The Euro saga continues to drag on with much political maneuvering being done by the various countries. An uncompetitive country that has borrowed and spent too much, can either reduce its currency exchange rates (not possible if it is shared), print money (quantitative easing) to increase inflation or cut living standards and wages (political suicide if it is a democracy). So with all the huff and puff, there is a view that Germany is in control as it wishes to put pressure on forcing change and dictating policy. Why not just leave the Euro and let it disintegrate? This is where is it interesting because Germany has a huge trade surplus and its currency (as the Euro) is effectively being held down. The likelihood of Germany abandoning the Euro is very low because if they were to leave the Euro, their currency would immediately rise significantly and the benefits gained from a cheap currency would be lost. So whilst the stakes are high and uncertainty remains, the odds are more likely of a dithering, committee response that muddles through with eventual structural change, rather than Eurogeddon.
 
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Much like Ford Prefect’s advice in “Hitchhiker’s Guide to the Galaxy”, this is usually sound council. Of course the media loves a good panic (or maybe it should be PANIC!!) and they tend to cater to consumers who also like a good panic. Throw in politicians (who really should know better) making comments and you get reactions and prices that are not based on the economy or on business profits. We also seem to have an ‘economic cringe’ and look to the US daily for our business valuations (share-market). The reality is that Australia has managed its economy, banking system, response to the GFC and economic framework at world-class standards. We are also fortunate to have huge resources that the growing economies of the world (Asia) want. And we are in the region. We need to keep our focus on the big picture and focus on the businesses. We are less tied now to either Europe or the US than at any point of our history.
 
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We might follow the “lead” from the US market, but what does the world market actually think of us? Internationally, BHP recently raised $3 billion on the bond market. So what, you might say. It was able to raise the funds paying only 1.875% interest for 5 years and 3.25% for ten year bonds. Putting that into perspective, BHP is paying less for the use of funds than the government (Australian government bonds are paying 4.0%.) International investors are happy to invest in BHP for a return that will only match inflation.  Why would they do this? It is seen as a safe haven. They have confidence in a growing, world class company which is operating in a region of growth and low geo-political risk.  

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Our office at Trilogy Professional Group will be closing from Thursday 22nd December (lunch) and will re-open on Monday 9th January. (In an emergency, please email or call the mobile.)

 We would like to wish all of our clients a wonderful Christmas, take the opportunity to spend some time with people close to you and to ‘recharge’.
 
Brett

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