AUSTRALIA'S banking system faces "crucial challenges" in the coming year, with global investors to potentially snub the banks as funding costs climb and the world economy slows.

And the system is vulnerable to increases in unemployment and a contraction in bank lending as a consequence of Australia's high house prices and levels of household debt, according to ratings agency Moody's.


It has also warned that the health of the system likely hinges on "how severe and how protracted any contagion from the European sovereign crisis may be".

But Moody's has praised the stability of the local banks and says their balance sheets are far stronger than when investment bank Lehman Brothers collapsed in 2008.

Senior vice-president Patrick Winsbury said customer deposits had been "growing faster than loans as deleveraging continues, allowing the major banks to reduce their reliance on offshore wholesale funding".

Moody's is maintaining its stable outlook for the Australian banking system based on the strength of the banks' books and the domestic economy.

In a note to investors, it warned that the strength of the resources sector meant interest rates were likely to remain elevated and the Australian dollar strong even in the event of a crisis in other sectors.

"The longer-term structural changes associated with increased investment in the resource sector are likely to pressure certain industries and regions, keeping credit impairment levels above the extreme lows of the pre-crisis period," the note said.

Separately yesterday, a leading executive in the retail sector - one of the industries suffering most in the patchwork economy - warned of economic difficulties ahead.

Bunnings and Officeworks managing director John Gillam said another financial crises may be unfolding.

Speaking in Perth, Mr Gillam said he had a "funny feeling GFC wave two" was coming but said his company was prepared.

"In all my time I don't think we've ever been in better shape nor have we been hungrier," Mr Gillam said.

Link -
http://www.heraldsun.com.au/business/concerns-global-investors-will-snub-aussie-...
===========================================

The U.S. economy created 120,000 jobs in November and the unemployment rate fell to 8.6%, its lowest level in more than two and a half years, the Labor Department said Friday.

The big drop in the jobless rate, which stood at 9.0% in October, stemmed mainly from a decline in the size of the labor force. Some 315,000 people stopped looking for jobs last month, which is usually not a good sign.

The U.S. economy has a long way to go, however, to get back to where it was before the 2007-2009 recession struck. The economy has 6 million fewer jobs now compared to November 2007.

As of last month, 5.7 million people have been without a job for more than six months. And the average length of unemployment rose to a record 40.9 weeks.

Link -
http://www.marketwatch.com/story/us-jobless-rate-falls-to-86120000-jobs-added-20...
==============================================
As I indicated yesterday, in the following post, it takes a good 150,000 new jobs each month just for the US Employment market to stand still, that did not happen, AGAIN, so it is hardly good news.
http://www.ozpolitic.com/forum/YaBB.pl?num=1277536490/557#557

The fact that the Unemployment rate dropped by 0.4%, was due to some 315,000 people who stopped looking for work. That may be because the jobs are not there OR that the Baby Boomer retirements are starting to kick in?

Whichever of those 2 options, is the real reason, it is still not good news for the US market!

Last Report dated 05/11/2011

US$ Index (basket of Currencies):  @ 78.68 (Last Report - 76.91) (2010/06/04 - 87.85)
http://www.goldseek.com/quotes/charts/usdollar/usdollarindex24hour.php

Euro - US$: @ 1.3391 (Last Report - 1.3792) (2010/06/04 - 120.44)
AUD$ - US$: @ 1.0216 (Last Report - 1.0375) (2010/06/04 - 83.17)
AUD$ - GBP: @ 0.6548 (Last Report - 0.6473) (2010/06/04 - 57.04)
AUD$ - EURO:  @ 0.7629 (Last Report - 0.7526) (2010/06/04 - 69.06)
http://www.bloomberg.com/markets/currencies/fxc.html

Gold - @ US$1,745.30 (Last Report - US$1,756.10) (2010/06/04 - $1,207.80)
Oil WTi -  @ US$100.96 (Last Report - US$94.26) (2011/03/19 US$101.01)  (2010/06/04 - $70.22)
BALTIC DRY INDEX (BDIY) - @ 1,866 (Down 42 @ Friday close) (Last Report – 1,817) (2010/06/04 - 3,844)
http://noir.bloomberg.com/apps/quote?ticker=BDIY:IND

DOW @ 12,019 - (Down 0.61 @ Friday close) (Last Report - 11,983)  (2010/06/04 - 11,444)
ALL ORDS @  4,346 (Up 58 @ Wednesday close) (Last Report - 4,342) (2010/06/04 - 4,840)
SHANGHAI COMPOSITE @  2,360 (Down 26 @ Friday close) (Last Report - 2,528) (2010/06/04 - 2,553)
http://www.bloomberg.com/?b=0

Last 5 years DOW -
http://finance.yahoo.com/echarts?s=%5EDJI#chart3:symbol=

THERE was movement at the FED, for the word had passed around, That the US$ was an old Regret and its value had long since passed away
==================


In the month, since the last report -
The US$ index traded up to 80, then settled at 78.68, on Friday.
The Euro fell against the US$, settling at 1.3391, on Friday.
The OZ$ initially fell against everything, but then retraced to finish around last months marks or higher.
Gold continued its rollercoaster ride, but finished Friday about square with last month.
Oil (Wti) continued its recent rise, going from US94 last month, to US$101 on Friday, notwithstanding the rise in the purchasing power of the US$.  
The DOW continued its Schizophrenia, by going from an intra month high of 12,170, before declining some 939 points, to 11,231, then retracing back to 12,019 by month end last Friday.
The ALL Ords followed the US, like a lap dog, going from an intra month high of 4,406, before declining some 348 points, to 4,058, then retracing back to 4,346 by month end last Friday.
However, the SHANGHAI COMPOSITE broke back the wrong way, to decline during the month, to finish Friday at 2,360, down 168 from last month, thus reversing its October gains.

The Oil Price continued its recent rise, despite the rise in purchasing power of the US$, perhaps due to recognition of Supply related problems!

NOTE: Given the REAL, BASIC ECONOMIC FACTORS involved -
1) Declining Demand, due to Demographics (Baby Boomer Ageing & Job losses) and the Public anticipating a poor Economic future, due to Debt problems in the US & Europe.
2) Peak Energy & related issues.
3) Neither side of the Economic divide (Keynesians Vs Austrians) can magically solve the current Global Economic dilemma's.
4) Bernanke & the FED are Impotent, to make any real difference in the REAL ECONOMY.
5) Obama can not stimulate the US Economy, as US Debt is already far too high, so any possible stimulus measures can only be mild and that is, IF any measures can get past the Republicans & the Tea Party.

I would suggest that given these circumstances, equities will continue to be very volatile, amid an overall downward trend?

Good luck & watch the Debt!  

I like your posts, Percy. Don't go changin'.

A Week Of Historic Economic Tragedy Ahead

Aristotle described tragedy as a story in which a protagonist with sympathetic traits, in the course of an earnest pursuit, proceeds inevitably towards a horrible fate. Typically, the protagonist possesses an innate flaw that he cannot escape. According to Aristotle, it is not the horrible end of the story itself, but the inevitability of the protagonist’s awful conclusion that bestows tragedy with its dramatic quality and endows it with its most intellectually and emotionally distinct feature as an art form.

In my estimation, Europe is pure tragedy, in this Aristotelian sense. European integration is a noble cause earnestly pursued by well-intentioned people all over the continent. The problem is that the European Union (EU), and the eurozone (EZ) in particular, are beset with certain fundamental foundational flaws that essentially sealed the experiment’s tragic fate from the beginning.

Exactly how the story plays out from here is mere details. However, a sad ending seems increasingly assured.

There are five main issues – wholly derivative of the fundamental flaws of the EU and EZ – that threaten to explode this noble experiment in the medium or even the short term.

1.    Recession. Deepening economic slow-downs and contractions in Europe virtually guarantee that nations such as Italy and Spain will not be able to meet their fiscal targets. As a result, non-compliant nations will be forced to ask for forbearance, while the creditor nations will refuse to finance further deficits. The resulting acrimony can tear the union apart.

2.    Austerity Policy. The demand by creditor nations that nations such as Spain, Portugal and Italy meet their fiscal targets via an ever-deepening austerity will only result in deeper recessions and ever-greater impossibility of meeting fiscal targets. The downward spiral of austerity and recession does not only pose an economic risk, it poses grave political risks as the citizens of nations that are forced to adopt austerity measures are subjected to severe hardship, thereby breeding resentment towards their fellow EZ partners.

3.    Credit Crunch. It is estimated that European banks must deleverage their balance sheets to the tune of 1.5-2.5 trillion euros over the next two years in order to comply with tightened capital requirements. As a result, a general credit retrenchment is currently underway as banks withdraw credit lines from individuals and businesses. The impacts of this retrenchment on growth in the next two years will be dramatic, making it entirely impossible that PIIGS will be able to meet budgetary commitments.

4.    Lack of Funding. Given that PIIGS and possibly other European nations will not be able to meet budgetary commitments, even more funding will be needed than is currently contemplated under the various bailout programs. The problem is that Europe has not been able to find any way to fund deficits under old projections, much less much higher deficits under newer and more realistic projections.

5.    Sovereignty Issues. As detailed here, national sovereignty issues are at the root of many of Europe’s current problems and these very issues could potentially catalyze the final unraveling of the euro experiment. The attempt by Germany to enforce austerity on PIIGS via a “fiscal union” is fraught with dangers that could explode at any moment. It is entirely possible that European leaders will not be able to reach a compromise to achieve a fiscal union given that a true fiscal union requires an unprecedented cession of national sovereignty. Even if they do reach an agreement, any politically viable compromise is likely to weaken the proposed fiscal union beyond credulity, thereby rendering the effort futile. Finally, attempts by supranational entities to enforce more austerity on already suffering populations could provoke open revolt and acrimonious confrontations amongst nations of the EZ.

Conclusion
The road to the EZ and EMU was paved with good intentions by good people. Unfortunately, a single currency in the context of a fiscal confederation is a design flaw that simply cannot be reconciled. The attempt to proceed with a monetary union on this basis was destined to fail, sooner or later.

What will be witnessed this week as Merkel and Sarkozy attempt to hammer out their proposals for fiscal union, and as frenzied diplomatic activity attempts to get all seventeen EZ nations to sign off to a Franco-German pact, is no less than one of the final acts in a great tragedy played out on a massive international stage.

Our collective sense of pathos will be great as we witness an unpredictable series of events unfold to their inevitable conclusion. As occurs with all great tragedies, the audience – financial markets participants, in the present case that concerns us – will be anxiously hoping for the best until the very end.

In the case of Europe, its monetary god (ECB) is weak and constrained, and unless those character traits suddenly change beyond recognition, any intervention by the ECB will only forestall the inevitable end for a short while.

Link -
http://seekingalpha.com/article/311671-a-week-of-historic-economic-tragedy-ahead...
============================================
I don't know about the one week timeframe, but certainly Europe & the USA have a mountain of worry!

Keep posting perceptions, there are many of us that read without replying.

Sometimes what we read leaves us speechless. What can we say?


The USA will raise the debt ceiling to $25trillion or inject $25trillion into the economy. Either way it will freak out Wall Street. Is there another option? I mean they could go lower, but it won't last.

Next year will be interesting. I wonder if the US and the UK will still be telling Europe to get its house in order. They are both on shaky ground themselves.


And on the home front, I'm saying the Reserve Bank will leave interest rates as they are until February.

qikvtec wrote on Dec 5^th, 2011 at 8:21pm:


That's your perogative, qikvtec!