And the Greek debt crisis is still a problem. It hasn’t gone away.

In fact, the problems are bigger.

It has led the two biggest Eurozone members – Germany and France – to show serious concerns about the debt.

Over the past two years, more than €110 billion has been ‘thrown’ at the problem.

Yet, it still won’t disappear.

The latest attempt to solve the problem was an emergency meeting held on Thursday night. This ended with the Eurozone countries agreeing on another €109 billion in ‘bailouts’.

Yeah, that’ll fix it!

According to yesterday’s the Age:

‘The news has come as an enormous relief to global markets, which have watched the unfolding European debt crisis with increasing concern.’

The ‘enormous relief’ translated into a buying spree.

One look at the major indices in the US shows you the markets clearly liked the bailout:

Source: Google Finance

And it’s not just the US that loves a bailout. The FTSE finished Thursday 46 points higher… after spending most of the day almost 1% down.

But Slipstream Trader editor, Murray Dawes warned his readers this might happen before the bailout announcement:

‘My best guess is that any plan they come up with may see some knee-jerk buying.’

Murray knows the markets. After all, he’s been trading for 20 years!

The agreement to give Greece more money pumped up the markets. But not one to follow a trend, Murray’s already thinking ahead:

‘Whatever plan they have dreamt up will decide the direction of our markets for the foreseeable future. I really want to stress the fact that I am still very wary of the future direction of this market.’

Be cautious about the rally

Murray is cautious for good reason.

The past two years has seen so much fiddling from central banks that it’s distorting the market:

‘Without the constant intervention in the markets I believe we would be trading at much lower levels. If the politicians lose control of the situation then we could quite literally see the markets drop like a stone.’

So, how can you trade the market when the government uses it as a toy?

Murray tells his readers he’s ‘…found the trading environment over the past year one of the most difficult I have encountered.’

Yet that hasn’t stopped him trading.

But tough market conditions require tough and disciplined trading.

The market is easily upset these days. That’s why Murray is trading to take advantage of either side of the market.

But it’s not good enough just to be ready for the market’s swings. You’ve got to have discipline. And you’ve got to know when to exit.

The key to that is managing risk.

If you’d like to get an insight into Murray’s trading strategy for volatile markets, click here to see his free market video update…

Will America be the next to default?

Greece isn’t the only one falling behind.

America is only a week away from defaulting on its debts. You see, the major parties are deadlocked on whether to raise the debt limit. The country already has a debt of $14.3 trillion.

Yet that’s not enough. They want to go into more debt!

The thing is, if America doesn’t increase the debt ceiling the U.S. will default on its loans.

This could be history in the making. America has never defaulted.

But that’s not the only bad news.

Even if all the politicians agree on a debt limit before the 2 August deadline, according to Bloomberg News, ‘Standard & Poor’s have warned there is a 50% chance it will lower the U.S. government’s AAA credit by one or more levels with three months’.

From AAA to…

A drop in the credit rating for the U.S. would rattle the markets.

Christian Cooper is the head of U.S. dollar derivatives trading at Jefferies Group Inc. in New York. His firm is 1 of 20 primary dealers that trades with the Federal Reserve. He told Bloomberg News:

‘It’s an entirely new world that we would be in to even consider a downgrade of U.S. government debt. This is something that would fundamentally change the market’s perception of not only U.S. government solvency but how risky assets around the world are priced as well.’

Both the Greek-debt crisis and the possible default in America have proven one thing. The financial system is fragile.

In the latest Sound Money. Sound Investments, editor Greg Canavan wrote, ‘The market is slowly beginning to realise the post-WWII system of finance is unravelling.’

He goes on:

‘The production of money has become the economic go-to tool. It’s the only response governments have left [after] decades of debt. The problem is it hasn’t worked. It has made things much worse.’

In his letters to subscribers, Greg focuses on sound money principles to investing. In fact, he considers Sound Money. Sound Investments a tool that ‘offers a framework for investing and managing your portfolio in a post-credit investment environment.’

For too long now governments have intervened in the markets. With the intrusion reducing your wealth.

Unfortunately, there’s not much you can do to stop governments playing with the markets.

source:

Shae Smith.
Assistant Editor, Money Morning

“Doubts are mounting about the health of China’s property market, Beijing’s ability to control inflation and the true extent of government debt. Last week, the central government disclosed that local governments owed debts equal to a quarter of gross domestic product. It’s hard to imagine a large chunk of those borrowings won’t turn sour.” – The Wall Street Journal

It is hard to imagine.

That’s why we believe the China Ponzi economy will burst.

And when it does, it’ll have a major and disastrous impact on the Australian economy. It’ll make the Aussie property crash look like a blip.

As you know, it’s been a while since we’ve had anything good to say about the Chinese economy.

We were happy to play the boom until late 2009. But since then we’ve grown too suspicious to risk big money on it.

And in the past few weeks our doubts have grown…

Shareholders to dig deep again

First, we noted this announcement from rare earths company, Arafura Resources [ASX: ARU]:

“Arafura expands scope for Nolans Project bankable feasibility study”

On the plus side:

“Additional work has significant potential to reduce operating and capital costs and de-risk the proposed Rare Earths Complex at Whyalla.”

But the down side was this:

“The Company estimates that additional funding in the order of A$50-A$60 million will be needed for the expanded BFS and other costs originally envisaged as part of project financing.”

In other words, things are looking really good… but can we have another $60 million please!

Arafura shares fell 26% following the news… they’ve gained about 10% since.

Last week, competing rare earths miner, Lynas Corp [ASX: LYC] suffered what could be a setback in its plans to start processing rare earths at a yet-to-be-built plant in Malaysia. It followed a report from the International Atomic Energy Agency (IAEA).

The report emphasised the need for more details covering waste management from the proposed processing plant.

Yet Lynas claims:

“The schedule impact of meeting the requirements of this report is estimated to result in commissioning being completed by the end of 2011, with full production capacity of Phase 1 of the LAMP achieved by the start of the second half of 2012. Lynas does not believe the schedule for Phase 2 will be impacted.”

Lynas shares fell more than 10% on the news.

Costs rise

And then this morning, Murchison Metals [ASX: MMX] released details of its Oakajee iron ore project. According to the Australian:

“Costs for the Oakajee iron ore export project being joint-managed by Murchison Metals and Mitsubishi have blown out by more than a third to $5.94 billion and the first ore will not be delivered till 2015…”

Murchison shares are down more than 12% in early trade today.

The old saying in the stock market is, “buy the rumour, sell the fact.”

It means the reality is rarely as good as the promise.

We get the feeling that’s how investors see China right now. And if they don’t yet, they soon will.

At various times over the past 10 years, investors have “bought the rumour” on China… at other times they’ve “sold the fact.”

You can see that on the chart below of the S&P/ASX 200 Materials Index:

Source: CMC Markets Stockbroking

The resources bull market has had two good runs… 2003 to 2008… and again from 2009 to 2011.

Here’s the thing. It’s got something of the “heard it all before” story.

In other words, how many investors – even those bullish on China – can still get excited about China’s demand for resources? A few years ago, the China story was new.

But now it’s not. And while it may still be exciting for some, many investors are left wondering when their stocks will actually make money from China.

Because for every stock making a buck from China, there are tens – maybe hundreds – that don’t. And probably never will.

Simply because while these companies may have huge resources in the ground, the cost to recover them is equally huge; they’ll never raise the financing to dig it out. And if they do raise the money, there’ll be so many new shares on issue that it will dilute returns.

Commodity prices hit another record high

Still, the question is, when will the China Ponzi bubble burst?

Currently, commodity prices are at a record high:

Can they really go higher? They have in the past. So why not now? Anyone who’s studied financial bubbles will tell you that kind of thinking is a slippery slope to ruin.

That’s why we’ve got the commodities market on a high crash alert.

If all but a handful of Aussie resources stocks can’t figure out how to make a buck from the biggest resources boom Australia has ever seen… when commodity prices are at a record high… why should you believe they’ll make a buck in the future when prices are lower?

Right now, Aussie resources stocks should be making money hand over fist.

Instead, many are giving their shareholders no more than rumours and promises of future profits. To avoid disappointing shareholders again, these companies need to hope commodity prices are at least no worse in the future than they are today.

We suppose that’s possible. But it’s a big risk. And it means you need to pick your resources stocks with extreme care.

Cheers.

Kris Sayce
Money Morning Australia

I will provide interesting facts which may cause folks to stop and think, things like the calculation of how much tax the client would pay between now and when they retire if they do nothing about reducing the amount they must pay, things like how much money they would pay on their mortgage between now and having it paid off and how much money they need for retirement etc.

Creating financial strategies for people to help them save tax and create wealth is what I love to do and when you see how much money goes to things like the mortgage and to tax you might just say….”can you do one for me too”.

Mixed and lagging economic data, worries of relapse and dithering cash rich investors are supporting monetary and fiscal stimulus remaining in place, aiding the global economic recovery, Stacey writes in his latest Diversified View.

He believes the economic turnaround is likely to exceed consensus expectations and official estimates will be sequentially revised upward as the recovery unfolds. But, he cautions, there are still risks to the global economic outlook.

In his view, a precipitous withdrawal of either monetary or fiscal stimuli, exogenous factors such as natural disasters and terrorism, and the possibility that “the world does indeed descend into another down-leg, heedless of, and perhaps exhausting, official stimuli” are some risks to the global economic outlook.

But at a global level, Stacey thinks that stronger than consensus growth ahead is of sufficient probability to warrant a bias to growth asset settings – but “always within a systematically diversified portfolio”.
He is not upbeat on the recovery of the New Zealand economy.

“New Zealand lags in both the market rebound and economic resurgence stakes. We continue to be beset by low-growth policies and big government, while the soaring dollar retards recovery in the export sector,” he writes.

“NZ economic outlook is mediocre; gently rising inflation despite modest growth, to be damped by rising interest rates ahead,” he adds.

On fixed interest, he said that despite good capital gains, the fixed interest asset class is unattractive. “Yields are generally now low in absolute terms and by historic comparison, while risks may be mounting,” he warns. He has adjusted Diversified’s model portfolio to minimal allocations supplemented with other sources of income such as gold.

Equities have again fulfilled their traditional role as harbingers of economic turnaround, Stacey writes. He predicts the possibility of a “melt up” in the equities asset classes. “Nervous cash, still on the sidelines, stands to cause another leg up, when eventually re-commits,” he argues, adding that he favours a “fully invested stance to equities, trimming profits at the margin from the most high-growth areas, and bolstering selected developed markets with the proceeds.”

But the future is never ‘knowable’, he warns.

“Currencies, Corporate Bonds, Equities and Commodities are all highly correlated at present, while returns on Cash and Sovereign Bonds are a portfolio drag. In this context, Diversified continues to advocate an elevated allocation to Gold – for scarce diversification as much as its intrinsic value,” he concludes.

© 2009 financialalert, Brillient Investment Publishing Pty Ltd ABN 19 122 531 337.

Oliver believes the signs of improvements are virtually everywhere. “Firstly, money markets are almost back to normal and credit markets have improved dramatically. Secondly, economic indicators in most countries seem to be rebounding almost as quickly as they collapsed,” Oliver said. “This is illustrated in the OECD’s leading economic indicators, which are combinations of indicators such as consumer confidence and building approvals, which lead future activity.”

In his view, there are several lessons to be learned from the GFC. “First, the GFC has provided a reminder that the capitalist system is inherently unstable thanks in large part to human psychology, and that the idea of an efficient market that can never go astray is completely fallacious.

“Second, there is a role for government to stabilise the economic cycle. Most importantly, policy makers have a decent, albeit not perfect, set of tools in their tool kit to do this.”

The third lesson – these things happen. “While after each economic crisis there is a desire to make sure it never happens again, history tell us that manias, panics and crashes are part and parcel of the process of ‘creative destruction’ that has led to exponential increase in material prosperity in capitalist countries,” Oliver argues.

And, he says, the basic lessons remain the same: higher returns come with higher risk; the role of sentiment can’t be ignored; be wary of financial engineering and products that are hard to understand; be wary of having too much debt; don’t think that having a well diversified portfolio of growth assets will necessarily protect you in a financial panic.

© 2009 financialalert, Brillient Investment Publishing Pty Ltd ABN 19 122 531 337.

Casting no stonesby Bob Veres |  Monday, 8 June 2009

I’ve been having the same discussion lately with a variety of advisers, and sometimes the conversation gets heated. So I’d like to lay out my position here for all to see, and maybe this will start a useful dialogue.

The discussion usually starts when I am approached by an adviser who jumped out of the market sometime before November, and in some cases before September of last year – and when I mean “jumped,” I mean took client equity positions down to 20% or less. These advisers are still sitting on losses, but they aren’t nearly as significant as what most of us are looking at in our retirement portfolios. And now, when I ask them how they’re doing, they immediately, sometimes eagerly, tell me that they paid attention to the economic signals and avoided most of the wreckage, and how (they ask me) can other advisers call themselves financial planners when they were too ignorant to see this train wreck coming?

This always starts the argument. On my side, I point out that a few others missed these obvious signals too – people like Hank Paulsen and Ben Bernanke and Warren Buffett and, oh, maybe a few hundred million others, and on their side they say that most financial planners are brainwashed zombies who would buy and hold even if we declared nuclear war on China, and that advisers, if they are REAL advisers, need to pay more attention to the economy and valuations and everything else so they can protect their clients.

Inevitably, I agree that, yes, more investment sophistication is needed. But I also ask them when the upturn will begin, and I have yet to get a consistent answer.

My sense is that there is some truth to what these people are saying. The financial planning community has been gliding on a kind of investment auto-pilot for way too long, and that planners of the future will either delegate their investment management activities, either through actively-managed mutual funds that have a broad mandate to shift their allocations if they think valuations are out of whack, or to some of these financial advisers who live and breathe market and economic statistics and who incorporate valuation measures into modern portfolio theory. (Is the market safer with a PE of 8 than it is when PEs are running into the 30s? If you answer ‘yes’ then you should probably be paying attention to these valuations and structuring client portfolios accordingly – though, frankly, I still have no idea what the precise recommendations should be.)

I also, however, think that this is not exactly a perfect time to be switching investment philosophies. Even if you are a convert to what these sage or lucky advises are now preaching, does that mean you should switch allocations to something more conservative now, when valuations are low?

I think there are four kinds of investors roaming the streets these days.

First, there are the investors who were lucky enough to work with an adviser who sidestepped this mess, and we will see if their advisers are skillful enough to get them back into the market when it gets bullish – and that probably means navigating around who knows how many sucker rallies before we hit the real thing.

Second, there are the clients of advisrs who maintained their investment allocations and rode the roller coaster all the way down, but who are going to stick it out and give their clients the benefit of riding it back up – and I have yet to talk to anybody who thinks the market will stay down forever, so we seem to agree that there will be a recovery that will eventually make everyone whole.

In third place in this race are the consumers who panicked last September or October and fled the market, and who are probably boasting to their friends that stocks are just too risky. They’ll watch a sucker’s rally go by and enjoy the subsequent downturn, feeling safe in their cash position. They’ll watch another one, and then they’ll smugly watch the bull roar upward until, somewhere near its peak, there is so much frenzy and excitement, and so much regret at how much upside they have already missed, that they’ll put their money in near the top and end up far worse off than they were before.

Finally, there are the clients of advisers who will lose their nerve, who gave their clients the full brunt of the downside in a buy-and-hold posture, and then will decided to give up and take an ultra-conservative position. They will lock in losses, and be caught by surprise by the sudden, unexpected bull run, either mistaking it for another sucker’s rally or simply not having cash in the market in time to catch most of the updraft. The clients of those advisers will have suffered most of all.

Like it or not – even if you now believe there are ways to evaluate the future returns of this or that asset class, even if you think you learned something from this bear market and that there is something to what these sophisticated advisers are saying about sidestepping the worst of the bear – you’re really trapped into offering your clients the second best of four alternatives. And, if those advisers casting stones fail to recognise the next bull, you may actually wind up with the best of the four.

I may be wrong, but I believe that the only sensible time to make dramatic changes in your investment philosophy is toward the end of a bull market, when high valuations are making you uncomfortable and your reading of the economic tea leaves leads to disturbing conclusions.

I think when that day comes, many of the advisers who are being castigated and dismissed by their peers will actually have a better solution than they did this time around.

Moreover, I agree with the successful sidesteppers that it will become accepted wisdom throughout the profession that correlation coefficients, mean variance calculations AND valuations need to be taken into consideration when assessing the opportunity set offered by the markets.

But that day isn’t here yet.

I readily congratulate the advisers who managed to sidestep the worst bear market since the 1930s, and I am happy for their clients.

But I’m not ready to throw the other advisers under the bus for sticking to their principles when the alternatives look like they do today. In my own portfolio, I have no idea when the next bull market will come, but I intend to ride it up from the very first moment it appears, and I know only one way to do that – grit my teeth, maybe wish I had been smarter, and hold on to the handlebars of the roller coaster to wherever it takes me next.

Bob Veres is Editor of Inside Information, and one of the most respected and influential financial services commentators in the US. In NZ, financialalert has exclusive access to and distribution rights for Inside Information. www.bobveres.com

© 2009 financialalert Limited.

I saw Michael Hill receive great honors at the world entrepreneur awards and it was interesting listening to him talk about what he would like to do next.

Our share market was off to a flying start this morning in the wake of rallies in stock markets around the world on improved global factory activity.

Our dollar powered to highs not seen for many months against major currencies, boosted with other commodity-related currencies because of a jump in oil prices and a rise in United States stocks.

The property market has received mixed commentary and in my opinion the worst is yet to come.

One of the biggest concerns I have with the current markets and the mixed talk that is about is the fact that people will forget or become “too scared” to invest for their retirement.

For many years I have been passionate about helping people create wealth for their retirement and it is times like now where you really need to stick to your plan. That is if you have a plan.

One of the scariest things facing our aging population is the fact that in a short space of time there will be more people who are eligible for government assistance than there are people working. Do you really think our tax system can continue to pay for these pensions? Think about it….we have a deficit now when we have more people working than are on pensions so how could the system work when this particular statistic changes. The only thing that can happen is that the government will either remove the pension system altogether or they will reduce the amount or they will increase the eligibility age.

Do you really want to be working when you are 75?

At Professional Investment Services (powered by Financial Gain) we make it easy for you to create wealth, save tax , reduce debt and minimise risk using the Lifestyle Builder program (c).

Drop in and check us out at the main site. It costs you nothing to look around and it costs you nothing to book a meeting with one of our Wealth Coaches. If we can not help you we will let you know. If we can help you we will also let you know how we can help and then we will put our recommendations in writing. You can then decide if you like what we are recommending and join our very happy group of clients or say no… that’s OK too, at least you will be making an informed decision.

The New Zealand dollar reached a seven-month high against the greenback, as the United States currency capitulated after heavy offshore selling. This is not so much about us doing well but the Americans struggling with getting their economy back on the straight and narrow.

Not learning from the global credit crisis Options dealers in Tokyo said hedge funds have been buying dollar call options as far out as seven years in recent weeks with strike levels above 120 or 130 yen. SEVEN YEARS.

So the wheel continues to turn very slowly, the  mistakes pre credit crunch seem to have been forgotten and people every where are still wondering how they are going to fund themselves in retirement.

The Lifestyle Builder (c) is my way of helping people reach retirement without having to change their lifestyle dramatically now and without having to compromise on their standard of living in retirement. You can get a free consultation with a Wealth Coach at Professional Investment Services (powered by Financial Gain) to see if the Lifestyle Builder (c) will work for you.

Visit us at Professional Investment Services (powered by Financial Gain) to find out more.

The ING Property Trust slid to an annual after-tax loss of $63.1 million, reversing the previous year’s $72 million profit, as the slowing economy hit property values. This illustrates just how deep the property crash has gone but it also makes me wonder why this loss is only just coming through to the news now, we are after all at least 18 months past the peak.

The New Zealand dollar peaked at its highest level against the greenback in nearly a week as the United States currency weakened on growing optimism the global recession is moderating. Amazingly our memories of 2008 are being eroded and the good news spin merchants are gradually making the financial world look like a wonderful place. I guess that depends on whether your just getting into the market or if you were in before the crash.

Professional Investment Services (powered by Financial Gain) is based in Emily place in Auckland CBD, you can contact us for a free consultation by visiting our main website NZPIS

To give you an idea the snippet o news below is from the New Zealand Stock Exchange and is a great resource.

Enjoy.

May 19 – OPEN: The New Zealand dollar gained nearly a cent against the greenback overnight, on a healthy ongoing appetite for risk.

The New Zealand dollar rose to US59.53c at 8am, from US58.60c at 5pm yesterday.

BNZ Capital currency analyst Danica Hampton said Indian election results, Japanese consumer confidence and British housing statistics spurred gains for the NZ dollar on the coat-tails of firmer Australian and US currencies.

ANZ said just as the kiwi looked vulnerable, it was able to move higher on the back of Asian, European and US equities, and risk appetites were back with a vengeance.

In other currencies, the NZ dollar hit a fortnight low early today against the Australian dollar, and by 8am was trading at A77.63c, from A78.30c at 5pm.

The NZ dollar rose slightly to 0.4391 from 0.4360 against the euro, while trading at 57.36 yen, up from 55.55.

Against the pound, the dollar gained slightly to 38.79p, from 38.66p. The trade weighted index rose to 57.60 at 8am from 57.05 at 5pm.

In overseas markets, the US dollar rose against the yen after comments by a top official in Japan spurred speculation of intervention by authorities to curb further strength in the Japanese currency.

A rally in US stocks encouraged investors to take on riskier investments, reducing the safe-haven demand for the Japanese currency.