economic headwinds starting to disappear!, page-5

Nectar,

Without a doubt in my mind the US sell-off is market hand wringing for QE3 and raising the debt cap. Pundits expressing concern at the US recovery is ridiculous given unemployment sits at 10% and the housing market keeps falling. Not great for the past engine room of the US economy, the good old consumer, but hardly a new story. What is not mentioned is that corporate balance sheets are in much better order to meet any earnings softness from here.

Personally I think the US market needs to be weaned from government liquidity as this is mostly being hoarded or traded at the moment i.e. its not trickling through to the US consumer through jobs growth.

So what about the little Aussie bleeder? Well a month ago we were being sold off due to AUD strenght i.e. a proxy for our robust economic outlook. Now we are being sold off due to concerns for global growth i.e. our poor economic outlook. So which is it investors? the RBA, which has a decent track record under Stevens, thinks we are about to carve it up due to an unprecedented capex boom. Main thing holding us back seems to be our blasted minority government (and that is an apolitical statement). If you have the fringe dwellers running government then you have plenty of hemp clothing, agricultural subsidies and mung bean dahl but not much solid economic leadership.

To me, the current price moves 'feel' contrived esp when tired old stories like Greek debt and Chinese inflation start being rolled out by the 24-hour news cycle. So it is more the market makers clearing the decks for a crack at 5,000 by Christmas than a valid sell down. Welcome to a range trading market where the traders rule.

The big question is how do we break out of the range trade (4500-5000 ASX)? Well the Japanese reconstruction will help, clarity on Chinese monetary policy will help but ultimately we need good US Joe Average to feel confident about their jobs and wealthy (due to housing/shares) and to start spending again! So QE needs to start trickling through rather than being hoarded on bank balance sheets earning negative real returns or flowing into commodities/emerging markets carry trades. Possible but you will need more than 6 months.

So what does this mean for AVB?
- Vale iron ore, nothing. Vale is well established in the Carajas re infrastructure and if i/ore is found its a bolt-on.
- HGZ copper, nothing. Stacks up in any cu market if sufficient ore body is found.
- Feeder system lower grade cu, relevant. If found, you need a decent cu price to enhance the economics and lower the cut-off.
- exploration grounds, nothing. Not priced in.
- Strategic relationship, Vale/Xstrata. Foothold in the world class Carajas. Nothing, not priced in.
- $20m on the balance sheet, nothing. thought cash was king, lol?

All good, 'risk on' in the second half of the year plus drill results means we are well placed at 10-11c. DYOR, IMO.