In early October the news that European finance leaders are working on recapitalization strategy was greeted enthusiastically by global markets.  The All Ords lifted 5% after a sharp sell-off.  There is a long way to go, but the prospect that European bank insolvencies can be prevented has lifted spirits. Failure to produce a credible last resort European funding mechanism would grim implications for still very weak US banks like Bank of America and would have global consequences for cash rates, inflation and growth. 

While markets will remain volatile as the mechanism in put in place there is a reasonable prospect of December market rally as funds focus on better US employment numbers, strong auto sales and company profits.  Builders are in trouble and some banks, but broadly US corporations are doing well.  Cash stands at $1.27 trillion with the top 20 tech stocks holding 25% of that. Unemployment remains over 9%, but as a post-manufacturing economy this is hardly surprising.  Its most successful businesses like Apple, Microsoft etc make virtually nothing in the US except IP.  Apple iPods and IPhones are assembled in Taiwan, Korea and China .

Our banks are not sheltered from the European solvency crisis as they raise about half of their working capital off-shore and may struggle to refinance at reasonable rates.  But even this concern can be over-stated.  Australian banks relative to many banks are sound good credit risks and while the are primarily housing lenders, cash strapped European bankers are able to distinguish between the standard US mortgage agreement and the Australian with its insurance and joining of the borrower to the loan. There is no comparison in quality.  

Australlia is also riding on the back of huge demand for iron and coal. Rcent events have had little effect on spot prices as China is in a form of structural growth unlike any seen in history before. While imperfect the trajectory is guided rather than planned rigidly, a method with has produced annnual growth of almost 10% for 30 years. Commentators often find it difficult to grasp the scale of China;s population with its intensely populated rural areas. India has similar long term demand.  Currently Indian power companies are keen to tie up coal supply as Indian power demand surges.  

This is why Peninsula sees the sell off as opportunity. It was indiscriminate.  Mining services socks slumped despite servicing the greatest mining boom in our history.  Even the retail sell off was over-done as buyers stayed away not from lack of funds, but for reasons of morale.  Our fractious politics, Greek riots, famine in Somalia and highly visual loss of Australian lives in Afghanistan put a distinct damper on retail demand. Many biotechs also went out with the bathwater regardless of cash flow and strategic partnerships, although it was noticeable how quickly Mesoblast recovered towards earlier highs. With over $260m in the bank and opportunities across large potential markets such as heart tissue repair, bone, cartilege and disc regeneration, it is brings an almost unique status to our biotech sector. If as some physicians believe cell therapy will reshape medicine, Mesoblast is at the leading edge of that transformation.  

Then there is gold. One thing Australia does well is find, develop and process gold.  Many gold listings were sold down with the rest of the market.  As gold and the $A correlate closely the margin on sales has remained elevated.  Few of our producers have cash costs greater than $750 an ounce giving most a margin of $700 or more in $A terms.  This is excellent business as those close to the industry know.  This is the logic on which a recovery will unsteadily build.