Dr Phillip Low, a senior member of the Reserve Bank of Australia (RBA) recently announced that Australia’s relationship with China has decades to run.

“For the next twenty years, on average, it is going to be a good 20 years for China and for us”. Dr Lowe said.

However, on the other side of the world Jim Chanos, famous for predicting Enron’s fall, said “short sell China”.

So who’s right? A multi billionaire that has made his fortune from foreseeing a corporation’s demise? Or the RBA desperately trying to stave off Australia’s impending recession?

It’s no secret that stimulus is responsible for China’s current success. In fact, in an attempt to cool the overheating economy, the People’s Bank of China (PBoC) demanded that banks increase lending reserves half a point up to 16.5% for the large banks.

This is clearly a desperate move to slow down credit expansion.

Dr Lowe from the RBA believes it’s a good sign. The slowing down of stimulus and the tightening of monetary policy led him to say “…that is a favourable development in that it increases the likelihood that the Chinese economy is on a sustainable path. Time will tell though.”

It’s strange that Dr Lowe was happy to say ‘time will tell’ when he openly admitted Australia’s reliance on China’s astronomical growth. “We are benefitting from high commodity prices and from our links with Asia.” He said.

He goes on to say “I’m quite optimistic that story [China] has decades to run and that underlies much of the positives for the Australian economy.” That’s doesn’t sound like a twenty year plan, it sounds more like prayers.

Especially when 70% of our exports are to the Asian market.

But what about Jim Chanos? He’s long been heckled for his bearish views on the market. Based on his blunt remark to ’short sell China’, should you stop hoping China is Australia’s white knight?

Even if you push aside Jim’s recent comments on CNBC that China is “cooking the books” and “faking, among other things, its eye-popping growth rates of more than 8%”, what are the facts?

Like many Western economy’s today, China is running on stimulus. The fact that the banks tried twice last month to rein in lending is a sure sign of an economy about to burn out. Amazingly lending for January was ¥1.4 trillion (AUD $228 billion).

This figure for January is nearly one fifth of the lending planned for 2010. In fact for all of 2009, the Chinese banks lent out over ¥9.5 trillion (AUD $1.552 trillion) to keep the economy humming - or burning in order to survive the ‘GFC’. That’s an enormous amount of credit to flood an economy.

China’s excessive stimulus and aggressive lending by the banks have created artificial demand, which has pushed our resource prices higher.

When China announced their ¥4 trillion ‘rescue’ package in 2008, exact details of how it was going to be spent was unclear. Very little information was provided on where the money would be going. Any press release from China stated the stimulus was directed to ‘infrastructure and social welfare’.

To top it off, the Chinese government instructed the banks to ‘loosen credit’ and even encouraged the smaller banks to be part of a ‘more proactive fiscal policy’.

What these packages really told you, was China was going to spend, and it was going to do so in a big way.

And that’s exactly what they’ve done.

But the side effects of all this spending is only just starting to become clear. The loose credit policies and stimulus have driven up property prices. In the major Chinese cities, house prices were up 9.5%, and land jumped a shocking 106% last year.

Is slowing down stimulus too little too late for China?

“Bubbles are best identified by credit excesses, not valuation excesses,” Jim Chanos said in his TV interview. I like that definition. “And there’s no bigger credit excess than China.”

So, will China be able to cool their economy and let the bubble slowly leak? Or are we waiting for a really big bang?

Today I want to take a brief - very brief - look at China. You know China, that’s the economy to our north that saved Australia from economic death last year.

As you may have read in these pages before, don’t believe the hype about Australia’s resilient economy and sound banking system being the reasons why Australia scraped through without much damage.

It was all down to one reason - the Chinese.

But while the Chinese may have helped out last year, the news in recent days points to the perils of relying on the irrational whims of an overseas government to prop up your domestic economy.

News reports such as “China pushes to wean banks off lending” should be enough to send a shiver down the spine of any Australian corporate bigwig.

Because make no mistake, the Australian economy is tied at the waist, the hips and the legs to the Chinese economy. Should the Chinese authorities decide enough is enough it will be curtains not just for companies in the resources industry, but every sector of the Australian economy.

Even sectors that would appear to have little connection to mining will be affected. And so will individuals.

How come? Well, simply because the Australian economy has so much riding on the resources industry in terms of exports.

If the Chinese stop buying up all of Australia’s natural resources the consequences will be dire.

Simply put, while the Australian dollar has become stronger partly due to higher interest rates than other economies, it is still the commodity currency status of the Australian Dollar that has driven it higher.

That’s because all - or most - of the money used to buy up those resources is eventually converted from US dollars or Japanese Yen or Chinese Yuan into Australian dollars.

Naturally, when we import goods there’s also a bunch of Australian dollars that are converted into other currencies as well which helps to even things out.

But imagine if suddenly the export of resources hit the skids. We saw how this could look when the Australian dollar sank from USD$0.98 to around USD$0.60 last year.

That was just a short term hit, and was really influenced more by a ‘flight to safety’ rather than mindless dumping of the Aussie dollar.

A seizing up of the Chinese economy would be entirely different. That wouldn’t be a short term blip at all. And for Australia it would mean a similarly big fall in the value of the Aussie dollar.

And unlike during the mid-2000s when the dollar was priced around USD$0.50, just as the resources boom was taking off and the China story was starting to make front page headlines, there would be no ‘get out of jail free’ card for the Australian economy this time.

Look, we’ve seen plenty of headlines in the past about the Chinese authorities threatening to put the brakes on economic growth. In the most part the economy has continued to surge on and the Australian economy has benefited from it.

But like all bubbles and all winning streaks, this one will end too. The worrying aspect to all this is that there doesn’t appear to be a Plan B.

What will the Australian economy export if no-one wants our resources? Quite frankly, the options don’t look very promising.

Has Generation ‘Y’ Given up on Property?

The definition of a Gen Y is someone born between 1980 and 1995. But for most people Gen Y is just a euphemism for layabout, bludger or timewaster. And it helps to explain the alternative reference of ‘Gen ID’ - which means ‘Generation I Deserve’.

Let’s be honest, the name calling is appropriate. I’m sure you’ve talked incessantly about lazy youths or young adults - they won’t buy house, they want to go overseas, they won’t put money in the bank, and on it goes.

And then they quit a perfectly good, well paying job, just because it didn’t ‘engage’ them - whatever that means.

But fear not, the Gen Y offspring aren’t completely useless and ignorant of investing. In fact, you may be quite surprised at how good some of them are at saving…

You see, a survey from bullion company Gold de Royale came through to my inbox recently. The survey looked at their client’s investments habits.

The most interesting detail was the age of the customer buying bullion. A whopping 32% of gold bullion purchases were made by those classed as Gen Y!

But hang on, that can’t be right! This is the generation that thrives on credit, still lives at home on the Bank of Mum & Dad, and believes that a loan for $20k for that ‘must have’ 12 month trip overseas is an asset rather than a debt?

But what about the Gen Xers and Baby Boomers? Only 5% of Gen X’s looked to precious metals for an alternative investment, whereas the Baby Boomers lead the way with 60% of the near retirees wanting bullion as an investment.

Even so, the mainstream media image is still Gen Y is useless with their money.

But the fact is, they’re not. And I’ll explain more in a moment.

Firstly, you need to remember that no other generation has had credit thrown at them, like the Gen Yer’s have.

I bet you spent years saving for you first car, with every single cent - or penny - safely tucked away in a jar or under the bed. You knew that if you wanted wheels, you had to work hard and save for it.

But, when a Gen Yer was finally ready for a car, his or her bank manager had already sent a letter to them congratulating them on their eighteenth birthday and advising them they could get a loan for a car - even if they only had a part time job.

And don’t forget that at any University open days, there are bank leaflets for prospective students on special ‘University Credit Cards’. Sure these cards have a low limit, but before the students are enrolled credit has been thrust into their hands.

So while they have been dubbed ‘Generation Debt’, amazingly ‘only’ 56% of Gen Y’s over 18 have a credit card.

I mentioned before that the Gen Yer’s might be better at investing than you first realised. While you’ve looked at property prices, and possibly wondered how your kids will ever afford their own home, this generation, have looked for alternatives instead.

A hefty chunk of Gen Y have share portfolios. Many older investors have been frightened off the stock market, but Gen Y has used this crisis as a chance to become financially ’savvy’.

A large majority of ‘Generation Me’ have taken this market carnage as a sign they need to learn more about investing. In fact, 65% of Gen Y rate ‘Saving & Investing’ as their main concern. In true Gen Y style, they even have Facebook groups dedicated to sharing tips on how to save more money.

And even though retirement is nearly 40 years away for this lot, many are contributing more of their salary to superannuation.

So if you have the strong desire to kick your Gen Y off the Xbox, Playstation or Wii and move them out of their bedroom while they’re at work, do it. You might just find a large stash of bullion under their bed!

But the good news to come from the market down turn, has shown Gen Y that boom times don’t last forever and that they’ll look for other investment opportunities, instead of bricks & mortar.

Stock markets around the world slumped Friday after President Barack Obama unveiled plans to limit the size and scope of US banks and financial firms in a fresh offensive against Wall Street excesses.

Markets from New York to Tokyo reacted with barely-restrained panic to Obama’s drive to limit the size of the largest banks and introduce measures to curb “excessive” risk taking.

“Never again will the American taxpayer be held hostage by a bank that is too big to fail,” vowed Obama, flanked by former Federal Reserve chief Paul Volcker who advised the president on the rules.

He promised to “protect” taxpayers by preventing banks or financial institutions from owning, investing in or sponsoring hedge fund or private equity funds.

Wall Street gave an immediate thumbs down to the plans as US stocks plunged, with the blue-chip Dow Jones Industrial Average down more than 200 points or two percent in Thursday trading.

The news then sent shockwaves though Asian stock markets with the region’s financial centers suffering heavy losses in Friday trading. European exchanges later opened under pressure.

Obama’s measures would effectively force financial firms to choose between lucrative proprietary activities — trading in stocks and sometimes risky financial instruments for their own benefit — and traditional activities, like making loans and collecting deposits.

The initiative, which must be approved by Congress, includes a new proposal to limit the consolidation of the finance sector, placing broader limits on “excessive growth of the market share of liabilities” at the largest financial firms.

Obama blamed banks for sparking the worst economic crisis since the Great Depression with “huge reckless risks in pursuit of quick profits and massive bonuses” in a “binge of irresponsibility.”

“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout,” the president said.

He vowed to enact the reforms in Congress, even if Wall Street deployed an army of lobbyists to kill them.

“If these folks want a fight, it’s a fight I’m ready to have,” he vowed defiantly.

The announcement was the latest attempt by the White House to harness public rage at Wall Street bonuses and the financial crisis.

David Easthope, analyst with Celent, a research and consulting firm, said the effort could hit the banks in one of their most profitable areas.

Proprietary trading “has been the sweet spot for leading investment banks over the last few years, and executives will be concerned that Washington will be taking away the frosting,” he said.

The Financial Services Roundtable, which represents 100 of the largest integrated financial firms, said the proposal would do little to improve risk management or protect consumers from irresponsible loans and trades.

“The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs,” said Steve Bartlett, president and chief executive for the Roundtable.

The group represents 100 top financial services firms providing banking, insurance, and investment products and services.

Obama’s first year in office was dominated by efforts to rescue a handful of banks that threatened to topple the US economy after being exposed to massive losses on the subprime mortgage market.

According to Treasury officials, about 205 billion dollars was pumped into 707 banks under the government rescue plans.

Obama has sounded a tougher tone towards banks in recent weeks as he faced widespread voter anger at the massive government bailout, which came as Americans faced surging unemployment, home foreclosures and national debt.

Top Obama economic aide Austan Goolsbee sought to counter criticism that the plan is returning to the Depression-era law creating a wall between investment and commercial banks.

“It’s not returning to Glass-Steagall,” Goolsbee said.

While the act repealed in 1999 forbid underwriting securities or investing in securities by any commercial bank, Goolsbee said, “This is not that. This says a bank cannot own a hedge fund, cannot own a private equity fund or do trading for its own account that is not related to its client business.”

He added that the goal is “to get back to the fundamental nature of the bank, which is serving its clients, rather than investing for its own profit.”

Banks make fools of the press

Poor old Michael Pascoe must also be spitting coffee across the breakfast bench this morning when he reads that headline. Because just two weeks ago he wrote in The Age:

“Big Four no longer banking on guarantee.”

He went on to write:

“There’s been a phoney war in recent months about the Federal Government’s bank guarantee with the occasional Big Four CEO suggesting it needs to be scrapped. As far as the Big Four are concerned, it’s already gone… But the real story is that ANZ hasn’t used the guarantee since July. It hasn’t needed to - and neither do the rest of the Big Four, the benefit of being among the very few AA rated banks left in the world and being based in a strong developed economy with a central bank and regulator that didn’t fall asleep at the wheel. No wonder the Big Four CEOs would happily wave goodbye to the guarantee.”

Ha, ha, ha… Could anyone be more wrong than that? But he’s right about one thing, the central bank and regulator “didn’t fall asleep at the wheel.” Although we wish they had fallen asleep. At least that way they couldn’t stuff things up any more than they already have.

Because far from falling asleep, to follow the motoring analogy, they’ve done worse. They’ve had their foot to the floor travelling at 120km/h driving through the economic equivalent of a school crossing.

But we’ll tell you what’s really phony, the misinformation coming from the banks about the strength of the banks. And even more worrying is the way the mainstream press just laps everything up and takes the crooked bankers’ words as gospel.

This continuing bilge about Australian banks being the best in the world with their AA credit rating is doing nothing more than suckering people into believing everything is fine.

Sucking them into believing it’s a great time to take out a glabzillion dollar mortgage just as interest rates are about to head north and property prices south.

Victoria Invests $363 Million To Keep Australian Open In Melbourne

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Melbourne Park will remain the home of the Australian Open for generations to come thanks to a multi-million dollar transformation of the world-class sporting precinct.

Premier John Brumby said a major facelift to Margaret Court Arena – including the installation of a new retractable roof and an additional 1500 seats – and a new Eastern Plaza that will house 21 new courts, were the major highlights of the $363 million first stage of the redevelopment.

“Victorians are passionate about their sport and the Australian Open is one of the major highlights on Melbourne’s world-class international sporting calendar,” Mr Brumby said.

“The Open is the biggest sporting event anywhere in the world for the month of January and is the largest annual event in the southern hemisphere – that’s why the Victorian Government is making this significant investment to keep this prestigious tournament in Victoria.

“More than 600,000 people attended the 2009 Australian Open, with a third of those coming from interstate and overseas, generating more than $160 million for the Victorian economy.

“This major redevelopment is the single biggest investment in the precinct since the Australian Open moved to Melbourne Park from Kooyong more than two decades ago and it will ensure Melbourne continues to lead the way as the world’s best sports city.

“The world’s best players love coming to Melbourne and our significant investment in Melbourne Park will guarantee the Australian Open remains in Victoria until at least 2036.”

Mr Brumby said Stage One of the redevelopment included:

• A major upgrade to fully enclose Margaret Court Arena, including the installation of a retractable roof and additional seating to increase crowd capacity to 7,500;

• A new Eastern Plaza, incorporating eight new indoor courts and 13 outdoor courts for elite training and general public use as well as change room facilities and a gymnasium;

• Refurbishments to Rod Laver Arena and Hisense Arena; and

• Additional parking and a footbridge linking Melbourne Park to the Rectangular Stadium.

Sports Minister James Merlino said the project was a major boost for both players and fans.

“The Australian Open is one of our great events and its popularity will continue to grow, with annual crowds of more than one million people forecast in the next 20 years,” Mr Merlino said.

“That’s why the Brumby Labor Government is investing heavily in our sporting infrastructure, like the Melbourne Park precinct, so we can continue to attract the big sporting events to our state.

“As well as extending the life of Rod Laver Arena, Margaret Court and Hisense Arena, our $363 million investment will also help open up opportunities for other sports, such as netball and basketball, as well as concerts and other events.”

Tennis Australia President Geoff Pollard said the redevelopment provided a major boost for the tournament and the future of the game in Australia.
“This is an historic day for tennis and the culmination of a lot of work by a lot of people,” Mr Pollard said.

“Full credit goes to the Victorian Government for its ongoing support, and its foresight in recognising the future growth of tennis and the Australian Open.”

Melbourne and Olympic Parks Trust Chairman Russell Caplan said the announcement would help Melbourne Park continue to attract big events.

“This redevelopment reinforces our position as the world’s premier sporting and entertainment precinct,” Mr Caplan said.

Mr Brumby said immediate works would begin shortly after the Australian Open and include improved connections between Rod Laver and Hisense Arena, the installation of new underground water recycling facilities and re-landscaping of the oval.

“Melbourne Park is part of the Melbourne and Olympic Parks Precinct, which each year hosts around 600 events and attracts more than two million people,” Mr Brumby said.

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Is Japan Worth More to Australia than Minke Whales?

No one likes to talk about the elephant in room. Or in this case, the whale in the pool.

Many Japanese find the slaughter and eating of ‘Skippy’ just as offensive as we do the killing of whales for ’science’.

And, despite the statement that the Rudd Government will purse whaling ‘with all our force’ it’s simply not going to happen.

Now, there is no need to compare cultures to decide who’s right and wrong. But you need to look at a few simple economic matters. And, Japan’s actions will be ignored, despite all the well meaning words from the government.

Just like it was ignored from our previous government, and the government before that. Because, quite frankly, Australia needs Japan more than they need us.

You see, for the past 40 years, Japan has been our largest export destination. And each year their interest in Australia has continued to grow. Last year our exports to Japan nearly doubled.

In fact, last financial year, our export s to Japan was worth $52 billion. This means that Japan is worth 22% of our entire export industry. China, which is our next largest export destination, only accounts for 17% of our exports. That five percentage point difference is equal to $13 billion.

Have you considered the impact of the loss of what $52 billion to our economy would be?

Our relationship with Japan has been quietly humming along without too much interference. As Japan’s economic conditions have improved, so have our own.

The Japanese consume the lions’ share of the coal that Aussie’s export each year. And yet, no other country even comes close to the 43% of coal that we export to our East Asian neighbours. Simply put, the loss of this income would result in massive unemployment and mine closures in Australia’s coal industry.

The question you need to ask, is can we afford to lose the world’s second largest economy because we don’t like what they eat?

We are heavily reliant on sending our product overseas not just to Japan, but we still depend on their goods as well. Japan is our third highest importer. To you, that means your cars, your air conditioning, your super-sized television and your computer screen you’re reading this on. A whopping majority of your ’stuff’ comes from Japan.

Sure, hardly any of these products are built in Japan anymore. But over time we have encouraged relationships with Japanese companies which allow you to import these ‘everyday’ items without the usual high tariffs imposed by the government.

Not only that, but Japan, last financial year invested over $1billion into our country. That lazy billion was in addition to the existing $90 billion that is already floating around from previously investments held in Australia.

What if we flip this around? How badly does Japan need us?

Firstly, if you look at Japan’s exports to down under, we scrape in at tenth place. Our demand for their products is only just 2% of their total exports.

Or what about other goods that they purchase from us? Our products only count for about 6%, which if you think about it, we’re a very small part of the market. So while we export large volumes of coal, wheat and sugar to overseas, we’re not the only producers of these commodities. They can always go somewhere else for the products they need.

You see, not only could Japan get the same products from another source, and perhaps they could even get them cheaper. Third world countries have much lower overheads and could offer the same resources.

If Japan did seek other countries for their resources that will leave a gaping hole in our economy where their funds were following in.

This is why the government will huff and puff about pursuing Japan on the subject of whaling.

But really, all this media talk is just an empty gesture. Our economy is more interested in the dollars flowing through our shores than 1,000 Minke whales being killed each year.

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Experience has repeatedly taught me to be wary of ‘hot tips’, especially when they concern unproven speculative enterprises. In an efficient market one must be careful not to forget that by the time you have received the tip, so have a thousand others and the expectation will most often already be reflected in the market price. This is especially relevant for those concerned only with short term gains.

However, when one has the patience to hold onto an asset over the medium to long term, and as such can afford to wait for an investment to mature, the efficiency of markets is less of a concern. Moreover, when one looks to become a part owner in a listed company not simply to benefit from short term price fluctuations, but rather to benefit from the growth in earnings and indeed dividends, the potential for attractive gains improves considerably.

To that end I would like to nominate a few companies that appear to hold attractive prospects. The quality of these businesses is, in all cases, evident from their track record. While the future is forever opaque, companies with ‘runs on the board’ certainly represent considerably less risk than those that have yet to demonstrate their potential.

My first pick is Hastie Group (HST), a building, engineering and refrigeration services company that first listed back in 2005. Since inception the company has consistently grown its operating earnings, and furthermore provided reliable and reasonable fully franked dividends. At just 6.3, the PE points to an attractive valuation, and with an expected dividend yield of 6% investors could do far worse.

Next in line is Tassal Group (TGR), a producer and distributor of Atlantic Salmon. With the economy on the mend, and the appetite for high end products on the rise, this company is likely to benefit well from any recovery. Importantly, they are the largest supplier of Atlantic Salmon to both Coles and Woolworth, which represents a real advantage. As with Hastie, Tassal has consistently managed to improve both earnings and dividends and is trading at an attractive valuation (PE and offering a decent yield (over 4%).

In both cases my recommendation would be to ensure you are well diversified and have an investment horizon of at least 2 years. Also, where personal circumstances allow, I would advise investors to reinvest their dividends. Both stocks provide attractive discounts via their reinvestment plans, and importantly a policy of reinvestment will give rise to compounding returns.

Late last year I talked about ‘sticking to your guns’ when you believe in your strategy – despite there maybe being some headwinds. This of course assumes that your strategy was well founded in the first place and has been successfully and repeatedly tested. This is all part of having a proven methodology which you use over and over again.

In that editorial I was talking about CFDs in particular as many investors are quick to sell when the going gets rough when they otherwise would have made some great money had they ridden the wave that had attracted them into the trade in the first place.

The rest is history. If you stuck with your trades over the holiday period you will have made some great returns.

Now I would like to talk about the other end of the deal – when to get out.

I believe there is still short term money to be made in this market. BUT soon we will reach a point where the returns become marginal AND risk becomes higher. And this is exactly what we saw in late 2007. Yes another mini bubble is in the making. For me I will be exiting in the coming weeks. And I know that I can buy in cheaper anyway in the months ahead.

Take a look at my chart:

click to enlarge

You can see we have almost regained 50% of the fall from November 2007. I think the market can go beyond 5000 and even to maybe about 5400 – which happens to be a useful Fibonacci number.

After that expect little gain and maybe sleepless nights. After that? Maybe some sideways movement until a few ‘nervous Nellie’s’ – sorry ‘nervous Neville’s’ rush to the exit and the stampede happens. All over again.

‘You got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run….’

It’s Christmas Eve and I hadn’t planned to write you a note today, but there was a news item from yesterday that I just couldn’t ignore.

I’ll keep it brief though as there’s still a bunch of last minute Christmas shopping to take care of, and we are supposedly on holiday…

You have to ask yourself, why on earth would a man who was touted as one of the brightest chaps in banking, take up the reins as chief executive of *yawn* Australia Post?

I mean, surely it would be the equivalent of one of Henry Ford’s executives leaving the budding automobile industry of the 1920s to instead head off to run Coach & Horses Inc.

It got us to thinking. As you can imagine, nothing is straight forward in the minds of the folk here at Money Morning’s global headquarters in Fitzroy Street, St Kilda.

When we see the news that Ahmed Fahour, the man who had been named to run Ruddbank now being put in charge of the post office, it sets the Money Morning alarm bells ringing.

Yep, there can be little doubt that this is an updated version of Ruddbank by the back door.

To be honest, we’d actually forgotten about that crazy idea. The Australian Business Investment Partnership was the plan to put taxpayers on the hook for billions of dollars worth of property loans.

Thankfully the whole idea flopped. Of course that didn’t stop the government spending your tax dollars in other ways, such as on the first homebuyers bribe.

But now taxpayers could be in real trouble. And so could superannuants.

You know we’re pretty fond of maths, and this looks like being the proverbial one plus one. Would we be surprised to see Australia Post given an expanded role under the Tax Review or the Superannuation Review? No, of course we wouldn’t.

But perhaps the biggest threat to taxpayers is from an indirect source.

And it goes by the name of Premium Bonds. What’s that? Let me explain…

Premium Bonds are a UK “savings” scheme. Run by the government, individuals can invest anything from £100 to £30,000 in 100% secure government Premium Bonds.

Similar to a bond, you are promised to at least receive back your initial investment on maturity. Or in this case, on demand.

The difference from a normal bond is that rather than receiving regular interest payments your bond “number” is entered into a monthly prize draw where you have the chance to win between £25 and £1 million.

In effect it’s a state sponsored and funded lottery with tax free winnings.

You may think, “What’s the problem with that? Sounds like a good idea.”

On the surface, you could think it’s all pretty harmless. But of course it isn’t. It’s really just another method for the government to increase its debt liabilities at the expense of the humble taxpayer, saver and investor.

Not only that but the organization that runs the Premium Bonds - National Savings & Investments - is drawing funds away from the private sector into the clutches of the UK government. At which point it pours the money down the drain of clapped out disasters such as the National Health Service (NHS).

Yes, take off those rose-tinted glasses, the NHS is a 100% failure.

So, you can forget Ruddbank and the funding of the commercial property market. The bigger threat on the horizon is an Australian equivalent of National Savings & Investments. Doubtless it will be called something twee like “Aussie Saver” or “Aussaver” or even Aussie National Savings ACCounts - or ANSACC for short!

Recent comments from the government indicate it is in no rush to cut back on its spending plans and the stimulus. The only problem it has to solve is how does it get its hands on taxpayer cash without causing too much alarm.

The obvious step is to establish a savings institution, and what better an organization than one that has over 4,000 branches and a presence in almost every Australian suburb - Australia Post.

What you’re looking at here is a coordinated raiding party on the savings of every Australian. But rather than the raiding party being decked out in black, wearing eye-patches and sporting cutlasses, this raiding party is in the form of a smiling and personable ex-banker.

For the government it’s a perfect way of raising money. We’re not saying the scheme will be identical to the UKs Premium Bonds, but it certainly won’t be far off the mark.

It’ll be an alternative to a cash savings account or the risky stock market. Superannuation funds in particular - especially self managed superannuation funds - will be encouraged to buy government guaranteed bonds.

Guaranteed bonds that can be converted into a government provided annuity on retirement perhaps?

Who knows? Anything’s possible.

And forget about the Commonwealth Bank’s Dollarmite savings accounts, a new savings account through the Post Office will be the new rage.

Think about it, it makes sense. At every other stage of your life the government is either taking money from you in taxes, or giving it back to you in bribes - or benefits and tax breaks as they prefer to call them.

The only exception is with the kiddies. Sure, they get benefits, but that all goes to the parents. Imagine if the government could provide a savings scheme direct to the kiddies. So that as they’ve finished saving up their pocket money over ten, fifteen or twenty years, at the time their ready to get their money back they get a nice big cheque from nice Mr. Government.

It’ll be the culmination of the ‘Cradle to the Grave’ for government influence and control over the citizenry.

Make no mistake, the ANSACCs will be touted as a soft and fluffy savings scheme offered by the friendly government.

The reality is that it will allow the government to suck even larger amounts of investment out of the economy for it to spend on its own worthless and pointless pet projects - an Australian National Health Service is an obvious start.

If you’re still in doubt about how that will work out, and how irresponsible governments are with taxpayers money, then I suggest you look no further than the soon-to-be-bankrupt UK.

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So desperate are the property spruikers to keep the property lie going that they’ve embarked on new tactics. How long will it be until they fill the entire property section with just one story?

Why stop there. Why not the whole business section devoted to one property story spinning lies about the never ending advance of the Australian property market.

Apparently all that equals $525,000 for Melbourne. My foot it does!

But after Dobbin had stepped on the accelerator on Saturday with her “houses are $100,000 more than a year ago” article, yesterday she’s slammed on the breaks.

Because next year is going to be a much more stable year for property prices as “the nation’s top housing analysts have forecast modest residential price growth of about 5 or 6 per cent in 2010.”

That’s right, a stable year doesn’t mean prices flatlining or going down, it means they’ll go up - only not so much as before.

That makes us even more convinced the property slump is somewhere around the corner, ready to pounce.

And what settles the matter for us the quote from erstwhile property bear Steve Keen, “I’d expect a five per cent or so fall (in residential house prices), probably returning to somewhere between the current peak and the previous one in September 2008.”

5%! Goodness me, if we thought a 5% fall was the worst it would do we wouldn’t even bother sharpening our property-bubble-bursting-pencil in the mornings.

We feel as though we’re the only one left who believes property is set for a crash. Is it possible we’re wrong on this? Is it? Will that endangered species of “Property Bears” become extinct?

No of course not. Because the fact is we haven’t seen the worst of the property slump yet. Let’s get serious about this.

That’s a 14% fall. And that was during a time when the Australian property market was supposed to be resilient. But as we say, you should even take that number with a semi-trailer load of salt.

The government, banks, real estate spruikers, and the RBA did all that was in their power this year and last to stop the banks and property sector from collapsing.

Even all that effort, and putting taxpayers on the hook for billions of dollars couldn’t prevent the Melbourne housing market falling by 14% - if we believe the REIV numbers.

Just remember that despite the nonsense in the mainstream press, such as yesterday’s Australian Financial Review (AFR) feature, “Once bitten: how our banks dodged the crisis,” - ‘our’ banks didn’t dodge the crisis at all.

Or the follow on feature in today’s AFR, “As the financial world sailed blithely on, buoyed by the tide of money, Australia showed more caution.” Ha, ha, ha, ha, ha, etc…

As Kenneth Williams would say, “Stop messin’ about!”

This idea that Australia got through unscathed due to the bank problems in the 1980s is just not true. Although it hasn’t stopped Bob Joss from rolling out the claim again in yesterday’s AFR:

“I think one of the main reasons things went so right in Australia for the major banks is that they went so wrong in the 1980s and early 1990s.”

It’s all rubbish. Australia’s banks are no more cautious than the dodgy UK or US banks. This idea that overseas banks were leveraged up on collateralized debt obligations (CDOs) and other derivatives whereas Australia’s banks weren’t, may be true but it ignores what was underlying the CDOs - mortgages.

Australia Stock Market ,Australia Stock Market news

National Australia Bank (NAB) Thursday unveiled a surprise 11.9 billion US dollar bid for financial services group AXA Asia Pacific’s Australian and New Zealand businesses, trumping a rival offer.

NAB, Australia’s third largest bank, agreed key terms with AXA Asia Pacific (APH), elbowing out the earlier bid by fund-manager AMP. The deal is subject to AXA’s French parent AXA SA taking over its Asian businesses.

“The independent board committee has unanimously concluded that the NAB proposal is in the best interests of AXA APH minority shareholders and superior to the rejected AMP, AXA SA revised proposal, in both its value and terms,” AXA Asia Pacific chairman Rick Allert said.

The announcement came just days after AMP and AXA SA announced a sweetened 12.85 billion Australian dollar (11.68 billion US) offer, intending to carve up the firm’s Australasian and Asian operations.

NAB must now convince the French parent company, which owns 53.9 percent of AXA Asia Pacific, to dump AMP and back the new proposal, according to Dow Jones Newswires.

Either NAB or AMP stand to become Australia and New Zealand’s leading wealth management group, while AXA SA will gain a valuable presence in Asia.

Under the new deal, AXA Asia Pacific shareholders can receive either 6.43 Australian dollars per share or 1.59 dollars and 0.175 NAB shares. AXA closed at 5.65 dollars on Wednesday.

NAB said it will offer new shares worth 1.5 billion Australian dollars to help fund its latest push into the financial services sector, after acquiring Aviva Australia and forming a strategic alliance with JB Were.

“The proposed merger of our wealth business and AXA Australia and New Zealand would combine two successful and highly complementary businesses,” said NAB’s chief executive officer Cameron Clyne.

There was no immediate comment from AMP, which has set its sights on becoming the “fifth pillar” in the Australian financial sector alongside the big four banks.

“I’d like to think that we’ve got a great Australian company buying back the farm,” AMP chief executive Craig Dunn told public radio last month.

Separately, NAB chief Clyne told shareholders in Brisbane that the bank is in talks to offload its UK subsidiaries, Clydesdale and Yorkshire Banks.

He said NAB had been approached by “a number of players in the UK market” over industry consolidation there.

“These approaches indicate that in our Clydesdale and Yorkshire bank we have a high quality asset that is an attractive platform for participation in UK market developments,” he told NAB’s annual meeting in Brisbane.

Australia’s banks are in a strong position after the global financial crisis, during which none needed a government bail-out due to their low levels of risky loans.

As we head into the festive season, it appears that most market participants have hung up the boots early and headed out to a long lunch.

The market is currently in the middle of its last three months trading range, and the trend has died along with the volume. As you can see in the chart of the ASX trading volumes below:

We’ve been in this consolidation phase for nearly 3 months now and if you have a look at the chart below you can see that a lot of the consolidation periods of the past few years have lasted about 3 to 4 months.

This means we can expect to see the market decide on its new direction in the next month or so.

Click to enlarge

There is very little opportunity apparent in the markets at the moment.

I believe it’s best to wait out this period of indecision unless something really compelling comes along. A market that’s drifting will tend to give a lot of false signals and never really carry on for long in any direction.

If you are trading such a market it’s very difficult to make any money and you’re more likely to end up frustrating yourself.

Knowing when to sit on your hands is a very important lesson in trading. By keeping your gunpowder dry you can remain objective and ready to pounce once a good opportunity presents itself. If you’ve been too eager to trade you may end up managing bad positions rather than focusing on the opportunities.

I’ll admit, it can be very difficult to do this because we all love the thrill of pressing the buy button or rolling the dice. There is an adrenalin rush from being in the markets and I think a lot of people are actually satisfying this adrenalin rush more than anything else.

The only problem is that the price you pay for chasing the thrill is very expensive and the pain that comes along with losing money is very real. It’s only once you have been through this cycle many times that you start to become more wary of your own motivations before you pull the trigger.

It’s always a good idea to go through an emotional checklist as well as a trading checklist before entering a trade. Taking your own emotional pulse and ensuring that you’re trading for the right reasons can stop a lot of bad trading. For instance you could ask yourself, “Am I feeling scared/angry/overconfident/lacking confidence?” Or, “Am I trying to get money back that I just lost by trading a bigger sized position?” Or “Am I worried that I’m going to miss out if I don’t trade right now?”

If the answer is ‘Yes’ then don’t trade.

If you’re brutally honest with yourself I think you’ll find these thoughts are often lurking beneath the surface during a lot of trades and can lead to losses. Being able to notice the signs before you have pressed the button is very hard to learn and even harder to put into practice.

But it must be learnt before you will become a consistently profitable trader.

I would expect that it will be Mid January before we see any real action in the stock market. But as I’m saying to Slipstream Trading members, it’s important to be ready to pounce on the market when the action starts up again.

Well, it looks as though while we were tapping away on these thoughts and you were either reading them or ignoring them, the cheeky scamps in government have already been drying the ink on the next phase of the Super Theft campaign.

Don’t worry about the Henry or Cooper reviews, when you’re in government it seems you can get away with almost anything you like.

And what better cover than the Copenhagen conference - isn’t that playing out beautifully for the politicians? Headlines about the conference being in disarray and a stalemate, “Oh no, the world will end if we don’t do something!”

Then just in the nick of time, the world leaders arrive. What are the odds on a ’solution’ being found and leaders being hailed as heroes? The odds are unbackable, just make sure you’ve put enough money away to pay for it when the bill arrives.

Anyway, no mainstream journalist is going to bother themselves covering government thievery and deceit while there’s a brawl happening in Denmark.

Internet Censorship policy is a perfect example. Bring that old chestnut out while no-one’s looking.

You’d think the press would be up in arms over a potential threat to press and individual freedom. But no, the best the lame saps at the Australian Financial Review and The Age can do is to consign the story to the technology sections of the paper.

If you think that’s as far as the government will go with Internet censorship, think again. Because it’s just the tip of the iceberg.

Once a government gets its foot in the door on one issue, it calls in the heavies and before you know it the whole front door is barged down and government is camped out in your lounge room bossing you around, telling you what to do, and ordering you to hand over more cash otherwise they’ll beat the ‘carp’ out of you.

And that’s exactly what’s happening with Super Theft.

Earlier this year we warned the first tip of the iceberg was the theft of foreign temporary worker superannuation. This was the one where if foreigners who had accumulated Super subsequently left Australia, the super fund would be required to send those balances to the Australian Tax Office.

In effect, foreign temporary workers would be subject to a 100% tax on their superannuation if they left it here.

How about that, a 100% tax on a 9% tax. You can’t beat that for ingenuity.

What would happen to the money? That’s the best part - from the government’s perspective - because it goes straight to Consolidated Revenue. In other words, straight to the Federal Government’s bank account so it can spend it on useless trinkets like free home insulation and “Climate Change” solutions.

That little bit of thievery was estimated to add around $800 million to the government’s coffers.

Well, if foreign temporary worker super theft was the tip of the iceberg then what I’m about to tell you about is the bit of the iceberg just below the surface of the water - there may be a scientific name for it but I’ll be blowed if I know what it is!

As I mentioned above, while we were tapping away writing about the next phase of Super Thievery, on December 2nd the crooks in government and opposition nodded through a proposal that would steal $238 million worth of superannuation from Australian citizens and residents.

I’m not kidding. And I can’t even claim the credit for uncovering this scoop. And no, it wasn’t even our hapless friends in the mainstream press that spotted this one either.

Gold has hogged the spotlight for so long, that everyone seems to have forgotten how exciting uranium can be too.

Right now across the globe, there are nearly 350 nuclear plants that are either proposed, planned or already in construction. Let me put that in perspective for you…

The number of nuclear plants is set to increase by 80% if all these projects go ahead.

And whether you’re a climate change sceptic or believer, the Copenhagen climate conference starts next week, and both China and the US have already made pledges to reduce their emissions.

If that happens then nuclear power is sure to be a part of the solution in coming years. Therefore, uranium will slide right back into the limelight.

But the catch is that there is already a shortfall in uranium production. Existing mines currently only meet 70% of the world’s demand. The remaining 30% comes from the last place you’d expect.

Where?

Since 1993, the 30% shortfall has been bridged by cannibalising the warheads from the nuclear warhead arsenal of the former Soviet Union!

The “High Energy Uranium” agreement has been in place since 1993. It’s also known by the slightly catchier title of “the megaton-to-megawatts program”.

Over twenty thousand nuclear warheads have been recycled into power plant fuel in the program. Those former weapons of mass destruction have supplied about ten percent of US’ electricity over the last sixteen years.

The weapons-grade uranium in each warhead can yield 700 kilos of lower concentration, reactor-grade uranium.

But this unique arrangement is ending. Back in 1993, the program was designed to have a twenty-year lifespan, and Russia recently indicated that it would let this policy expire as planned in 2013.

We’re hoping it wants to keep the last ten thousand warheads for the 42 nuclear reactors it has in the pipeline, rather than for any less friendly plans!

When this secondary source runs out, there will be a gaping hole left in the market. And this will happen just as a many of these new reactors are due to come on line. This shortfall in supply, happening at the same time as a big increase in demand will cause a scramble to secure supply, and will lead to a big rise in uranium prices.

But it’s not enough to look for companies that can provide uranium. It is essential that they’ll produce enough volume on a regular basis to attract big players like the Chinese utilities.

China is increasing its fleet of nuclear reactors from eleven, to one-hundred-and-eighteen! This is where the big contracts will be signed, and money made.

Gerard Minack, the highly respected global strategist for Morgan Stanley believes this is “going to be the biggest turning point for the Australian energy market in twenty years.”

Fortunately, Australia has the world’s biggest proven uranium reserves, with 28% of the world’s total, and right now the heat is back on for the uranium sector.

Sorry to be the bearer of bad news reader, but what we’re seeing right now is the anatomy of a Depression in full flow.

Remember how the policy makers and central bankers told you they “Wouldn’t repeat the mistakes of the Great Depression”? I remember those comments too.

Do you remember them saying, “Ben Bernanke is a student of the Great Depression, he knows what to do and what not to do.”? Yep, I remember that one as well.

Look, we both know the US economy is a basket case hurtling towards collapse. That’s a given. But what about the Australian economy, I mean all those positive economic numbers must be good news.

And what about the rising interest rates that indicate the economy is growing, perhaps a little too fast even. Well, the sad but true fact is that all - yes, all - the policies governments and central banks have followed are exactly the same policies governments implemented during the 1930s.

They stimulated an economy that didn’t want to be stimulated. And because the economy didn’t want to be stimulated the governments had to force it to be stimulated by increasing or maintaining government spending.

Naturally, early on the stimulation looks as though it’s working. Simply because it adds a quick jolt to the economy. The problem is that longer term it just isn’t sustainable.

If the government is continuously ripping money from taxpayers and borrowing in the taxpayer’s name, there is less money left over for the individual to use for themselves.

The individual will consider their priorities and spend or save accordingly. The individual may list food and shelter as their main priorities. Then perhaps travel so they can still go to work.

Then of course there are other essentials to pay for such as gas, electricity, water, etc.

Once the individual has spent their wages on those items there probably isn’t much left over. So perhaps they’ll choose to save it instead of spending it. “Saving for a rainy day” they used to say.

But that’s fine, saving is good. Saving isn’t to be demonized like the Keynesians claim.

The problem is that in an artificially stimulated economy those savings are misallocated. Governments are redistributing your hard earned cash left, right and centre. And businesses see these government ‘investments’ and gear themselves up to take advantage of them.

Why wouldn’t they, these projects will stimulate the economy and get things moving again. Besides, if they don’t go for it, their competitors will and they’ll miss out.

Only it doesn’t work that way. The government steals money from taxpayers to build new school gyms, new hospital wings and insulation for housing.

None of which would have been in demand if it wasn’t for the government’s interference.

Sure, the builder of the school gym gets paid more money, but it’s at the expense of someone else. The electrician who wires up the new hospital wing gets paid more money but that’s also at the expense of someone else.

And the housing insulation firms get a bumper payday, but yep, you’ve got it, at the expense of other firms who don’t specialize in home insulation.

So, what happens when the stimulus dollars stop flowing as they surely must? After all, the taxpayer is not a bottomless pit of cash to be constantly plundered at the whim of government.

That’s when the next phase of the Depression begins. The bumper payday for the chosen few in the economy ends. Businesses that invested in capital and goods soon realize that the signals from the economy were false.

There is no recovery. It was all funded by borrowed and stolen money. But they’ve already invested in products and capital that are no longer in demand. Those capital goods and products remain idle.

But even though they are idle, the firm still has to repay the debt to the bank which is now harder to repay due to the lack of increase in sales.

Even businesses that didn’t benefit from the splurge miss out.

Because all the money was spent on building hospitals and schools and insulating homes, there is less money for the banks to lend to shoe stores, pencil manufacturers or any other industry you can think of.

And because the individual was forced to pay inflated prices for other goods - because the government wouldn’t allow the economy and prices to deflate - and because the government didn’t reduce the individual’s tax liability, they were unable to save additional money for this ‘rainy day.’

And thus eventually everything grinds to a halt. The problem which the government and central bankers told you they were determined to avoid has just become a whole lot bigger.

But even if you forget about all that and look at it pure and simple. It just isn’t possible to solve a massive debt problem by increasing the debt burden.

The fact that the debt is from the government does not make this any less relevant. That’s because government debt isn’t the government’s debt at all, it’s your debt. It’s your debt which you’ll have to repay through higher taxation.

Unfortunately the bad news doesn’t end there. Because in week’s time the debt and tax burden could get a whole lot worse. In fact, now the government’s ETS is sure to get a free ride into legislation, individuals will be slugged with tax increases and cost increases just when they need it the least.

Singapore Stock Market ,australia stock market