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December 2011 Newsletter As this is my last commentary this year on business, I thought it appropriate to rub my crystal ball to see what 2012 is likely to bring us. I believe 2012 will be even more challenging than the months following Lehman’s collapse in September 2008. The world is facing a huge debt crisis as a result of the massive overindulgence in borrowing at every level of society. The Japanese taught us that it is possible to have grossly over inflated real estate values with debts against them, but Japan was able to survive because of its prominence in the world manufacturing goods that everybody wanted and being the third biggest economy in the world. Next year will witness the further retraction of economies because of the serious retrenchment that is going on, not only in Greece, but everywhere including New Zealand to cut down on the massive overspending by national and local governments. Not all economies have the cash flow that Japan has and those who falter will face political/economic calamity. The new catch cry is retrenchment and that means further unemployment. Further unemployment means further retraction in commerce and thus the ugly spiral continues downwards, especially now that the banks all around the world are coming under extreme pressure. In years gone by inflation helped to reduce debt burdens, but it is now very clear that there will be minimal inflation. Deflation of values will further inhibit the ability of banks to make secure loans. The publics’ confidence is always measured in the attention shown towards the gold market and looking round the world the gold figures are revealing. It is now possible to buy gold at ATM machines in Germany which has seen a 56% rise in the sale of gold. Across Europe there has been a rise of 135% in gold sales in the last twelve months. It is become fairly obvious that the confidence in the Euro is slipping away week by week. While New Zealand and Australia go the beach for a few weeks Europe is going to be gripped not only by winter but by more feverish meetings to stave off the general collapse of the Euro zone. By the time we come back from the beach next year we will hopefully read how the Euro has been rescued by decisions of the European Central Bank. A lot of New Zealand’s fortunes depend on it because the Euro zone has a population of over 331 million people and if they can’t keep their act together then our exports will suffer as a result. I am grabbing my gold shovel and pan and heading for the hills till mid January. Hope for a resolution of the Euro money because there doesn’t appear to be a “Plan B”. David A Wood Llb; Affiliate of the Australian Securities Institute |
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