.

The ASX 200 index dropped seven per cent in May, and so far we are currently down 0.5 per cent for the month of June.

As I write the ASX 200 is on an approximate forward Price Earnings multiple of 12 times earnings.

Historically, this figure is cheap. But try telling that to potential investors, or for that matter, Julia and Glenn.

 


Investors are running scared with falling returns on their superannuation, and the increasing likelihood of falling rates on their cash balances.

It’s fairly hard to see the wood for the trees at present, and as June is historically a bad month for investors, July cannot come soon enough.

The trouble with looking to July, is the ever increasing likelihood of some break-down of the Eurozone union and/or its currency.

The ‘Euromess’ is really the biggest challenge global markets have faced for decades, and the outlook is very cloudy.

There is really no clear plan emerging to resurrect the European crisis, and most European politicians will be more concerned with self-preservation rather than truly courageous decision making.

My feeling is Greece will leave the Euro currency at some time, and when it does there should be harsh penalties.

Basically, if one member leaves then the rest in the union should see the repercussions.

That way, the Italians and the Spanish should heed the call of austerity.

The BBC recently did a show on the Great Euro crash, and a heady mix of politicians, economists and investors all lent their theories on the past, present and the future.

GEORGE SOROS, HEDGE FUND INVESTOR:
“Whether the Euro is held together or not, Europe is facing a lost decade, or more.”

WILLEM BUITER, CHIEF ECONOMIST, CITIGROUP:
“The banks were dying on their feet, many of them insolvent and illiterate.”

DAVID MCWILLIAMS, ECONOMIST AND AUTHOR:
“The dream was that you bring people together. The reality is that in order to save the Euro, the Euro elite are destroying the dream.”

The dream is definitely now a nightmare and Australia cannot expect to escape the ramifications.

Germany chancellor Angela Merkel is now, rather optimistically, suggesting the European Union should ultimately have a single national identity, with political and fiscal, as well as financial union.

A position that is easy to adopt for a country revelling in its position of economic dominance.

 


However, right now, after two years teetering on the brink of disaster, the opposite is a more likely prospect: being the collapse of the single currency and incredible political strain on the whole of Europe.

If there is a meltdown, Australia will not escape the impact.

Banks here get 30 per cent of their funds from Europe.

Paradoxically, we are where we started two years ago, and the progression hasn’t been impressive.

The markets generally are in Groundhog Day, and investors are getting bored with watching the same move each weekday.

Same bat cave; Same bat channel.