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News Bulletin : ADA News Bulletin December 2011
48 DECEMBER 20 11 Compiled by Michael Lannon investment insight ARE AUSTRALIAN SHARES STILL A GOOD INVESTMENT with the risk of European Union turmoil? www.2020directinvest.com.au/ada | 1800 352 021 100% entry fee rebate on managed funds The quote above is allegedly attributed to the Roman statesman Cicero. Whether it is authentic or not it certainly appears to be appropriate in today's environment. Have we learned nothing in the past 2066 years? I have just returned from a holiday in Italy and it seems Italians are still enjoying la dolce vita and appear to be unconcerned about the country's level of debt. Whilst Australians might optimistically say "she'll be right mate", Italians seem to view their future with unbounded optimism. However, now the Greek issue is supposedly solved all eyes have turned to Italy and its massive 1.9 trillion Euros of debt and not everyone is so optimistic. Italy is the world's eighth largest economy and is largely seen as too big to fail. France and Germany are applying pressure on Italy to reign in public spending and get its house in order. As I write this, Italy's Prime Minister, Silvio Berlusconi, had agreed to step down once the Parliament passed austerity measures demanded by the European Union (EU). Yields on Italian government bonds are at a record 7%+ which is seen as the point at which default becomes an issue. An Italian default would tear apart the Euro zone and possibly trigger another recession. "The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." Cicero 55 BC One of the key problems of Europe is that its leaders tend to put domestic politics ahead of the interests of the EU which makes it appear that bold and decisive decisions take a lot longer to be agreed and implemented. Put simply, the problems faced by Europe are of a long-term nature and most politicians are unable to look past the next election. In my humble opinion, Europe's dithering politicians will always do the right thing when faced with a crisis but not until the very last minute. So where does that leave Australian investors? As the famous baseball player, Yogi Berra once said, "It's tough to make predictions, especially about the future." With markets remaining volatile any predictions I make weeks before this article is published have the potential to make me look rather foolish. So instead, I will point out both the pros and cons of investing in Australian shares and let you decide for yourself which case makes sense. THE BULLISH CASE FOR AUSTRALIAN SHARES • Australia has a very low level of sovereign debt and has a stable political and economic environment. • Australia has a strong banking system with four of our banks (ANZ, CBA, NAB and WBC) named in the world's Top 20 Safest Banks. • Australia's proximity to Asia (especially China and India) gives us a competitive advantage and positions the country to be a major beneficiary of continued growth in the region. Recently, both China and India signalled an end to their restrictive monetary policy which should bode well for the resumption of strong growth in those economies. The continuation of the emerging markets boom could keep the Western economies out of recession.
ADA News Bulletin November 2011
ADA News Bulletin February 2012