And so it ends. Investment Insights for 2011 that is and haven’t I got some pearlers for you this week as we take a look at the most shorted stock on the ASX, JB Hi-Fi (JBH) and Dan gets all hot and bothered about copper miner OZ Minerals (OZL). Both would have to say it hasn’t been the best of weeks with JBH decreasing their forecasts by 5% and commodity prices being hammered by an increasingly uncertain market. 

But before you get into Insights this week I thought I’d share some other tid-bits with you: 

ANZ Chief Executive, Mike Smith, noted today at ANZ’s AGM "As the crisis in Europe continues to deepen, the choices for commercial banks such as ANZ are becoming more and more limited. For us, the cost of funding is rising again ... if indeed it is available at all”

A statement like that from the banks can’t be good. In fact, the word on the street is that it is possibly tighter than Mr Smith even suggests. 

And don’t worry, JBH wasn’t the only company in the ‘announcements’ section this week for all the wrong reasons. Wesfarmers announced a write down to its Coregas arm of $190m. Like all write downs, that is coming straight off the bottom line and only highlights why Goodwill is a key Financial Test in our analysis. When things get bad, not only does revenue fall, but management writes off the business’ goodwill – it’s a double whammy. WES of course, laid the blame on their customer, Bluescope who shut down part of its Port Kembla operations. 

Some of you may have also noted a stark change in my tone over the last month or two. Let me show you why: 

Indian industrial production fell by 5.1% YOY (to October). Year-on-Year to September India had shown growth of 2% so that was a big down-swing. Announcements overnight suggest even France will now enter recession (if its not already) and the woes of Europe are being felt in the emerging Asian nations. Lets not forget, Europe is the destination for 30% of Chinas exports too and that must then flow on to us.

Add to that the article in London’s Financial Times earlier this week that Europe has €250 billion worth of leveraged loans (not to dissimilar to the ill-fated CDO’s of the GFC) maturing in Europe between now and 2017. In this time European banks must not only contend with refinancing these (or forcing repayment from those business’ carrying the debt) they must contend with the possibility of further Government debt  write-offs or potentially defaults AND refinancing their own balance sheets to comply with the looming Basel III requirements. The Basel III requirements alone are estimated to be  another €220 billion themselves. Little wonder ANZ Chief Mike Smith was so worried! 

It saddens me that the news I deliver in my final column for 2011 is so deeply negative but it is a sign of the times we are in. Still, Positive outcomes will be delivered by positive actions. We just haven’t seen them yet but one country has put its economy before all else. 

Canada has announced it is pulling out of the Kyoto Protocol on climate change. Canadian Environment Minister Peter Kent said on Monday that Canada was invoking the legal right to withdraw from the pact. Canada is the first nation to formally renounce the protocol. The current Canadian Government is reluctant to stick to the requirements of the Kyoto Protocol on the grounds it would hurt Canada's booming oil sands sector. Yet our very own Government throws in a Carbon Tax which is significantly higher in price when compared to any other nation and then adds an MRRT – a double hit on our booming mining sector. We must applaud the foresight of Prime Minister Gillard and her team. Clearly they know something Canada doesn’t. 

So risk in the market is heightened and preserving cash and reducing some debt is the most sound strategy I can think of. If Mike Smith is correct Term Deposit rates may soon start rising as the banks race for deposits, as they did in 2008.

All that said, dividend yields are still fantastic and well above Term Deposits so if Chancellor Merkel and her Euro cronies find that elusive silver bullet money will seek out those yields and prices will rise. 

2012 will be a telling year, one way or another. 

Finally: We wish you a Merry Christmas.

We will return on January 23^rd.

Regards

Nick Rundle  

Director of Financial Strategies