Asianomics outlook: The euro: Finished Dr Jim Walker 13 October 2011.

Asianomics outlook:Asianomics outlook:

The euro: FinishedThe euro: FinishedThe euro: FinishedThe euro: Finished

Dr Jim Walker

13 October 2011

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Eurozone quandary

EFSF bailout funds – leveraged or not – are grossly inadequate for the problem. Euro bank stress tests have been a joke

Defaults and haircuts are only half the solution

A growth engine is required for Greece, Ireland, Portugal and Spain at least. There are no ‘good’ options but, with no euro devaluation, there are no options at all

Hong Kong’s experience between 1998 and 2003 is the roadmap for PIGIS. Democracies won’t wear it

2


Deflating to competitiveness is just too hardDeflating to competitiveness is just too hard

Basket case, not a basket of currencies

3

Source: Asianomics Limited

0.0

0.5

1.0

1.5

2.0

2.5

Euro/dollar (current)

France Germany Greece Ireland Italy Portugal Spain

Current account equilibrium rates versus current


Debt is coming down but far too slowly. Return on equity faltering

4

Europe’s corporates – slow-motion train wreck

Source: Forensic Asia Limited

0

5

10

15

20

25

30

<2 <3 <4 <5 <6 <7 <8 <9 <10

S&P500

Crises past

PIGS 2007

PIGS 2010

(% D

istr

ibu

tio

n)

(Financially Sound) (Financially Distressed)


Asianomics Global Investment Strategy (2nd Half 2011)

5

Source: Asianomics Limited

Recommendation 13-May-11 30-Sep-11 Asianomics Performance

Short Spanish government bonds and equities

10-year bond at 5.21% 10-year bond at 5.14% +0.6% (including yield)

IBEX 35 at 10488 IBEX 35 at 8547 +18.5%

Short Aussie dollar and equities

US$1.0629/AUD1 US$0.9662/AUD1 +10.7%

S&P/ASX 200 at 4696 S&P/ASX 200 at 4009 +14.6%

Short the euro EUR 1.419/US$1 EUR 1.339/US$1 +5.7%

Short/underweight the Bovespa

Bovespa at 64003 Bovespa at 52324 +18.2%

Long 3-month Treasury 3-month T bill at 12.43% 3-month T bill at 11.18% +ve (no price data available)

Long gold Short copper

GOLDS at US$1505/oz HGA at US$398/lb

GOLDS at US$1624/oz HGA at US$315/lb

+7.9% +20.9%

Asianomics outlook: The euro: Finished Dr Jim Walker 13 October 2011.

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