ASX newbie

Harness Your Emotions When You Trade.

strudy1 — Thu, 07 Aug 2008 05:17:34 +0000

This was contributed by “DRUSS” a professional trader who is also one of the popular contributors to “Topstocks.”

Topstocks are still offering a “Free Pro “account for one month with no strings attached. 25,000 Plus members can’t be wrong. So do yourself a favour and see for yourself. You can get there by clicking on the link provided at the bottom of this page.
Now to this informative article.

Thought I would Revisit this Thread. Plus add a few more things along the way. I believe once you harness your emotions in this game the rest is easy.

1. Taking Profits. Believe it or not, of all the skills one needs to learn to be a consistently successful Trader, learning to take profits is probably the most difficult to master. A multitude of personal, often Very complicated psychological factors, as well as the effectiveness of one’s market analysis, enter into the equation.

Unfortunately, sorting out this complex matrix of issues goes way beyond the scope of this article. I point this out so that those of you who might be inclined to beat yourselves up for leaving money on the table can relax and give yourselves a break.

Even after you’ve acquired all the other skills, it might take a very long time before you get this one down pat. Don’t despair. There is a way to set up a profit-taking regime that at least fulfills the objective of the fifth principle of consistency (”I pay myself as the market makes money available to me” .

If you’re going to establish a belief in yourself that you’re a consistent winner, then you will have to create experiences that correspond with that belief. Because the object of the belief is winning consistently, how you take profits in a winning trade is of paramount importance.

This is the only part of the exercise in which you will have some degree of discretion about what you do. The underlying premise is that, in a winning trade, you never know how far the market is going to go in your direction.

2. Typically, markets go up and then retrace some portion of the upward move; or go down and then retrace some portion of the downward move. These proportional retracements can make it very difficult to stay in a winning trade.

You would have to be an extremely sophisticated and objective analyst to make the distinction between a normal retracement, when the market still has the potential to move in the original direction of your trade, and a retracement that isn’t normal, when the potential for any further movement in the original direction of your trade is greatly diminished, if not nonexistent.

If you never know how far the market is going to go in your direction, then when and how do you take profits?

3. As Traders we must be careful not to confuse the ability to recognise common behaviour with a power of prediction. On the other hand, once we recognise a common behaviour, we can make useful predictions. When a fishermans boat refloats on the rising tide he knows he can go fishing.

4. Trading is about taking advantage of short and intermediate term price differences, managing risk, and understanding that reward is determined not by your entry, but by your exit. It is about recognising when a move has started, and getting out before the move has finished. It is either Profitale or Unprofitable.

5. Every trader has losing positons. Successful traders don’t let those positions wipe them out. The longer they have been trading, the more willing they are to take a series of small losses in pursuit of superior gains. For them trading is not about being 100% right. It is about making sure the right calls are profitable, and ensuring the wrong calls are cut short and paid for as cheaply as possible.

6. Good trading is not enough. Without good money management all is eventually lost. A 10% Loss on $100 leaves us with $90. A 10% Gain using the $90 only adds $9. This does not include Brokerage. Good money management is the essential skill of all full time private traders because we are in the business of making money with capital through risk control.

Say you invest in Shares in the Market. The shares increase by 100% in 3years. Then they drop by 50% in 1year. How much money have you made? Have you made a 50% Gain? No you have not. You have made nothing. Having a Profit Taking Strategy is extremely important. This is because a 100% Gain can be wiped out by a 50% Drop.

Hills’ Final Profit Liked.

strudy1 — Thu, 07 Aug 2008 04:11:13 +0000

The market liked the modest improvement in earnings for Adelaide-based Hills Industries with the shares up 3.9% (slightly better than the overall rise in the market) or 13 cents to $3.46.

Earnings edged up 1.8% to $48.04 million, from $47.17 million in the 2007 year.

The company says it expects a satisfactory result this year, despite the spectre of high interest rates and fuel costs.

Chairman, Jennifer Hill-Ling said that the result was in line with the guidance given at the half year and represented “an excellent achievement in continuing the long term track record of profitable growth in difficult economic times.”

“The second half EBIT result was an improvement of 9.8% on the same period in the previous year and a 5.7% increase on the first half.

“NotwithstaNnding this, profits have been adversely affected in the period due to higher cost, particularly freight and distribution.

“We are particularly pleased to have been able to maintain our dividend on the increased capital resulting from our Share Purchase Plan earlier in the year.

“These results are a testament to the strength of our businesses and confirmation that our strategy of diversification provides long term benefits to shareholders, she said in a statement to the ASX.

Looking to 2009, the chairman said in the statement:

“There has been much publicity regarding the uncertain macro-economic settings, including higher interest rates, higher fuel costs and the uncertainty surrounding capital markets.

“Many of our business units operate in markets that still exhibit growth, despite these factors. Those business included electronics, security, healthcare and Hills environmental products.

“We expect some improvements in businesses that have underperformed this year and the diversity of our businesses further mitigates the risks associated with these economic settings,” she said.

“Hills is not heavily exposed to the domestic housing cycle, and as such we expect a satisfactory result in the year ahead.”

(It moved away from dependence on the Hills Hoist a long while ago and has been expanding aggressively into the digital world through its electronics division)

Ms Hill-Ling said despite the adverse impact on profits of higher freight and distribution costs, annual revenue still increased 16.8% to $1.18 billion.

Sales in the company’s largest division, electronic security and entertainment, increased 12.2%.

Home, hardware and environmental product sales were up 6.1% while building and industrial products was up 5.5%.

Hills declared a final divided of 14 cents, taking the total for the year to 27.5 cents.

The company said its gearing (measured as debt to equity) was 43.8% at June 30 which remains below the target level of 45%.

“The significant increases in steel price made the management of working capital a key issue in the period and will be so in the next period.

“The principal bank facilities of the company are not subject to review until November 2010.

“The company will continue to pay around 100% of its after tax profit to shareholders in interim and final dividends. This policy is subject to the same conditions as previously advised and relies on the continued support of shareholders in relation to the Dividend Reinvestment Plans.”

This Information is provided to you by the Australasian Investment Review (AIR).
Subscriptions are free at www.aireview.com.au

AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decision.

Midday Market Roundup.

strudy1 — Thu, 07 Aug 2008 04:07:11 +0000

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans.

Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday.

Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%.

Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%.

Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value.

Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

* Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.

* Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.

* Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.

* Gold down $3 to $878.80. Newcrest down 40c to 2500c.

* US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

* Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.

* Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.

* Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%
.
* Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.

* West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.

* News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.

* ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.

* UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.

* Merrills says CBA’s crucial results on the 13th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.

* Merrills expecting Telstra’s August 18th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.

* St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.

* Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.

This Information is provided to you by the Australasian Investment Review (AIR).
Subscriptions are free at www.aireview.com.au

The Entire Market Was Up 3%.

strudy1 — Thu, 07 Aug 2008 03:49:37 +0000

The ASX was a rash of gains yesterday. The entire market was up 3%. It was like an allergic reaction that makes you feel awesome. Bit by bit, it spread through the whole bourse. The only companies that escaped its wondrous infection were energy companies and gold firms.

We seem to be breaking out in something ourselves today. It’s not awesome. We’ve quarantined ourselves inside our bedroom.

But even from our vantage point, we can see that this is no ordinary market, reader. When people get emotional they act like a herd. And when the market is acting like a herd, everyone runs in the same direction. Check out the Wednesday stampede:

You can dice that salami any way you like. Almost everything moved in the same direction. Gold miners and energy firms got nice and cheaper, thanks to falls in the price of oil and gold.

That struck us, because we spent yesterday considering the contrasting nature of commodities. While shares in a market like this tend link arms and play follow the leader, commodities don’t. That makes our job in Diggers and Drillers a little easier. There’s a lot more variety in the resource market.

(Editor’s Note: If you’re after variety, by the way, now’s a good time to join D&D. Our publisher’s just about to send you a new offer. It’s cheap. Keep an eye on your inbox.)

Shares have definitely linked arms in the past month. But you can’t put all of yesterday’s gains down to blind greed. We haven’t forgotten the Three Es: Energy, the Economy, and Earnings season. All of them had some sort of effect yesterday.

Banks Climb as Market Prices in Interest Rate Cut

For a start, everyone loves an interest rate cut. We don’t have one yet, but that doesn’t deter a horde of rampaging investors with a little bit of knowledge. So financials and retail stocks caught the buying bug.

The whole financial sector soard 5% in fact. Even the money markets are beginning to act as though the cash rate is 25-50 points lower. You’ll note the Bank Pain Index to your right has eased considerably this week. You can pretty much put that all down to traders’ expectations. They think a cut’s coming. They’ve moved early, pushing down short-term market interest rates.

What we want to know is whether markets rates will keep dropping.

If so, banks earnings will benefit. If not, they’ll continue sliding. We’re going for option B. And if their costs stay high, there’s every chance the Big Four will keep their rates up if the RBA cuts. But that isn’t a good thing. It means they’re running faster to stay in the same place. They’d be keeping prices high to maintain earnings, not grow them.

For Australia’s central bank meanwhile, things are way off the charts. It used to have a nice, easy formula of raising or lowering rates in response to consumer inflation. That plan’s holding up like a pavlova under an elephant. If it cuts rates this year, it’s basically admitting that.

We see the big drivers of inflation coming from gaps in supply (think oil) in the near future. That makes the RBA’s economic policy far less relevant than it used to be. Petrol prices are the new Reserve Bank of Australia.

Aussie Dollar Pushes Up Two Sectors

One of the victims of interest rate speculation has been the Aussie dollar.

Our falling currency might’ve helped push the miners up yesterday. Some of them (notably Rio and BHP) report their earnings in US dollars. Most commodities are traded in greenbacks. It makes sense. But this means that a rising Aussie D reduces earnings from the Australian shareholder’s perspective.

Manufacturers too. Our blazing currency hasn’t helped them sell anything overseas.

But while our dollar takes a rest, both of these types of companies could turn out to be short term trades.

Three Surprisingly Good Bottom Lines

As for Earnings results…the market got a bunch of good ones yesterday. But it was the most surprising, wacky collection of winners you’ve ever seen. Imagine Willy Wonka and a handful of Oompa-Loompa’s taking out the men’s 4×400m relay gold medal. Now you’re getting close.

The oddities began with this: online ticket portal Webjet (ASX:WEB) increased its profits by 134% last year. Airline prices are soaring. Yet this company managed to profit from that somehow. Its share price added 11%.

The only thing more Australian than a backyard clothesline is a football player being remanded in police custody. Hills Industries (ASX:HIL), the firm responsible for the Hills Hoist clothesline, somehow pulled off a 16th straight profit record.

That’s not bad. Especially when you consider how it must be hurting from steel prices.

And sleep specialist Resmed (ASX:RMD) added 66% to its net profit. Actually, that’s not surprising at all. This market’s enough to give anyone insomnia.

By Allan Robinson.

This article is contributed by Money Morning. Click on the link below for more information and to subscribe to their free newsletter /20080807/market-up-3-percent.html#more-610
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Change or Increase in Substantial Shareholdings:

strudy1 — Wed, 06 Aug 2008 07:29:53 +0000

- A list of companies to record an initial or increase in substantial shareholdings:

* Deutsche Bank AG increased its interest in Macquarie Capital
Alliance Group on July 31 from 29.8 million (12.1pc) to 32.6 million
stapled securities (13.2pc).

* Lazard Asset Management Pacific Co increased its interest in
Macquarie Communications Infrastructure Group on August 1 from 40.7
million (7.8pc) to 46.1 million stapled securities (8.8pc).

* Commonwealth Bank of Australia Ltd became a substantial holder
in Brisconnections Unit Trusts on July 31 with 19.6 million stapled
securities (5pc).

* United Biosource Holding LLC became a substantial holder in
Cogstate Ltd on July 28 with 7.8 million shares (13pc).

* UBS Nominees Pty Ltd became a substantial holder in Brockman
Resources Ltd on July 18 with 7.1 million shares (5.4pc).

* Hillgrove Resources Ltd increased its interest in Intermet
Resources Ltd on August 5 from 29.6 million (58.6pc) to 30.4 million
shares (60.1pc).

* Premier Investments Ltd increased its interest in Just Group
Ltd on August 5 from 52.2 million (25.9pc) to 54.5 million shares
(27.1pc).

* Orbis Investment Management (Australia) Pty Ltd became a
substantial holder in Tower Ltd on August 4 with 9.6 million shares
(5pc).

* Ivanhoe Mines Ltd Group became a substantial holder in Ivanhoe
Australia Ltd on August 4 with 250 million shares (80pc).

Tough Day On Market But Campbell Bros Stars.

strudy1 — Wed, 06 Aug 2008 04:29:04 +0000

A tough day on the Australian stock market yesterday, which ended lower for a third day, as miners were sold off on falling commodity prices.

Banks had a bit of a respite and there was a rebound in the afternoon.

The ASX200 index fell 67.3 points, or 1.4%, to 4820.4 after earlier hitting a 31-month low of 4758.5 in the morning, while the All Ordinaries shed lost 75 points, or 1.52% to 4882 after it was off more than 2% in the morning as well.

But the star of the day goes to Brisbane-based Laboratory services and chemicals company Campbell Brothers which saw its shares surge by more than $4 or more than 15% in a market that plumbed new 2 year lows at one stage.

It was a stand out performance and there was a very simple answer: a forecast at yesterday’s AGM for a 60% rise in first half earnings, and that a “similar percentage increase’ was expected for the 2008-09 financial year.

That set the shares alight after the chairman and CEO’s addresses were released after the meeting started in Brisbane at 11 am.

The shares jumped 18% or so to a high of $32.20, before easing back a touch to close up $4.13 at $31.23.

If that 60% rise is achieved, the company will add more than $43 million to net profit by the end of the financial year.

That wasn’t a high for Campbell, which makes much of its money from doing analysis for the mining industry here and around the world.

It touched an all time high of $36 early last December, before Centro Properties killed off our boom by falling victim to the credit crunch by not being able to rollover billions of dollars in debt.

Campbell hit a low of just over $22 in Mid-March in the middle of the near market meltdown when Bear Stearns got into trouble.

Campbell Brothers’ CEO Greg Kilmister told shareholders the company was approaching fiscal 2009 “from a position of strength”.

Mr Kilmister said that in the first four months of the new year the company’s businesses continued to grow.

“We are quietly confident that the current momentum will be maintained for the foreseeable future,” he added.

Mr Kilmister said first half net profit for the current year, before unusual items, was expected to rise by about 60 per cent from the same period in fiscal 2008.

“A similar percentage increase is expected for the full year.”

And chairman Geoff McGrath also said the company’s dividend distributions are also likely to rise.

“It is the board’s intention to raise total dividends in-line with profit growth,” Mr McGrath said.

“However, the level of franking credits is likely to remain at around 50 per cent due to the high proportion of earnings generated overseas.”

Mr Kilmister said that the Queensland-based mining, energy, chemical and hospitality products and services conglomerate was confident of continuing with its “formidable track record of growth”.

“I’m confident that with a new three-year strategic plan in place, that shareholders can look forward to excellent returns in the future,” he said.

“Over the coming year you will see the positive impact on the company as that plan is implemented.”

The strategy includes mitigating a currently weak US currency through negotiating non US-dollar contracts, expanding current facilities and sourcing bolt-on acquisitions.

Campbell Brothers’ net profit for fiscal 2008 before one-offs rose 30 per cent to $76.82 million, while revenue grew 16.5 per cent to $772.29 million.

If that 60% rise in profit is achieved, earnings would surge past the $100 million mark on an after tax basis.

Gearing, calculated as total debt divided by total debt plus equity, was 36.1 per cent. Interest cover was a healthy 12.2 times.

“The underlying performance improvement is overwhelmingly driven by organic growth,” Mr Kilmister said.

“Opening new sites, increasing market share and focusing on more attractive markets.

“Acquisitions will remain an important part of our growth strategy to access new geographies and market segments, but we are not reliant on acquisitions to fuel our growth.”

In fiscal 2008 the company used an average Australian-dollar to US-dollar exchange rate of 88 US cents, although Mr Kilmister said Campbell Brothers’ international exposure made foreign exchange a constant risk.

“This excellent performance was achieved despite adverse movements in foreign exchange,” he said.

The higher dollar cost Campbell around $5.4 million off net earnings.

The group now concentrates on mining and energy laboratory services, environmental services, industrial chemicals and associated hygiene products, and hospitality sector supply.

This Information is provided to you by the Australasian Investment Review (AIR).
Subscriptions are free at www.aireview.com.au

Resource Stocks Selling Below Book Value.

strudy1 — Wed, 06 Aug 2008 04:00:33 +0000

Investors dropped everything and stampeded out of the resource sector yesterday, reader. We mean everything. There are kitchen sinks lying all over the place. According to the Australian Financial Review, Lynas (ASX:LYC) was the best-performed miner in the top 200 yesterday. It only lost 0.4%.

So today’s issue is an idea-fest. Among the wreckage there are good stocks. Really, unless you believe there isn’t a good miner in the country, that has to be true. They all went down.

But before we get to ideas…why did the miners cop such a drilling yesterday?

Falling commodity prices. Oil’s trading at US$116 this morning. It’s leading a lot of other hard assets down. If you’re a fan of the charts, stay tuned for tomorrow’s MM. Gabriel can tell you what this plunge means for technical traders and the market’s sentiment.

Today, we have two things to say about the commodity correction.

It’s only a correction. And it’s not an all-in, broad bear market like the one you’re seeing in financials shares.

On the first point…look at what commodities have done since 2004.

No market can keep that up forever. When you hear that metals are down, or that wheat is losing ground…it’s mainly because in the last 4 years their prices took enough ground to fill the Grand Canyon.

And it’s not a bear market. Why? Because in a bear market, everything falls. That simply isn’t the case with commodities. Take a look at a break-down of that chart above.

Those are the key sectors for Australia’s trade. They don’t move in tandem, contrary to what a lot of people believe. The financial drama ended in tragedy. That’s because no-one needed a reason to buy financial stocks anymore. They just did it.

But every commodity is different, with different sources of supply and demand. We guess if you wanted an analogy for the financial market…they only trade mainly in one commodity: interest rates. That’s why we keep track of the Bank Pain Index over on the sidebar.

Resource stocks aren’t all the same. So we don’t expect them all to drop at once. And when they do…like yesterday…it means some are probably more valuable than they look.

Some are even trading below their book value. You can see for yourself below. There’s even a recent Diggers and Drillers tip in this list. We’re not letting on which one, mind you.

Companies in the Materials Sector Trading Below Book Value

Companies in the Energy Sector Trading Below Book Value

Flat Rates…Falling Oil…Wall Street Gains 3%

But the deflation of some commodities is bringing some buyers back to the market. Add in the fact that the Federal Reserve declined to cut rates again. What do you have?

A 3% bounce in the Dow.

In a ridiculous circle of un-logic, we’re now left with a huge opening in the All Ordinaries today. The ASX200 Materials and SAX200 Mining indices are flying with a 2% gain already.

Falling commodities yesterday meant a falling ASX. The fall in oil also meant the Dow rose. And if the Dow goes up, the ASX follows it like a lost puppy. Make up your mind, ASX.

Gindalbie’s Prediction for the Iron Price

Over to the latest from the iron sector. BHP and Rio’s iron contract prices only reset about a month ago. Yet iron junior Gindalbie (ASX:GBG) is already calling for 20% gains in the next year.

Are you any good at picking market bottoms? When the whole-sale slaughter on the ASX is over, iron juniors might prove to be the sector to hold. Yet again.

AXA Surprises the Market

Anything can happen now, we suppose. AXA leapt 7% on a joyous earnings report yesterday. Boss Andrew Penn delivered it to the market with this encouraging line:

“Frankly, it is impossible to predict how and when this (volatility) will play out, or what the next round of bad news will be. In the meantime, it will continue to be a difficult time for our industry.”

Investors are scrambling to buy anything even remotely positive. A financial announces a modest 11% increase in operating profit and traders go ga-ga. Never mind the bearish outlook from the CEO. Or the fact that the company’s overall profit fell by 75%.

By Allan Robinson.

This article is contributed by Money Morning. Click on the link below for more information and to subscribe to their free newsletter /20080806/resource-stocks-selling-below-value.html#more-606.html”

Midday Market Roundup.

strudy1 — Wed, 06 Aug 2008 03:42:12 +0000

style=”font-size: 10pt; font-family: Verdana;”>The market is having a shocker - down 96 hitting a two year low. The SFE Futures suggested a 44 point fall. It looks like the Resources bubble is bursting today.

Resources pummeled after steep falls in energy and commodity prices overnight – down 6.1% - with BHP down 6.4% and RIO 5.6%.

Property Trusts also struggling – down 2.2%. Financials started down but now up 0.7%.

Dow Down 42. Up 56 at best. Down 105 at worst.2 stocks down for every 1 up. 6 of the 10 sectors now more than 20% off their highs.

Oil price and CRB commodities index fell – down 3% and 3.4%. Energy and resources down to 6-month lows – down 4.9% and 4.2% - speculation of a large hedge fund liquidating positions in these sectors. Freeport-McMoran down 12%. Tesoro and Valero – two biggest US refiners – fell 42% and 38%. Range resources – big gas producer – fell 43%. Exxon Mobil down 3.9%.

Transport down 0.8% despite the fall in oil prices. Only consumer discretionary, consumer staple and healthcare rose – up 0.5%, 1.2% and 1.3%.

Financials finished down 1.3% (was down 2.9% at worst). Oppenheimer’s Meredith Whitney told CNBC that the market turmoil is “far from over and that home prices will fall much further than people expect”. Citigroup reported its first loss since 2005 – biggest US credit card lender lost $176m in the 2Q on repackaged credit-card securities. Price fell 0.21%.

Bank of America down 2.13% and Wachovia down 9.9% as broker recommends selling their stock. Washington Mutual down 8.5%. London based HSBC posted 1H 08 profit down 29% due to losses on US subprime. Price fell 1%. June personal spending better than expected but higher than expected PCE price inflation offset any enthusiasm. Factory orders were more healthy than expected.

Both BHP and RIO down in ADR form overnight, 3.74% and 5.69% respectively. BHP down 220c to 3614c. RIO down 603c to 11207c.
Metals all down overnight – Both Copper and Zinc down 4.2%, Zinc down 1.84% and Nickel down 1.5%. Oz minerals down 18c to 170c.
Oil pricedown $3.58 to $121.45 – a 3 month low – on the back of rising OPEC outlook. Oil traded below $120 for the first time since May. Woodside down 301c to 5099c.
Gold down $8.90 to $900.10. Newcrest down 259c to 2714c.
US Bonds down with the 10 year yield up to 3.97% from 3.94%

AXA Asia Pacific Holdings’ (AXA) up 8.62% in a relief rally after announcing interim results – operating profit of $295m – up 11% against consensus of $263m but included a $25m one-off gain – otherwise only mildly ahead of consensus at $270m.

Headline result (NPAT pre one offs) at $101m was down 73% and below consensus of $121m after one-off mark-to-market on investments (-$140m). No earnings guidance. Dividend maintained (some expected a rise). Weres note the result is actually well ahead of consensus ex mark-to-market losses. AXA and the rest of the sector took a dive on the Suncorp-Metway profit warning last week.

RBA likely to leave rates at 7.25% this afternoon. We await their decision at 2:20pm. RBA expected to soften their policy stance after recent weak economic figures.

Services sector activity plunged 2.6 to 42.8. Consumer and business confidence slid in July as reflected in weaker household and business activity. Weakness seen in many sectors across the economy.

16 analysts average RIO’s upcoming underlying 2H earnings at an increase of 46.3% - iron ore prices have lifted profit but input costs across various businesses unknown.

Fortescue Metals down 5.6% despite presenting at the Diggers & Dealers conference in WA.

Just Group have given way on the $810m takeover battle from Lew’s Premier Investments saying they will support the bid if they declare the offer unconditional. JST down 21c to 339c.

Macquarie Airports (MAP) Copenhagen 1H EBITDA up 10% tracking ahead of Were’s expectations but they forecast a slowdown in traffic growth. Sydney’s EBITDA up 9.5%. MAP maintain forecast profit before tax for 2008 to be slightly higher than 2007. MAP up 7.55% or 21c to 299c.

Seven Network (SEV) up 3.81% after results and a buyback of up to 40m shares (19.4%). FY results broadly within consensus but profit result and comparables largely irrelevant given the ongoing transformation of the business.

ABC Learning (ABS) up 3.5% after it appoints five new board members.

Asciano (AIO) – Yesterday’s private equity bid at $4.40 per share seen by ABN AMRO as “opportunistic” and say they’ll have to offer at least $5.00 per share. AIO up 3% or 15c to 498c.

Sims Group down 7% on recent media articles suggesting US scrap metals will weaken. SGM down 7.31% or 235c to 2978c.

Gold stock going backwards after another fall in the gold price – NCM down 8.71%, LGL down 9.3% and SGX down 5.8%.

Nickel and copper stocks get a beating on another fall in the nickel price – WSA down 6.2%, PAN down 10.9%, MRE down 14.8%, PNA down 10.9%.

Lend Lease recovering up 3.2% after yesterday’s profit warning including $120m of provisions for losses on UK assets – brokers say the losses were expected, most maintain their recommendations – some dropped price target.

Indiademand set to boom –

Citigroup analyst projects Indian demand for imported coking coal could double from current levels to 46Mt by 2010 – says no shortage of new entrants with 10 emerging players presenting at a recent conference.

A bit of warning from Oppenheimer’s Meredith Whitney who told CNBC that the market turmoil is “far from over and that home prices will fall much further than people expect”.

The FOMC meeting is on tonight. Not expected to change rates although the bias is moving towards a rate rise.

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Asciano Finds A Friend.

strudy1 — Tue, 05 Aug 2008 05:37:00 +0000

Melbourne based ports and rail owner, Asciano, was a star performer in the market last week with an unexplained 71 cent rise to close at $4.15 last Friday, and yesterday we got the reason why.

An unsolicited offer from an old private equity trawler through Australia, TPG, and a mate: an offer that was rejected by the target last night.

TPG Capital, the buyout arm of TPG Inc, and Global Infrastructure Partners offered $2.9 billion For Asciano, which was spun out of Toll Holdings last year around a year after Toll had acquired Patrick. Asciano contains many of the port and rail assets owned by Patrick.

Including debt, the offer is worth $7.64 billion bid (including $4.46 billion debt) for Asciano.

After the close of trade, Asciano refused TPG’s request to look at its books, arguing the bid “undervalues the business”.

TPG and GIP had required that due diligence be completed “satisfactorily” before any final and binding proposal could be made. So without a much higher price, the offer goes nowhere for the time being.

And, despite the lack of a information in the statement about Asciano’s advisers, they turn out to be Macquarie Bank.

That makes the bid less than hostile. Macquarie is close to Asciano: indeed the company used Macquarie nominees to hide its stalking of Brambles until it was outed by Brambles management in an aggressive use of Corporations law.

After being sprung by Brambles Asciano and forced to withdraw after the credit crunch sank the shares. The company was forced to sell its Brambles’ position at a loss.

And, Macquarie and TPG got close and personal during the abortive bid for Qantas where TPG had a 14.9% stake in the offer and Macquarie was the key driver and adviser.

So the TPG and Global Infrastructure bid of $4.40 a share in cash for the company will probably end up winning, unless institutional shareholders in Asciano object.

The offer was an “unsolicited non-binding indicative proposal,” the company said a statement to the ASX.”Security holders are recommended to take no action at this time.”

AIO shares leapt 16% to $4.80 after a trading halt was called off. Its shares finished at $4.68.A week ago the shares were around $3.55.The stock had slumped 55% in the year before today and were down more than two third from its 52 week high of $9.75 when they hit an all time low of $2.68 last month.

Then they started edging higher.

On July 21 Asciano said it knew of no reason why the share price should be rising. That was in answer to an ASX query.

Clearly someone or some people had an idea last week before it was one of the best performed shares in the ASX 200, rising 20.6% over the week, which was a big turnaround from the weakness since January.

That rise didn’t deter TPG and its partner from bidding, even thought there’s no premium to speak of in the deal any more.

Asciano asked for the trading halt before trading started yesterday, saying it was “pending the release of an announcement in relation to an indicative proposal to acquire Asciano.”

Asciano later told the ASX that it had received an “unsolicited takeover offer from TPG Capital and Global Infrastructure Partners.

“Asciano has this morning received an unsolicited, non-binding indicative proposal to acquire 100% of the issued securities of Asciano by way of a scheme of arrangement.

“The proposal includes a cash alternative of $4.40 per Asciano security. There is a scrip alternative of unlisted securities in a bidding company.”

TPG owns Myer here and was part of the bidding team for Qantas that failed. It has been buying into banks in the US and trying to buy into a bank in Britain (Bradford and Bingley) but abandoned that deal. TPG was also sniffing around Coles Group.

Global Infrastructure Partners is a joint venture between Swiss investment bank, Credit Suisse and General Electric.

And when you consider Dubai World bought P&O for $6.5 billion in 2006, (including Australia) it means that Australia’s stevedoring duopoly, which handles most goods through our ports, will probably finish up with the Asciano stalkers and Dubai: all offshore groups.
no,

BIS warns worse is far from over

strudy1 — Tue, 05 Aug 2008 04:52:08 +0000

A year ago, the Bank for International Settlements startled the financial world by warning that we might soon face challenges last seen during the onset of the Great Depression. This has proved frighteningly accurate.

The venerable body, the ultimate bank of central bankers, said years of loose monetary policy had fuelled a dangerous credit bubble that would entail “much higher costs than is commonly supposed”.

In a pointed attack on the US Federal Reserve, it said central banks would not find it easy to “clean up” once property bubbles have burst.

If only we had all listened to the BIS a long time ago. Ensconced in its Swiss lair, it has fired off anathemas for years, struggling to uphold orthodoxy against the follies of modern central banking.

Bill White, the departing chief economist, has now penned his swansong, the BIS’s 78th Annual Report, released today. It is a disconcerting read for those who want to hope the global crisis is over.

“The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the US, compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point,” it said.

“These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive,” it said. “It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels.”

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Given the constraints under which the BIS must operate, this amounts to a warning that monetary overkill by the Fed, the Bank of England, and above all the European Central Bank could prove dangerous at this juncture.

European banks have suffered worse losses on US property than American banks. Their net dollar liabilities are $900bn, mostly short-term loans that have to be rolled over, a costly business with spreads still near panic levels. Mortgage and consumer credit has “demonstrably worsened”.

The BIS cautions the ECB to handle its lending data with great care. “The statistics may understate the contraction in the supply of credit,” it said.

The death of securitisation has forced banks to bring portfolios back on to their balance sheets, while firms in need are drawing down pre-arranged credit lines. This is a far cry from a lending recovery.

Warning signs are flashing across Eastern Europe (ex-Russia) where short-term foreign debt is 120pc of reserves, mostly in euros and Swiss francs. Current account deficits are 14.6pc of GDP.

“They could find it difficult to secure foreign funding if global financing conditions were to tighten more severely,” it said. Swedish, Austrian and Italian banks have drawn on wholesale markets to lend heavily to subsidiaries across the region. This could “dry up”.

China is not immune, although the BIS has dropped last year’s comment that growth is “unstable, unbalanced, unco-ordinated and unsustainable”.

The US accounts for 20pc of China’s exports, but that does not capture the inter-links across Asia that ultimately depend on US shopping malls. “There is a risk that China’s imports overall could slow down sharply should the US economy weaken further,” it said.

Global banks - with loans of $37 trillion in 2007, or 70pc of world GDP - are still in the eye of the storm.

“Inter-bank money markets have failed to recover. Of greatest concern at the moment is that still tighter credit conditions will be imposed on non-financial borrowers.

“In a number of countries, commercial property prices are beginning to soften, traditionally bad news for lenders. These real-financial interactions are potentially both complex and dangerous,” it said.

Do not count on a fiscal rescue. “Explicit and implicit debts of governments are already so high as to raise doubts about whether all non-contractual commitments will be fully honoured.”

Dr White says the US sub-prime crisis was the “trigger”, not the cause of the disaster. This is not to exonerate the debt-brokers. “It cannot be denied that the originate-to-distribute model (CDOs, CLOs, etc) has had calamitous side-effects. Loans of increasingly poor quality have been made and then sold to the gullible and the greedy,” he said.

Nor does it exonerate the watchdogs. “How could such a huge shadow banking system emerge without provoking clear statements of official concern?”

But there have always been excesses in booms. What has made this so bad is that governments set the price of money too low, enticing the banks into self-destruction.

“The fundamental cause of today’s emerging problems was excessive and imprudent credit growth over a long period. Policy interest rates in the advanced industrial countries have been unusually low,” he said.

The Fed and fellow central banks instinctively cut rates lower with each cycle to avoid facing the pain. The effect has been to put off the day of reckoning.

They could get away with this as long as cheap goods from Asia kept a cap on inflation. It seduced them into letting asset booms get out of hand. This is where the central banks made their colossal blunder.

“Policymakers interpreted the quiescence in inflation to mean that there was no good reason to raise rates when growth accelerated, and no impediment to lowering them when growth faltered,” said the report.

After almost two decades of this experiment - more or less the Greenspan years - the game is over. Debt has reached extreme levels, and now inflation has come back to life.

The easy trade-off has metamorphosed into a vicious trade-off. This was utterly predictable, and was indeed forecast by the BIS, which plaintively suggested in this report that central banks might like to think of an “exit strategy” next time they try such ploys.

In effect, this is an indictment of rigid inflation targets (such as Britain’s), which prevent central banks from launching a pre-emptive strike against asset bubbles. In the 1990s, they should have torn up the rule-book and let inflation turn negative in light of the Asia effect.

The BIS suggests that a mix of “systemic indicators” should be used. The crucial objective is to slow credit growth and make sure that the punchbowl is taken away before the drunks run riot. “We need policy measures to lean against credit-drive excess,” it said.

If there are going to be more bail-outs on both sides of the Atlantic - as there will be - the “socialised risks” should be taken on by political systems, and not dumped on the books of central banks.

“Should governments feel it necessary to take direct actions to alleviate debt burdens, it is crucial that they understand one thing beforehand. If asset prices are unrealistically high, they must fall. If savings rates are unrealistically low, they must rise. If debts cannot be serviced, they must be written off.

“To deny this through the use of gimmicks and palliatives will only make things worse in the end,” he said.

This article was written by Ambrose Pritchard-Evans for The Telegraph, 30 Jun 2008.

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