BUSINESS and FINANCE

Biggest Plunge In Sharemarkets Since Aftermath Of 9/11

[The Australian, August 11, 2007]

World central banks have poured almost $200 billion into financial markets in less than 24 hours in a bid to stem a global financial panic. The Reserve Bank of Australia had to pump almost $5 billion into the local market, about double the normal daily injection, to ensure that the cash interest rate did not spiral higher than the new 6.5 per cent set only on Wednesday.

Financial meltdown fears

The fear of a financial meltdown stripped 3.9 per cent, or about $58 billion, from the value of the top 200 shares listed on the Australian sharemarket, with the All Ordinaries index closing at 5965.2 points. It was the biggest plunge in markets, both in Australia and around the world, since the aftermath of September 11, 2001. Central banks also provided emergency support to markets then. However, the scale of yesterday's bail-out in Europe was E 26 billion ($41 billion) larger. The markets were last night nervously awaiting the start of trading in the US after London opened down 2 per cent.

Anxiety

Peter Costello tried to calm anxiety, saying Australia's financial institutions were sound, with none of the problems of the US mortgage market. "People will start pricing risk higher and those people that have lower credit ratings may well have to pay a bit more of a premium for risk in bond markets," the Treasurer said. "But it will not affect Australian financial institutions, nor will it affect Australian governments."

Deposits frozen

The panic was sparked by France's biggest private bank, BNP Paribas, freezing deposits in two hedge funds which had E 1.6 billion invested in sub-prime mortgage loans dollars. Only days previously, the bank's chief executive had declared it had no exposure to the US mortgage market. The Reserve Bank's efforts were dwarfed by the European Central Bank, which offered to provide as much money as any bank wanted at its official cash rate of 4 per cent and ended up advancing E 95 billion.

Dollar dives

The Australian dollar dived 2.9 per cent to US 84.1c, as it suddenly became impossible for Japanese speculators to finance what is known as the carry trade, in which they borrow money at low rates of interest in Japan and invest them here. The global panic extended to Japan, where the central bank injected Y1 trillion ($10 billion) to stop interest rates rising.

Economy strong, says Bush

The Federal Reserve Bank, in the US, advanced about $US 24 billion ($28 billion) to get its cash rate back from 5.25 per cent to its target of 5 per cent. George W.Bush said the US Government did not need to provide further funds to the market. "The fundamentals of our economy are strong," the President said. "And I am told there is enough liquidity in the system to enable markets to correct."

Reserve Bank of Australia

Financial market analysts said yesterday's turmoil raised a question about whether Reserve Bank governor Glenn Stevens was correct in his assessment, when lifting interest rates on Wednesday, that the US mortgage crisis did "not appear to have changed significantly the broader global outlook." ANZ chief markets economist Warren Hogan said the bank was clearly aware of the volatility when it raised rates. "But there does seem to have been a substantial deterioration in liquidity in the system, and the key is whether the actions taken by the central banks, including the Reserve Bank, will settle the situation or will there be further instability ahead."

Hedge funds

Although a number of hedge funds around the world, including in Australia, have closed their doors as a result of the US mortgage crisis, the actions of the French bank suggest it may allow bonds to default. This made financial institutions wary about lending to the financial markets, and suddenly there was not enough money available in the money market for everyone who needed it, forcing up interest rates.

The OECD's financial markets deputy director Adrian Blundell-Wignall told The Weekend Australian there was now a concern that there might be a run on hedge funds. Although investors have to give a month's notice to withdraw funds from a hedge fund, if there were a rush it would cause widespread problems in financial markets, he said. "If there is a run on hedge funds, then it is like a run on banks," he said. Dr Blundell-Wignall said hedge funds often borrowed as much as 20 times the amount of their investment so their plight represented a threat to banks.

Mr Costello said Australia could not expect to shrug off a downturn in the US economy or in world markets. "The only effect in relation to Australia is, as you would expect, if the world's largest economy experiences downturn, or if the equity markets in the world's largest economy have a decrease, that has knock-on effects to other capital markets," he said.

MURDOCH BUYS DOW JONES

[Agence France-Presse, August 1, 2007]

Dow Jones has confirmed signing a definitive agreement in which News Corporation will acquire the company in a $US 5 billion ($AU 5.9 billion) deal that will dramatically shake up the US media landscape. The deal means the Wall Street Journal, one of the world's most influential newspapers, becomes the jewel in the crown of the massive News Corp stable. News Corp's chairman and chief executive Mr Murdoch's victory caps three months of intense negotiations between News Corp, Dow Jones and the Bancroft family who have controlled Dow Jones for over a century.

Dow Jones has announced the signing of a definitive agreement on the takeover. "Under the terms of the agreement, which was approved by both companies' boards of directors, Dow Jones stockholders will be entitled to receive 60 dollars in cash for each share of common stock and Class B common stock that they own," Dow Jones said in a statement posted on its website. The Journal is a globally-recognised business newspaper and also has a loyal online subscriber base.

Bancroft member welcomes news

The Journal today cited Elisabeth Goth Chelberg, a Bancroft family member, welcoming a new era of ownership for Dow Jones. "On the one hand it is quite sad, but on the other it was the only reasonable thing to do,'' Ms Chelberg told the Journal. "Now I look forward to a better Dow Jones. It's going to have more money and a world presence and all of the things that it could have and should have had but didn't,'' she said.

Mr Murdoch is planning to expand his interests even further on October 15 with the launch of a News Corp business news cable television channel, Fox Business Network, in the United States. The Journal said Mr Murdoch had stated yesterday that he may add four pages of extra news coverage to the Journal.

US regulatory approval pending

News Corp will still need to get US regulatory approval for the deal, but Mr Murdoch has said he does not anticipate that being a problem. The Journal said the deal could be closed by the end of the year. Mr Murdoch's triumph came after several months of tough negotiations. The Bancroft family initially had rejected News Corp's offer and several Journal journalists had voiced strong opposition to the deal. Some Bancroft family members were fearful that Mr Murdoch would destroy the Journal's editorial independence, but he conceded to establishing an editorial oversight board if he won control of Dow Jones in a bid to appease such opposition.

Dow Jones reporters and a union representing its reporters also said that Mr Murdoch would use the Journal to promote his wider commercial interests if he succeeded in taking over the prestigious business paper. The Dow Jones board has already approved the takeover, but several Bancroft family members had vied to resist the deal.

Last minute support

A report earlier today by the Journal said, however, that a key Bancroft family trust, managed by a Denver law firm, had suddenly decided to throw its weight behind News Corp's offer, ensuring Mr Murdoch enough controlling votes to take over Dow Jones. Prior to the trust's move, Mr Murdoch had reportedly gained the support of Bancroft family members controlling 32 per cent of the firm's special voting power. The family control a majority 64 per cent of special Dow Jones voting rights and wield their power through a complex web of trusts. Other shareholders had reportedly put pressure on the Bancroft clan to sell out to Mr Murdoch.

News Corp's $US5 billion hostile takeover bid is worth $60 per Dow Jones share and the deal marked a hefty 65 per cent premium over Dow Jones' share price prior to the takeover offer being made public. Dow Jones' shares closed up over 11 per cent at $US 57.38 in market trading overnight. The Dow Jones board met today but has yet to make a formal statement on the day's events. Mr Murdoch's apparent clinching of the deal also came after few other suitors emerged with a counter offer.

Internet entrepreneur Brad Greenspan, the founder of the social networking website MySpace, renewed a alternative offer late Monday backed by five investors who were ready to inject $US 600 million to develop Dow Jones. Dow Jones's assets also include Barron's magazine, MarketWatch, DowJones Newswires, the Dow Jones Indexes and the Ottaway group of newspapers.

WALL STREET TUMBLE -- IS THIS OMINOUS?

[Reuters, July 26, 2007]

11:59pm US stocks tumbled today as a surge in oil prices, concern about the housing slump and a worsening climate for financing takeovers cut investors' appetite for risk in a global equities sell-off. News of a disappointing quarterly profit from Exxon Mobil Corp weighed on the energy sector and sent Exxon shares down more than three per cent. Financial shares were among the biggest losers, with JPMorgan Chase & Co off more than two per cent and Citigroup Inc down 2.4 per cent.

US crude for September rose to $76.87 a barrel, stoking concern about the toll of higher energy prices on personal spending as consumers grapple with a stalled housing market. Investors worried about the climate for deal financing after Chrysler Group postponed a $12 billion loan to finance a private equity takeover of the company from Daimler Chrysler AG. “The overriding issues in the market today are higher oil prices and funding issues with regard to low-quality debt,” Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto, said.

The Dow Jones industrial average was down 119.41 points, or 0.87 per cent, at 13,665.66. The Standard & Poor's 500 Index was down 17.29 points, or 1.14 per cent, at 1500.80. The Nasdaq Composite Index was down 30.53 points, or 1.15 per cent, at 2617.64.

Following an overnight drop in Asia, European stocks tumbled to three-month intraday lows as investors fled riskier assets, triggering a rally in US Treasuries. Exxon shares dropped to $89.81 on the New York Stock Exchange, while shares of JPMorgan fell to $43.81. Citigroup shares dropped to $48.05. Shares of home builders also took a beating, sending the Dow Jones home construction index down 2.9 per cent.

Home builders D.R. Horton Inc and Beazer Homes both posted quarterly losses before the bell, a day after rivals Ryland Group Inc and Pulte Homes Inc also reported second-quarter losses. Shares of Beazer Homes dropped 2.9 per cent to $16.50 on the NYSE, while D.R. Horton shares fell 4.2 per cent to $16.77.

RAMIFICATIONS OF THE WEAKENING US DOLLAR

[Christian Science Monitor, and Associated Press, May 27, 2007]

It's like a summer movie: the incredible shrinking dollar. Since the beginning of the year, the buck has shrunk 5 percent – the equivalent of a 20 percent annual decline – compared with the pound and the euro. But the shriveling value of the dollar may eventually help solve one of the most intractable US economic problems: the enormous trade deficit, which hit $63.9 billion in March, the highest level since September of last year.

Already, giant European companies are taking advantage of their strong currency by announcing huge investments in the United States. And US exporters such as Boeing and Caterpillar are getting an order boost as the lower-valued dollar allows them to undercut their competition. "The forces are in place now to slowly over time cause the trade deficit to shrink," says Jay Bryson, a senior international economist for Wachovia Securities Research in Charlotte, N.C.

The change in the dollar's value also comes with ramifications for US consumers. It's now more expensive for Americans to travel abroad. Italian leather, Belgian chocolates, and English cheddar will cost more. In addition, many Americans may find they have a new boss – one who is based overseas or relocating to the States.

Nearly every day, the US imports about $3.5 billion more than it exports. At the same time, the European Central Bank is in the process of raising interest rates, while the US Federal Reserve is holding rates steady and may even lower them later this year. "This makes buying US securities not as attractive," says Mr. Bryson.

The British and European central banks can raise rates because their economies are growing faster than the US's. "When an economy is growing faster and it's raising its interest rates versus the stable rates in the US, it favors the currency of the faster-growing country," says Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

In recent weeks, as the dollar has weakened, a number of European companies have announced major investments in the US. Earlier this month, the giant German steel company ThyssenKrupp announced it would build a $4.18 billion plant in Alabama. And on Tuesday, BMW said it would increase its production of vehicles at its Spartanburg, S.C., plant – from 140,000 cars a year to 200,000 cars a year. At its annual meeting, the company's chief executive, Norbert Reithofer, said this was a way to reduce the foreign-exchange risks for the dollar in its largest market.

Overseas, the change is already forcing Europeans to adapt. In Torri, Italy, Il Colombaio Bed and Breakfast, which is nestled at the edge of a walled medieval village in Tuscany, used to be filled with Americans – more than 90 percent of guests. But this year, only a handful have come – less than 5 percent. "It's amazing," says Sumito Barabara Viale, who has run the B&B for nine years. "It dropped because of the euro. It's so expensive to come here now."

Hoteliers, shopkeepers, and restaurateurs across Tuscany are experiencing a similar dearth of American tourists, Ms. Viale says. They've been replaced by English, German, and even other Italian visitors. The change first became apparent after 9/11, when many Americans opted to vacation closer to home. After recovering a little, the number of American tourists began to drop steadily as the euro gained strength against the dollar. Travelers say their higher expenses are not just due to exchange rates. Lily Blitstein, who is planning a trip to London to visit her fiancé, recounts her search for affordable airfares. "Prices jumped $200 in 10 days' time," she says. "I guess it's the price of fuel and everything else."

Travel agents say many Americans who still want to go to Europe are opting for Eastern European countries, where many of the hotels and cruises are priced in dollars. "Our bookings to Poland and Russia are up 100 percent. To the Czech Republic, they're up 143 percent," says Mike Pina, manager of public relations for AAA in Washington.

River cruises on the Danube are so popular this year that they are nearly sold out for September and October, says Adriane Greene, president of Welcome Travel Agency in Lake Ronkonkoma, N.Y. "I know companies are already planning to bring ships to Europe for next summer," she says.

The pressure on the dollar is squeezing the profits of many European businesses. Steve Jenkins, who buys olives and cheeses for Fairway Market in New York, says he's been able to hold off on price increases because his European suppliers are absorbing the currency change. "I do feel cosseted by my European artisans," he says.

For Australian visitors to America, the lower US dollar also makes a difference. Clover Moore, the lord mayor of Sydney, who was recently visiting New York for the first time, says prices in the Big Apple seem quite reasonable.

AUSSIE DOLLAR MIGHT FETCH 90 US CENTS BY XMAS

[AAP, June 29, 2007]

The Australian dollar is set to remain at high levels for the remainder of the year, and could be fetching almost 90 US cents by Christmas. The currency is having a boom year in 2007, with all the flags in favour of it marking new 18-year highs over the next six months. Ongoing expectations of an interest rate rise in Australia, softness in the US economy, a commodities boom driven by demand from China and India are just some of the fundamentals combining to support the unit.

Meanwhile, rampant carry trade activity -- where traders selling low-yielding Japanese yen to buy high interest rate currencies like the Australian dollar -- is set to continue, creating in a solid floor for the unit's advance. The Australian dollar ended at 85.04 US cents on Friday -- the last business day of the financial year -- and at its highest level in 18 years. So far it has risen by 7.7 per cent from 78.94 cents at the start of the year, and by 15.1 per cent from 73.89 cents a year ago.

The dollar broke through the 80 US cent mark in March, days after Reserve Bank of Australia (RBA) assistant governor Malcolm Edey said in a speech that the rate of underlying inflation, as measured by the central bank, was higher than ideal, setting off a new round of rate hike speculation.

The Australian dollar has stayed above that level ever since, as the central bank continues to monitor inflation in the economy and remains ready to act if a price or wages breakout emerges. It has reached the 85 US cent level three times in the past week -- its best level since February 16, 1989, when the Australian dollar bought 86.46 US cents. Three of the six currency strategists surveyed by AAP said the Australian dollar would be buying at least 84 US cents by year end, with 86 cents being the average prediction.

But Commonwealth Bank of Australia (CBA) chief currency strategist Richard Grace predicts the domestic currency will reach a high of 89 US cents by December 31 - a level not seen since early February 1, 1989, when the Australian dollar bought 89.72 US cents. Some of the uplift for the currency will come from the US dollar, which is set to weaken in the second half of 2007 as American housing market woes persist on the back of sub-prime loans defaults.

"We thought the US housing sector downturn had run its course and the rest of the economy could accelerate but it's proving a handbrake on growth," Mr Grace said. The US Federal Reserve is likely to leave interest rates at 5.25 per cent this year, which makes Australia's cash rate of 6.25 per cent even more attractive to investors.

CBA expects interest rates to rise in August, and Mr Grace says the Australian dollar's rise would be supported as foreign exchange dealers buy the currency on expectations the cash rate will rise for a second time by Christmas. Citigroup director and currency strategist Stephen Halmarick forecasts the domestic currency to rise to 87 US cents by the end of 2007, as China's increased demand for iron ore and coal improves Australia's terms of trade. Mr Halmarick says the US dollar also will weaken as economies in Asia and Europe post faster economic growth, giving another boost to the Australian dollar.

Westpac chief currency strategist Robert Rennie predicts the Australian dollar to be at 84 US cent mark by year end, although it's unlikely to move in a straight line. Mr Rennie says carry trade demand for the domestic currency may slow down as traders take more of an interest in emerging Asian and South American economies.

However, TD Securities senior currency strategist Joshua Williamson said that while emerging market popularity would dent some gains, Australia's political stability was more of an asset. "The Australian dollar is seen as a safe haven," he said. Mr Williamson predicts the domestic currency will reach the 86 US cent mark by the last day of 2007. But it could fall to a low of 83 cents in coming months if there was a decline in the carry trades or global risk appetite.

In the second half of the year, Mr Williamson said any rise in the domestic currency would be more of a slow grind as the interest rate differential between Australia and Japan remained.

CHINA AND AMERICA HEADING TOWARDS TRADE WAR

[Inter Press Service, April 27, 2007] Intensifying trade tensions between China and the United States are becoming increasingly politically charged, officials and businessmen here say, raising fears that the two countries may be heading towards a trade war. The escalation comes at a time when both China and the U.S. are preoccupied with domestic concerns which limit their potential to manoeuvre and compromise.

Absorbed with preparations for the five-yearly Communist Party congress this fall and the 2008 Olympic games, Chinese leaders are averse to adopting any drastic economic measures that could jeopardise social stability. For the U.S., the administration of President George W. Bush is seen as losing ground in containing rising protectionist sentiments in the Congress with the approach of the next presidential elections.

Responding to political pressure from the now Democrat-dominated Congress, the administration has recently hardened its posture towards China on trade, filing formal complaints with the World Trade Organisation (WTO) on copyright violations and market restrictions, as well as imposing steep penalty tariffs on some Chinese exports.

Beijing has responded by warning the U.S. that the adverse impact of these actions on bilateral ties could be huge. This week, Chinese Vice-Premier Wu Yi, China's top envoy on trade talks with the U.S., vowed Beijing would contest the WTO cases and "fight to the last minute." While this is not the first time Washington has zoomed in on what it believes is China's lack of compliance with the WTO rules, this time around there are differences in the nature of complaints and the way they are being dealt with.

On April 9, U.S. Trade Representative Susan Schwab requested that the WTO consider "China's inadequate protection of copyrights and trademarks" and asked for the WTO to examine the "serious market barriers" to the sale of U.S. movies, music and publications in China. The complaints represent the first time that the U.S. has tried to use the global trade body as a forum to discuss enforcement measures rather than regulatory reform.

Similarly, the ruling by a U.S. federal court on March 30 suggesting that the commerce department has the legal authority to impose penalty tariffs on glossy paper made in China is groundbreaking because it endorses "countervailing duties" on a nation regarded as non-market economy. If upheld, the decision could open the door to such penalties in a variety of industries, which have been hurt by trade with China.

Protectionist U.S. legislators have been clamouring for tougher measures to reduce the huge U.S. trade deficit with China, which reached 233 billion US dollars in 2006, by redressing what are perceived as China's unfair trade advantages. These voices allege that China's massive trade surplus with the U.S. is partly the result of an undervalued Chinese currency, unfair government subsidisation of export-oriented companies and weak Intellectual Property Right (IPR) protection.

90 per cent of DVDs and CDs Probably Pirated

The issue of lax copyright protection has become a sore point between the two sides. The Motion Pictures Association of America, an industry group, estimates piracy in China cost the U.S. movie industry more than 2.5 billion dollars in 2005, compared with just 5.7 billion yuan (740 million dollars) in box office revenues in China that year. U.S. companies argue that this situation stems from China's weak enforcement of anti-piracy laws and from the country's excessive restrictions on the supply of legal goods. More than 90 percent of DVDs and CDs in China are believed to be pirated.

The view that law enforcement in China's anti-piracy system is too lax is shared by the International Intellectual Property Alliance. According to its latest report: "China is one of the only countries in the world that requires proof that the act in question was undertaken with the purpose of reaping profits." In China, counterfeiters must be caught with at least 500 pirated discs in order to face criminal charges, and in reality they are too often simply fined instead of prosecuted.

Chinese leaders are now unaware of the problems in the system. "China still has a long way to go on its IPR protection journey," Wu Yi admitted this week. She revealed Beijing is planning to pass more laws on copyright protection this year and launch several publicity campaigns to educate the public about the dangers of buying illegally copied goods. "The Chinese government will be more resolute, adopt more measures and step up IPR protection," she promised. But she also complained that by filing formal complaints with the WTO, Washington has breached a mutual understanding to settle such disputes through dialogue.

Representatives of U.S. business in China have also warned that adopting a tough approach towards Beijing at this particular moment, such as imposing steep tariffs on Chinese goods, would generate negative results. "Politically charged legislative approaches to deal with the trade relationship have the potential to undermine the international trade regime, derail constructive dialogue, and ultimately weaken the competitive position of U.S. businesses and the overall economy without advancing commercial interest," the American Chamber of Commerce said in its White Paper released Thursday.

With Chinese communist leaders already engrossed in the politics of the upcoming 17th party congress in November, the chance that they may risk their grip on social stability by responding to foreign demands to slow export growth or adjust the currency value is remote. Already some government officials like vice-minister of commerce Yi Xiaozhun have warned about the danger of "abusing IPR" in relation to China. With domestic political considerations high on Beijing agenda, the danger for trade conflict between the U.S. and China is growing too.

SEVEN GOOD REASONS TO INVEST IN INDIAN STOCKS

By Christopher Ruddy, Editor Newsmax.com, May 12, 2007

A few savvy investors saw this one coming -- the bull market in India. And have made some monster profits over the past year. While the Indian market has experienced a short-term correction recently, we feel this locked-in profit trend will be in place for at least the rest of the decade.

During the third quarter of 2005, The Economic Times reported that at the time, a whopping 118 Indian companies had earned more in the prior three months than them had during the entire previous year. Many Indian companies have seen their bottom lines rise to such an extent that they have surpassed the net profit for the last full year in just three months of the current fiscal year. Over 100 companies found a place in this list of outperformers.

Get the complete list of top five Indian companies. Go here now.

Not only has that trend continued through mid-2006-it has accelerated into a higher gear.

In fact, the Indian stock market is up 200% over the past five years, compared with 65% in China and 11% in the U.S.

Recently, Financial Intelligence Report met with chief economist for the Asia region at a major Swiss Bank. He's based in Hong Kong but we cannot reveal his name or his bank's name, but you would recognize it immediately. He told us that the two best investments you can make in Asia today are in the Indian market and, secondly, in the Japanese yen. Our inside contact says the yen, which as underperformed for years, is still cheap. But he also says that India is a much better investment at this time than China.

Get our latest strategies on the Japanese Yen and the top Indian investments in our latest issue. Go here now.

7 Reasons Why India Should Be a "Must-Own" Part of Your Portfolio

A Booming Economy: Economic growth is estimated to be 8.1%in 2006.

Industrial Production is Way Up: India's Quick Estimates of Index of Industrial Production in January 2006 grew to 273.3; an 8.3% increase compared to January 2005.

Foreign Investment is Skyrocketing: Global investors are flocking to India, with foreign direct investments flows reaching a high of $647.7 million in January 2006, compared to $152 million a year earlier.

The Stock Market is Climbing:

Inflation is Down: Inflation , as measured by the Wholesale Price Index fell to 4.1% as of Feb. 4, 2006, compared to 5% in February 2005.

English Speaking: Most people in India speak English giving it a tremendous advantage over China and other emerging Asian economies.

Well Educated Workforce: India now produces over 3 million college graduates each year -- a number expected to double by 2010.

All of these advantages -- plus the fact that many Indian employees will accept as little as one-tenth the wages paid to U.S. workers-explain why corporate giants like GE, Intel, Texas Instruments, IBM, Electronic Data Systems, Microsoft, Cummins and PeopleSoft are outsourcing technical support, programming, design and other high-tech work to India.

Our inside contact at the Swiss bank also noted that India more closely adheres to Western accounting standards, whereas China's bookkeeping methods are notoriously unreliable. We believe that India offers investors better long-term prospects than China. For a complete list of our top Indian funds, stocks and ADRs to buy now follow this link.