Will 2011 doom the EURO?

There have been escalating rumours over the last six (6) months that Germany, the EU's largest economy is planning to announce its withdrawal from the EURO in early January 2011. Although these rumours seem a bit dubious, they allegedly stem from a Bund Employee who alleged on a chat site in early June 2010 that new generation Deutsche Marks were being printed for circulation in Germany, Austria, Netherlands and Finland.

Yet the question remains as to whether this rumour will in fact crystallise into reality in early 2011 and whether this would lead to the eventual demise of the EURO?

The geopolitical ramifications of a German led EU currency exodus would be as follows:

1. Shortly after Germany's announcement, France would make their announcement to exit to the Franc.

2. Thereafter the Eastern and Southern EURO 'basket republics' would be left with an unpredictable dud currency. Perhaps these nations would be able to follow the USA's hyper-inflationary lead and print their way out of debt. Nevertheless within days the EURO would likely par with the PESO's in Latin America.

QR National Share Offer worth AUD 5 Billion dollars?

This share offer worth AUD 5 billion dollars is complete ‘junk’. It is hardly different to those ‘junk’ derivatives that led to the global financial crisis of 2007. Like those worthless securitised property derivatives this Corporation has been grossly over valued. Only more heinous this QR National offer is marketed directly to ‘Mum and Dad’ retail investors rather than faceless corporate professional investors.

After reading through the QR Nat share offer prospectus and crunching some numbers the over valuation of this Corporation becomes acutely obvious to any layperson.

For example in the hypothetical that you invested AUD$1.00 in the financial year of 2010 in a five billion dollar share offer you would have earned a total of 4.0cents in profits. In the hypothetical that you invested your AUD$1.00 in QR Nat in the financial years of 2008 and 2009 your return on investment would have been 1.98cents and 2.8cents respectively. In the years between 2008 and 2010 the RBA calculates inflation at 4.4%, 1.8% and 3.1% respectively. So, had you invested money in any of these hypothetical share offers your miniscule profits would have lost out to inflation.

The RBA’s cash rate for this same period has fluctuated between 7% and 4.75%. So, comparatively if you had invested your money in a term deposit at least you would have made money.

The front page of today’s SMH Business Day quotes Deutsche Banks and Macquarie Banks valuations of QR at $2.53 and $2.75 respectively. Many smaller institutions such as Roger Montgomery give a much more realistic evaluation of anywhere between $1.09 and $1.48 per share. Yet the official share offer stands at about $2.80 per share.

The advocates for QR Nat argue that these miniscule returns are sidetracked into irrelevancy because of the potential for immense future profits and significant capital gains. Well in that case an analysis of the QR Nationals financials reveal a finding of total assets equating to 8.574 billion and total liabilities equating to 5.89 billion leaving net assets worth a total of 2.684 billion. Yet the Queensland State Government says that 2.684 billion is worth 5 Billion dollars in shares. In that case I would prefer my AUD$1.00 to remain in the Bank anytime.

Our Excessive Population Growth

The World's population is booming and its not because we are having more babies. It is because less of us are dying, when we should. We currently have 6.7 Billion people and the United Nations predicts that by 2025 we will exceed 8 Billion and by 2050 we will exceed 9 Billion. This excessive growth will be detrimental to mankind as the demand surpasses the supply for the worlds resources. In effect by 2050 there simply won't be enough h2o, food and fresh air to go around.

Goldman Sachs

The US Senate and various customers are running inquiries into Goldman Sachs conduct, with regard to their design and sale of certain securitised asset products. In 2007, Goldman Sachs designed mortgage backed securities that they knew would fail and then they bet on their collapse by purchasing credit default swaps, which pay out upon a default. In Australia this type of conduct may contravene the insider trading provisions of the Corporations Act and those responsible would invariably be held liable for hefty penalties including Gaol.

Hu Stern to be Gaoled for 10 years

The Shanghai Court has sentenced Hu Stern to 10 years imprisonment for allegedly stealing trade secrets and accepting bribes.

The Global Financial Housing Crisis

The next big financial crisis to cause havoc with the Australian Economy could be sparked by a Domestic Housing Crisis. The Australian Property Market has been unfaltering since the early 1980's increasing by more than 250% and all growth with no pitfalls is unsustainable in any market. The normal market principles here are flawed because property ownership demands huge prices, which limits new buyers from entering the market, which will inevitably result in an oversupply, unless there is a serious price correction.

Please refer to the graph below to see what happened to the property market in the US, it is reasonably foreseeable that a similar market correction might occur in Australia.

Australia's Property Market is geared to fail because the current demand, is sustained by debt and the willingness of purchasers to borrow more and more debt to pay for property. This market does not correspond with increased returns on rent or even substantially increased incomes, this market has been stimulated by fear tactics, misrepresentations and deceptions represented by real estate Agents to venders and purchasers. The only reason that this market misrepresentation is tolerated to the detriment of consumers, is because Australia's State Governments earn far too much of their revenue from Capital Gains Tax to risk any price correction to the property market.

Stern Hu v The Peoples Republic of China

Sterm Hu, the Rio Tinto Executive and Australian citizen who was arrested by Chinese Police, last year and has been detained for 9 months, is facing his first day of Trial this morning. The Chinese authorities charged Stern Hu, just after the Chinese Government failed in their takeover attempt for Rio Tinto. The Chinese Authorites allege that Stern Hu has "stollen business secrets" and has been a "recipient to bribes". He is facing up to 12 years imprisonment. Stern Hu's trial began this morning and is proving to be a most untransparent process. Due to the fact that the media has already been warned by Chinese authorities not to cover the trial, and Australian consular officials have been barred from taking part. The only upside to this great injustice is that China's unsavoury approach to the Judicial Process will be put up on a pedistoll for all of the World to see and it shall prove to the world once and foreall that no company is big enough and no Western National is shrewed enough to avoid the Great Tenticles of China.

The GFC proves nothing more than a bump in the road over the last 36 years

The Dow Jones - Monthly Bar Chart from 1974 to 2010.

THE TEN SECOND NEWS – MINUS THE BULL SHIT.- 16 March, 2010

WORLD EVENTS

US HEALTH CARE BILL PASSES CONGRESS: Obama's 2,700 page healthcare bill finally passed US Congress and it will offer 30 million more Americans with health insurance than are insured today. The Federal Government will immediately sponsor 5 Billion dollars in healthcare insurance.

RIOTS IN THAILAND: Thousands of supporters of Thai Premier Shinawatra protest in Bangkok demanding the Thai government to step down. Riot police and soldiers were deployed outside government offices. The Thai Prime Minister rejects protesters demands for his resignation.

FRANCES ECONOMIC ADVICE TO GERMANY: Frances Finance Minister Chritine Largarde has warned Germany that its trade surpluses are unsustainable because they are built upon low labour costs.

THE CHINESE YUAN: Chinese Premier Wen Jiabao claims that the “The Chinese Yuan is not undervalued”. He further said that “if you restrict trade with China, you are hurting your own countries’ firms”.

THE ARMS BUILD UP IN SOUTH EAST ASIA: China’s increased power has caused its neighbours to increase their spending on defence.

US - ISRAEL RELATIONS AT LOWEST POINT SINCE 1975: US ties with Israel have sunk to 35 year low, over Israel's announcement to settle a further 1,600 homes for Jewish Israelis in East Jerusalem.

INDIA'S INFLATION HITS 9.9%: India's inflation hits 9.9% in February, driven by inflation in food prices, adding to pressure on policymakers to continue unwinding stimulus measures.

Is China as BIG as it claims?

No one disputes the premise that China is the Worlds fastest emerging Economic Super Power. But who questions the Chinese Governments data? How can we just blindly trust all the economic data that comes out of China? China may be embracing Capitalism but it is certainly not transparent and this will definitely limit its future successes.

All outsiders solely rely upon the data released by the Chinese Communist Party and it is a real concern that all the Bankers and Economists who are investing in the region cannot trust the data that they rely upon to make their financial decisions.

A recent example of the deceptions coming out of China is the increase in housing prices over the last year. The Chinese Statistics Bureau put the rise in housing prices at 1.5% in the last 12 months, whereas the Chinese Real Estate Association put the figure at 22%. If this discrepancy doesn’t sound alarm bells for investors, how about the grossly undervalued Yuan and China's alleged 2.7% rate of inflation.

Foreigners understand one stereotypically Chinese feature and that is the fine art of 'saving face'. 'Saving Face' is considered by some as socially acceptable conduct that allows people to lie if that lie protects them from the dishonour of the unfavourable truth. So there is nothing to stop China from only releasing its 'good news' and sweeping all its 'bad news' under the carpet. The problem is that one day all this compounded bad news, which gets swept under China's enormous carpet will leak, undoubtedly causing economic Armageddon.