By MoneyMorning.com.au
[Ed Note: While we’re spending a few days at the beach and relaxing with the family (maybe you’re doing the same), we thought it was a good time to send you something from a recent Australian Small-Cap Investigator weekly update. It first appeared in that newsletter on 5 January, 2012. We hope you enjoy this and your day off. Kris.]
“The nine most terrifying words in the English language are, ‘I’m from the government, and I’m here to help.”‘ – Former U.S. President, Ronald Reagan, 1986
Today there are just two terrifying words in the English language.
They’re guaranteed to strike fear into most investors.
They are “debt refinancing“.
And if you thought government debt was ‘so 2011′, we’ve got news for you. Because in 2012…
Nothing has changed.
The problems that hurt financial markets in 2011 are still around. And if we’re right, they’ll cause similar damage in 2012.
Take this recent headline from Bloomberg News:i
“Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.”
According to the report, that’s $200 billion more than the amount financed in 2011. Bloomberg printed the following table. It shows the G-7 nations plus the BRICs:
The middle column shows how much debt each nation needs to repay or refinance this year. Out of interest, if Australia was included in the table it would be between India and Russia, with about $26 billion worth of bonds due to mature this year.
A quick back-of-the-envelope stab at the numbers puts the interest repayments above $10 billion… more than Russia, less than India… and not far behind Canada.
And if recent history is anything to go by, Aussie government debt is set to go up. In December the government repaid $3 billion of debt… but issued new bonds to the value of $7.3 billion.
In other words, for every dollar the government repaid, it went further into debt by $2.40. That tells you the government is using new debt to pay off the old debt.
Because the government is still spending beyond its means, it has to borrow or tax (or both) even more.
This is why I say 2012 won’t be much different to 2011.
We’ve seen that already in just the first few days of this year.
Bottom line: so far (and we know it’s only a small sample size) the market has done just as I thought. If it keeps this up (again, as I expect it will) it should give us plenty of opportunities to buy good stocks at a cheap price.
As always, I’ll keep my eye on the market and let you know which stocks to buy and sell… and when.
Cheers.
Kris.
P.S. It’s an exciting time for small-cap stock investors. Right now I’m looking for some of the most promising companies that could give punters triple-digit percentage gains. You can find out my latest small-cap stock tips by clicking here…
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