Start of things to come

December 11th, 2008  by Lou Muddaris

Closing Data

	current	change	%
Dow Jones	8761.42	70.09	0.8%
NASDAQ	1565.48	18.14	1.2%
S P 500	899.24	10.57	1.2%
FTSE 100	4367.28	-13.98	-0.3%
Nikkei 225	8660.24	264.37	3.1%
SPI Futures	3649	28	0.8%
All Ords	3,534.00	-20.1	-0.6%
Oil	43.1	1.1	2.6%
Gold	808.8	34.6	4.5%
Silver	10.2	0.35	3.6%
Aluminium	1463	-3	-0.2%
Copper	3120	-21	-0.7%
Lead	968	32	3.4%
Nickel	9200	50	0.5%
Tin	11800	295	2.6%
Zinc	1097	17	1.6%

START OF THINGS TO COME?

Markets appear to be in Christmas mode as trading ranges have certainly tightened both here and in the U.S. I guess the scarcity of economic data certainly lets traders forget the big picture, although it has been very heartening that the data of late has indeed been ignored which implies a change in the all important sentiment. How else can you explain markets rallying on U.S. unemployment hitting a 25 year high and not to mention every company shedding staff like confetti. Sure, it's scary but markets are forward thinking and I repeat that the chartists/technicians certainly believe the lows have been set...but not in stone!

CBA. NO I'M NOT A CONSPIRACY THEORIST BUT...

The shares over the past 2 days alone have fallen a startling 13% hitting a 5 year low, whilst NAB and ANZ have relatively held up. Why?
Their exposure to Alco, ABC Learning, MFS and Centro isn't helping but the main reason is the deal with Merrill Lynch to raise another $750 million. Normally, capital raisings are sold to the institutions at a fixed discounted price, as NAB and Westpac did. However the placement of these shares will be based on the price of CBA shares over a 10 day trading period in the future; thus the cheaper they go the less Merrill's has to pay. We certainly saw massive selling (frequent clips of 20,000 shares) indicating institutions and the big trading houses are all thinking the same. This however will be a short term factor and I believe soon they will be just too cheap!

THE IRON-Y OF RIO

Here's the major surgery.
1. Shedding 14,000 jobs (13% of its work force)which will save $1.2 billion annually; it's 2009 capital spending reduced from $9 billion to $4 billion; the 2008 dividend will be held at $1.36 (2007 level) with no increase in 2008 and 2009;
2. And this is the big one "We will sell assets not previously highlighted for sale"...and here's the irony, guess who will be picking them up at dirt cheap levels? Or will that be just rubbing too much salt in the wound! Talking of which, BHP is powering up on surging metal prices which are being bought on the expected U.S. bailout...cars are made up of practically every single metal.
The shares of RIO have rallied 15% over 48 hours as traders like the job layoffs. It's a sad fact of life, when companies sack staff the share price goes up. The German's call it schadenfraude; taking pleasure out of others misery. This certainly applies.

JAMES TOBIN

Yep, I'd also never heard of him until yesterday. He won the Nobel Prize for Economics and this guy certainly doesn't pull any punches. He believes the world economies are going into a depression and sees the US S&P500 index falling by 55% to 400 by 2014. Virtually every other piece of economic commentary opposes this view.  As Andy Warhol said "Everybody will have their 7 minutes of fame".

QUOTE OF THE DAY:

"If you spend more than 13 minutes analyzing economic and market forecasts you've wasted 10 minutes"- Peter Lynch. On that basis seems like our friend Mr Tobin has wasted his entire life!

 

 

 

 

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

< Return to Market Fox home