economic fundamentals of debt mkts

Hey Fellas

Looks like the market is over reacting to the debt issues in the EU and US!

Again, it shows how important is a cashed up China to Australia?s future!

Like we have mentioned a few times last year, the old world economies in the US and EU continue to struggle under their considerable debt burdens. This will continue well into 2020, as they try to rein in their Fiscal Deficits and bring a balanced growth path to their economies.

The US is at loggerheads with ratings agencies, as well as continued pressure from the Republicans to reduce spending in the US economy. The US will inherently improve their fiscal position as their economy begins to grow, companies begin to make higher profits and higher employment will improve taxation revenue. But it will take time.

Greece will begin selling off infrastructure assets to the Chinese, Germans and French to help pay for some of their debt in coming months, but the restructuring of their debt was always going to occur. What will happen is a combination of longer term loans, so they have more time between debt rollover periods, IMF lower interest rate lending, German and French lending at competitive rates. This will occur for all the PIIGS over the next 12 to 24 months, but it will be sorted out.

As always Australia is very fortunate to be linked with China and soon India with this resources boom which means our economy is being sheltered by the old world issues.

Nothing has changed for Australia?s miners! China is sitting on $3 Trillion ($3000 Billion in Foreign Exchange) that they can tap into at any time if they wish to continue to grow their economy. They have minimal debt and in fact continue to support EU Nations, like they did last week by purchasing and investing in Spanish Banks and Debt!

These issues will settle down in 3-6 weeks time, China will get their inflation under control (Target of 4% CPI) which will allow them to hold off from any additional interest rate increases. Then the market will lift in the Materials and Energy sectors!

What is important is to take advantage of the volatility and make a bit of cash off the dirt diggers!

Cheers Nectar

http://www.bloomberg.com/news/2011-04-12/china-will-invest-in-spanish-debt-and-cajas-official-says-1-.html

http://www.bloomberg.com/news/2011-04-14/china-s-3-trillion-reserves-show-g-20-task-as-wen-resists-yuan-pressure.html


US Federal Debt Concerns
http://www.theaustralian.com.au/business/markets/wall-street-shares-fall-sharply-on-sp-cut-to-us-debt-outlook/story-e6frg91o-1226041291067


Greek Debt Restructuring:
http://online.wsj.com/article/SB10001424052748703648304576265070634571908.html?mod=WSJEUROPE_hpp_LEFTTopWhatNews