It’s important to start something new on the last day of the month. So I’ve been up for a bit, abused my iPad slightly, and I’ve decided on a hierarchy of news applications:

  1. Bloomberg – obviously. However, Bloomberg is quite technical, and assumes a fair amount of pre-knowledge for anyone interested in doing this on their own.
  2. CNBC – what a legendary news station. I recommend this one. All the essential stuff is covered. And it’s really well-explained.
  3. BBC – I’ve left out. I think Bloomberg and CNBC had it covered.
The Headlines that caught my eye:
Emerging Markets
I’m not sure if it’s come through, but I’m an emerging markets fan. The media tends to turn all our focus toward the financial woes of Europe and the United States – and we end up forgetting that there is literally a whole New World of investment opportunity. A New World that seems quite capable of sustaining itself (if it had to) without Europe and the US. For example, the trade flows between China and Africa have grown at record pace; and now, China is the biggest trade partner for most African countries (including South Africa I’m told – although I stand to be corrected).
As the US and Europe struggle, we’re seeing Emerging Market funds post higher returns and large multinationals driving their products and franchises into the economies of Asia, Africa and Latin America. The Indian Economy, for example, is expected to generate economic growth of around 6.5% in 2012 – during an expected global recession! The thing to point out (in my mind) is that the debt markets of these economies are relatively unsophisticated – and many of these cultures have historical biases against debt and borrowings. This leaves them relatively-hedged in a financial ‘world’ that is struggling with its debt.
I’m just a big fan of Jim Rogers’ attitude: “I would love for them to say that OK it’s a disaster and for banks and shareholders to say they’ll take big losses. Everything would collapse and I would buy all the euros I could and all the stocks I could, but I don’t think that is going to happen.” Perhaps he’s exaggerating to keep off all the speculators.

The key points:
  1. Portugal seems to be heading in the same direction as Greece. Its bond issues have a “junk” status credit-rating, and credit-default swap spreads (that is, the cost of insuring the bond issues) imply around a 70% chance of default.
  2. As the headline implies, US banks are withholding credit to their European counterparts.
  3. 1 and 2 are strong signs that contagion would take place should Greece default.
  4. Greek debt negotiations are still continuing – and the EU is increasingly frustrated by Greece’s lack of success, and its failure to implement enough fiscal measures (ie. just not austere enough). Apparently, Germany suggesting a fiscal overseer, which basically would have put Greece under curatorship – but it seems that everyone reacted with shock.
  5. The EU summit is set to ratify a new Fiscal Treaty (it was agreed on in December last year – but it still needs to be ratified) which is meant to act as a safeguard against further fiscal problems by imposing penalties on governments whose fiscal deficits exceed set limits (I think I read 3% of GDP).
  6. EU leaders appear to be admitting that austerity is not enough to take Europe out of the fiscal crisis. This is quite interesting – as it marks a change in stance for a number of the more conservative countries, Germany being the most prominent. And honestly, it just makes sense: if I was facing bankruptcy, slowing my spending would not be enough. I’d probably have to take on a second job. And maybe sell off some assets. 
America (The United States thereof)
This was interesting because I think it demonstrates why it’s necessary to have some kind of formal finance taught in schools. I think this will be a future blog post. 
Just because Jim Rogers had a lot to say yesterday. But agreed – buying hot stocks has been shown to be a bad buy. Much better to buy underrated stocks with good fundamentals.
The reason that the US lost its AAA rating was because of its high fiscal deficit (very bad), as well as its bad asset book (after the subprime crisis, the bailout of the mortgage agencies, banks and insurance companies involved the US government taking on their bad assets). Now there is a plan to write these off (this is an election year, after all). I’m just concerned that decisions made during an election year tend to be short-sighted. But we shall see.
Quantitative Easing is always of interest to me – it comes back to the Inflation post: Quantitative Easing is just another term for monetizing debt. In measured and managed format, a relaxed monetary policy can stimulate an economy. But then a government walks the very fine edge of perception. Interestingly, the US Fed does not release official money supply data. This does make it hard to form expectations of future inflation – I would guess that’s part of the reason for not disclosing those figures.
This is just linked to my post from yesterday. I’m sure Mr Hester will be planning a move soon – to a bank that’s not state-backed.