One of the upshots of the farce happening in the US is that the global economy is destined to take an even bigger shift across the Pacific towards Asia. The urbanization of Asian nations and growing wealth of individuals will compensate for lower demand out of North America. Remember, they have been saving while the West has been spending.

Australia is perfectly placed to benefit from this. Importantly, Australia actually produces things that industry wants. Correction, that industry needs. Raw materials. Commodity prices may not stay at elevated prices forever. In fact they may fall lower than where they are now.

The reality remains that Asian economies continue to grow. And their demand for raw materials is growing with it.

That’s fine for exports, but what about the Australian banking system? Thanks to the “4 Pillars” banking policy and the lack of competition, Australia is likely to miss out on the banking blow-ups that we have witnessed in the US and the UK.

Because of this the local banks have not had to get too “smart” with how they finance their loan books. For the most part they can rely on deposits to fund their lending. Our two investment banks, Macquarie and Babcock & Brown have not been so lucky.

Despite this, they do have some exposure to the complex derivatives products that have caused such trouble in the northern hemisphere, but not to the same degree.

The main risk for the Australian banking system is that it develops overconfidence. And that they start to puff out their chests congratulating themselves on escaping the worst effects of the credit bubble.

Perhaps the bravado has started already. Before the bodies of Freddie & Fannie are even cold there has been talk about setting up a government funded “Aussie Mac.”

A company called Rismark has proposed setting up a listed property derivative which would trade on the ASX. In a typical example of the private sector taking the profits and the government taking the losses, Rismark has proposed that Aussie Mac would only be a back-up in a liquidity crisis.

Just as mortgage backed securities were originally designed to help US Savings & Loans companies to hedge their risk exposure, that is exactly how the ASX property derivatives would be marketed here.

However, we have little doubt that before long the sales guys at the investment banks would be out marketing the products to as many funds and hedge funds as they can. Thanks to the past few weeks we’ve seen the consequences of nearly thirty years of the same thing in the US.

Given the choice between buying resources and energy stocks at a discount or buying banking shares at a discount, we will take the resources and energy stocks every time.

We’re happy to stay clear of banking shares until at least after the next reporting season. If that means missing out on 20% upside, it’s a chance we’re prepared to take.

There’s nothing more to be said about the markets last week except that we all survived, battered, bruised, shell shocked and worse if you were shareholders in some American companies no longer with us like Lehman Bros, Merrill Lynch, AIG, Macquarie, HBOS and a host of other financial stocks.

This week events will be dominated by the shape of the rescue body announced Friday to bailout the dodgy securities.

Here in Australia we have banned all short selling, not just the naughty naked kind, in a new development revealed last night by the financial regulator, ASIC. It starts from today and continues until further notice.

It is a step up of the ban on naked shorting announced Friday.

But the big issue is the $US700 billion bailout fund which is likely to provide an opportunity for ambitious and idiotic US congress representatives to try and add pet deals of their own to the bill.

Markets around the world simply love the idea, but that affection will be hard to hold as the fund takes ages to have any lasting impact.

The Standard & Poor’s 500 dropped by more than 4.7% twice last week after Lehman Brothers’ collapse; Bank of America Corp’s takeover of Merrill Lynch and the US government’s seizure of American International Group.

But the S&P 500 ended the week by jumping 8.5% on Thursday and Friday on the US government’s plan to purge banks of bad assets, crack down on short sellers and to stand behind money market funds through support from the Federal Reserve.

Shanghai surged 9.5%, in the biggest daily gain for seven years, to 2,075.091.

Hong Kong’s Hang Sang gained 9.6% to 19,327.73, London’s FTSE 100 had its biggest daily gain in its 24-year history, jumping 8.8% and in Australia the ASX 200 was up 198 points or more than 4.2% on Friday.

It was the biggest two-day global stocks rally in 38 years. Friday’s rallies in London and the US were partially fuelled by bans on short-selling in financial stocks announced on Thursday night.

Besides the S&P 500’s gains the Dow added 929 points from Thursday’s low and markets from the UK, China, and Australia and elsewhere surged as investors appreciated the fact that the great panic had been halted for the time being.

But it is short term, even the new fund being set up to help buy the so-called toxic securities by the US Treasury.

The longer term issues will be the newly increased size of the US deficit and debt, the impact of this huge expansion of money supply on inflation, and most of all the slumping US economy and the disaster that is the US housing sector.

The S&P 500 ended up 48.57 points to 1,255.08 on Friday, the Dow surged 368.75, or 3.4%, to 11,388.44 and Nada rose 74.8, or 3.4%, to 2,273.9.

The MSCI World Index of 23 developed nations’ markets jumped 5.7% to 1,286.44 on Friday and rose 8% over Thursday and Friday. Europe’s main regional index (the Sox 600) rose a record 8.3% Friday and the MSCI Asia Pacific Index added 5.5% Friday.

The S&P 500 actually erased its fall to close up 0.3% for the week, but it is still down down 15% this year.

Market reports said a record 3 billion shares were traded on the NYSE on Friday: that was more than double the three-month daily average.

Under pressure investment banks, Goldman Sachs and Morgan Stanley saw their shares leap more than 20% on Friday as shorts scrambled to cover themselves.

Traders said that only consumer staples, the best performing group this year, fell led by Wal-Mart, the world’s largest retailer.

Its shares fell almost 3% for the biggest decline in the Dow.

That reaction has a touch of unreality because it won’t be too long before investors start worrying about the economy and banks again and go back into consumer staples.

US and European government bonds tumbled; reversing gains made earlier in the week as investor sold equities and commodities and moved into bonds as quickly as possible.

The proposal from Paulson and Bernanke (and strongly supported by president Bush over the weekend) is aimed at isolating devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression.

US Congressional leaders said they aim to pass legislation soon, but some have started wondering about loans to US car companies like General Motors and a $US50 billion stimulatory package to follow the $US120 billion tax rebate which came and went from May to July of this year.

That sort of grandstanding is going to be dangerous, and expensive.

In Australia the major banks led the surge on Friday and today the market is forecast to be up by around 130 points, if Saturday morning’s overnight futures finish is any guide.

The ASX200 index finished up 196.8 points, or 4.27%, to 4804.1, while the All Ordinaries index ended up 188.8 points, or 4.06%, to 4840.7.

The National Australia Bank soared $3.40, or 17.35%, to $23.00; the Commonwealth jumped $2.62, or 6.54%, to $42.70; the ANZ rose $2.26, or 14.63%, to $17.71; and Westpac ended up $1.54, or 7%, at $23.54.

But the focus was on Macquarie Group: after being belted up to the close Thursday, it rocketed $9.85, or 37.81%, to $35.90 after touching an intraday high of $38.55 just before noon.

Suncor Metway leapt 75c to $9.10 as the company completed the underwriting on its dividend reinvestment plan two weeks early.

In resources BHP Billiton ended up 40c at $35.40 and Rio Tinto jumped $3.10 to $101.50.

Iron ore miner Fortescue Metals Group added 50c to $5.70 despite reporting an annual bottom-line net loss of $2.8 billion and saying it would not provide a forecast for the current year because it may prejudice “the interests of the company”.

Oil and gas producer Woodside Petroleum was up $2.66 at $54.06, and Santos 53c to $18.28.

Newmont dropped 55c to $4.92 and gold fell; Newcrest eased 65c to $23.85 and Lehar dropped 3c to $2.45.

The Australian dollar finished higher in New York at 83.40, US cents after the US dollar lost ground as nervy investors sold the currency.

Earlier, the Aussie had finished around 81.15 on Friday, up about 1.3 US from Thursday’s close of 79.88. That’s up 3.5c in two days, or almost 5%.

And naked short selling will be banned on the Australian Stock Exchange from today.

But in a dramatic decision the regulator, the Australian Securities and Investments Commission has banned ALL short selling for a month from today, not just the naked variety.

 ASIC said the widened ban would act as a circuit breaker to restore investor confidence.

Short selling, where traders seek to profit by selling borrowed shares of companies to then buy them back, in the anticipation their prices will drop, has been partly blamed for the sharp falls of stocks such as Macquarie Group in recent days.

Naked short selling, involves selling without first borrowing the stock, or even ensuring the shares can be borrowed.

The Australian Securities Exchange (ASX) said on Friday it would remove all securities from its list of stocks approved for naked short selling from Monday.

The ASX said the “The removal will remain in force until further notice.”

“It will be reviewed when the government’s foreshadowed legislative amendments to the reporting of covered short selling activity take effect.”

But last night the ASX ban was supplanted by the wider ban from ASIC.

ASIC chairman, Tony D’Aloisio, said “To limit the prohibition to financial stocks, as has been done in the UK, could subject our other stocks to unwarranted attack given the unknown amount of global money which may be looking for short sell plays.” 

So, what does the banning of short-selling mean to the market?

It’s a good question. In our view, short-selling is no more to “blame” for markets falling than long buying is to blame for markets rising. In other words, it does have an impact on the downside but only as far as it adds to the number of sellers. It is not the sole reason for a share price falling.

We keep hearing commentators and analysts tell us that the likes of ABC Learning and Babcock & Brown are fundamentally strong companies. We are told that they hold great assets and that the market is failing to recognize it.

a couple of months ago that it was a misleading argument. Sure, these companies may have good assets, but that is only one side of the balance sheet. Don’t forget about the debt on the other side. If we only concerned ourselves with the assets then share prices would never go down.

Cause and Effect
It is easy to confuse cause and effect. Short sellers aren’t the cause of a share price falling. The cause is due to something that the company has or hasn’t done. The effect of the company doing (or not doing something) leads to investors selling those shares. In some cases this will involve investors short selling.

In reality, the ban on short-selling is likely to have almost zero impact. There may be short term price action to the upside as those who currently have short positions buy back the stock to close out. Secondly, those investors that use short selling to hedge a long position may choose to close out their long positions, which could put pressure to the downside.

But for those professional investors wanting to trade ’short’ they need look no further than the Options market. Options traders will be able to implement reasonably simple strategies that will give them almost exactly the same exposure as if they had used the share market to short sell.

In financial terms they call it a “synthetic short.” By simply buying an ‘at the money’ Put Option and writing an ‘at the money’ Call Option the trader can replicate a short trade. It is not exactly the same, but if an investor really wants to short particular stocks it is an easy way to do it.

The bigger question is what will happen to the markets next. We all have an interest in share prices rising, but are we really interested market manipulation?

ASIC and the ASX have rules against investors falsely manipulating the market. Yet its actions to restrict short-selling are doing exactly this in the short term. The banking stocks again look likely to be the main beneficiaries of this policy when they eventually start trading this morning.

What Happens When the Party is Over
The party on the stock market will doubtless continue today after Friday’s celebrations. But as is usually the case with a big party, there are plenty of hangovers.

Governments and regulators have thrown everything at the markets over the past week to try and ‘fix’ things. It may work. But if it doesn’t they haven’t left themselves with many other options.

Not surprisingly the ASX/S&P200 looks as though it is going to get off to another strong start this morning.

We dare say you have all had the opportunity to digest plenty of information over the weekend. Newspapers and websites have been screaming about financial Armageddon. Two weeks ago very few people would have heard of Henry “Hank” Paulson. Today he is almost a household name.

A quick summary of what has happened over the last few days in chronological order.

Markets have slumped. The US government has proposed buying up bad debts from US banks. The US, UK, France, Germany, Switzerland, Canada and now Australia have implemented various bans to prevent or limit short-selling. Markets have soared.

For those of us that still have mortgages it is a happy day. For every $100,000 of mortgage outstanding we will be richer to the tune of 68 cents every day. As yet we are undecided about what to do with our windfall, but something frivolous could be on the cards.

For weeks the Reserve Bank of Australia (RBA) has indicated exactly what it was going to do. It couldn’t have telegraphed it any more if it had tried. Therefore the decision to chop interest rates by 0.25% was of little surprise to anyone, with the exception of those that were crowing for a 0.50% cut. But have no fear, because markets have already convinced themselves that a further 0.75% of rate cuts over the course of the next twelve months is almost a formality.

We don’t know for certain whether it is necessary or not. Nobody does. And even after everything has run its course nobody can say for certain whether its actions were effective or not. It’s a bit of a Y2K syndrome. Did all the billions of dollars spent on upgrading computers prior to 2000 really have any beneficial effect apart from lining the pockets of IT geeks?

What we can question is whether it is sensible for the RBA to be cutting rates while inflation remains above 5%. The RBA is in effect attempting to predict the top of the market, believing that inflation will rise a bit higher before easing back over the next 18 months or so.

Australian Mortgage Market Not as Bad as US/UK
Some commentators and analysts have also tried to use the credit problems in the US and the UK as a reason for cutting rates, arguing that it is necessary in order to prevent a freezing up of credit, a slump in the housing market, and an increase in home repossessions.

Again this seems a little disingenuous. As we mentioned on Monday, Australia hasn’t been immune from the tightening of credit markets as evidenced by our list of woe. However, some things are different.

Australian financial institutions have had to rely much less on the securitized mortgage market to raise funds to offer mortgages. This means that there is less of a ‘sausage factory’ feel to it like what you have especially in the US. There, the Savings & Loans in particular are able to offer mortgages and then quickly parcel them up and sell them onto to Freddie Mac or Fannie Mae. This means that having sold off that mortgage they can bring in the next one, and so on.

In that instance, providing Freddie Mac and Fannie Mae continue to buy the mortgages the S&L is going to keep pushing the mortgages through… until there is no more money left, which is what happened in the US recently.

Wizard Keeps Rate Rise Under Its Hat
The whacky crazy guys at Wizard Home Loans thought they could pull the wool over everyone’s eyes. At the weekend they trumpeted their intention to reduce home loan interest rates regardless of the action taken by the RBA.

However, what they weren’t so keen to announce was that it would be raising interest rates on credit card debt by 2.75%. This, the company announced would help Wizard to keep fees down.

The signal it sends is that clearly Wizard (or owner GE) is seeing some problems in the unsecured credit facilities that it is providing and therefore it needs to ramp up the margins.

The market is down 20. That comes on the back of a 27 point rise on Wall St and a 6 point rise in Futures this morning. Pretty quiet day today. Hard to find a feature other than the fact RIO hasn’t done much on the back of what looked like great results (see below). Resources flat and financials down a touch. We are awaiting Woodside’s results.

Pretty quiet night on Wall Street – Dow closed up 27 - Up 50 at best. Down 46 at worst. Financials up a touch on an FDIC report saying 98% of companies were well capitalized. Homebuilders down on poor housing data, oil up and energy and resources up. Lehmans speculated to be planning to set up a company funded by third party investors to take on some of its mortgage assets to dispel the fears around its debt and one analysts said Fannie Mae and Freddie Mac had enough capital to last the year – the duo up 8.3% and 20.67%. Energy stocks up 1.8% - up for the first time in 3-days on higher oil prices and Anadarko Petroleum announcing a confident buy-back of $5bn in shares. In economic news, July new home sales were up 2.4%, economists had expected 525,000, and August consumer confidence was up 9.6%, beating analysts’ expectations. The NASDAQ closed down 0.15%.

Wall St has a long weekend this weekend for the Labor Day holiday.

• The SFE Futures suggested a 6 point gain in the market.
• Both BHP and RIO up in ADR form overnight, 1.93% and 0.66%. BHP goes ex-dividend 46.9c on Monday.
• Metals all down – Nickel down 4.06%, Zinc down 2.37% and Copper 1.29%. Aluminium down 0.88%.
• Oil price up $1.46 to $116.31 as Hurricane Gustav threatened the oil infrastructure in the Gulf of Mexico.
• Gold up $2.50 to $824.20
• Bonds up with the 10 year yield down to 3.78% from 3.79%

Rio Tinto announced their 1H result late yesterday – They were written up on the website yesterday. The price performance in the US was less than exciting…up 0.66% in the US in ADR form and down 0.5% in the UK. Made US$5.474m against forecasts of $5.133m. Up 55%. EBITDA up 73%. Cash flow up 54%. Capex up 91%. Jury still out on the success of the Alcan acquisition (Aluminium price have been falling since the acquisition) but they say “Rio Tinto Alcan integration is making good progress and remains on track to deliver $1.1 billion of after tax synergies from the end of 2009”. Dividend up 31%. They talked about a positive outlook, strength in commodity demand, low inventory levels and constrained supply. They continue to tell us the BHP offer is too low. RIO down 0.25% today.

Results out today…

• WPL – Woodside– Results just out. NPAT up 67% to $1.016bn – at first sight its ahead of analyst forecasts of $955m. Expect stronger production in H2. Will meet production targets. Revenue up 45%. Of course they are reporting for six months in which the oil price went up from $60.85 to $139.96 so the results should be good. Since the end of the Financial year the oil price has fallen 17%. WPL up 1.15%.
• WDC – Westfield Group – IN LINE - Net profit down 55% to $1.29bn mainly due to property revaluations - Analysts’ on average expected between $983.8m-$1.004bn. Operating income up 14.7% in constant currency terms to $928m, brokers predicted operating profit of $940m on average. WDC down 20% so far this year, outperforming the REIT sector by 12%. WDC down 1.7%.
• TCL – Transurban – BELOW EXPECTATIONS - Underlying earnings up 19%. Posts a FY net loss of$142.8m. EBITDA up 19% to $489.6m, up from $419.9m last year – analysts’ expected EBITDA of $543m ranging from $492.2m to $573.2. Revenue up 30% to $1.02bn. TCL down 0.7%.
• TPI – Transpacific Industries – UNDER - Report a FY net profit of $175.3m, up 70% after a distribution to step up preference security holders. Analysts’ on average expected $179.5m. GSJB Were expected $174.8m. Declare a final dividend of 10.1c. TPI down 3.3%.
• MMG - Macquarie Media Group– FY net profit up to $273.8m from $37.8m on the back of acquisitions and asset sales. Declared a final distribution of 22.5c, down from 24.5c last year. MMG up 0.5%.
• CEU – Connect East – Announce a FY net loss of $13.6m. Intends to declare a distribution for the period from 1 April to 30 September of 5.25c. Says the EastLink average daily trips in the first month came in at 135,555. While marginally ahead of the 133,722 trips during the first week, it was still well below the company’s forecasts of around 186,000 daily trips during the first month of operations. CEU down 4.6%.
• AIX - Australia Infrastructure Fund – FY net profit up 23% to $206.5m. Final distribution of 8.5c. Expects a satisfactory performance in 2009. AIX down 3.6%.
• MCW - Macquarie Countrywide Trust– Net profit down 79.7% to $100.4m from $493.3m. FY total income down 76% to $150.7m. Declare a final distribution of 7.2c, down from 7.8c. MCW unchanged.
• Gloucester Coal (GCL) – IN LINE – FY net profit up 30% to $23.4m and expects further profit growth this year. Big increase in contract coking coal prices in the 2H helped lift profits. Declared a final dividend of 16c. GCL down 1.3%.
• AUW - Australian Wealth Management – said its net profit was up 13% to $65.2m and said it was well placed for further acquisitions. AUW down 6.9%.

In other news…

• Babcock and Brown Infrastructure looking for investment partners to buy stakes in three of its core assets. BBI down 10.75%.
• Babcock & Brown Communities (BBC) has requested a Trading Halt as it finalizes its response to the previously announced strategic review. Its board expects various agreements to be conducted with Babcock & Brown (BNB). 
• Record Realty (RRT) has provided an update on record Realty Property Transaction loans. Down 2.5%.
• According to Australian Broadcasting Corp.’s 7.30 TV program last night, we can expect some bad news from ABC Learning (ABS) – which remains suspended for a third day ahead of its FY result. The show detailed questionable accounting practices.
• Lots of broker stuff on Woolworths this morning – Merrill Lynch say BUY with a 3500c target price, Citi HOLD, Credit Suisse cut their recommendation to NEUTRAL from Outperform and Macquarie Equities upped their recommendation to Outperform. WOW up 1.42%.
• The response from Brokers on Foster’s Group post results is also mixed – Macquarie expect it to Underperform, Credit Suisse says it will Outperform and JP Morgan have labeled it as Neutral. Fosters up 3.1%.

Asian stocks, including Australia fell last week, sending the region’s benchmark index to its lowest in more than two years. But Friday’s quick reversal of Thursday’s commodity price spike, led by oil, should steady markets in the region today, and Australia’s bounce on Friday off the back of the higher resource stocks, could be sustained if resource stocks are resilient.. Oil prices fell more than 5% on Friday in the biggest one-day slide since 2004 as dealers completely reversed the previous day’s madcap chasing of oil and commodities. A weakening British pound helped push the US dollar higher. Wall Street kicked higher Friday on the slump in oil and suggestions Lehman Bros might be rescued by a Korean Government-owned bank coming to its aid with a generous deal to buy 50%. It’s only a maybe, but some on Wall Street treated it has a fact and sent Lehman shares higher. What should worry investors more is Warren Buffett ruling out any interest from his Berkshire Hathaway company in helping rescue Fannie Mae and Freddie Mac shareholders. He says his company was a shareholder eight years ago but sold when he realised the two companies were producing quarterly profit results to suit Wall Street and not reality. The Standard and Poor’s 500 added 14.48 points, or 1.1% Friday to 1,292.20, the Dow jumped 197.85, or 1.7%, to 11,628.06 and Nasdaq was up 1.4%, or 34 points to 2414.71. For the week to Friday, the Dow fell 0.3%, the Standard & Poor’s 500 Index lost half a per cent and the Nasdaq lost 1.5%. Traders said the market was the thinnest since last Christmas. Only 888 million shares were traded Friday on the New York Stock Exchange, the lowest volume since December 26. JPMorgan Chase & Co. strategists said investors should buy more financial stocks and US companies that rely on discretionary spending by consumers and sell energy and raw- material producers. But big institutional investors have been doing that since May. That’s why financial stocks haven’t followed Fannie Mae and Freddie Mac lower. But Morgan failed to tell clients the downside of buying these shares, except for a rotation of investment objectives.  US banks and retailers face a year of misery with the banks having no money to lend and consumers no money to buy anything but essentials. In Asia the MSCI Asia Pacific Index lost 0.8%t to 121.97 to take its losses so far in 2008 to 23%. It was the 4th weekly fall in a row as Asian markets seem to be ignoring the up trend in the US. Japan’s Nikkei Index fell 0.7% Friday, China’s CSI 300 Index lost 1.5% but Australia’s S&P/ASX 200 Index added 1.2% on the resource-driven rebound that will be tested today, despite the futures market showing a 70-plus point rise for the opening today. Friday’s rise cut the week’s losses to 1%, the 12th weekly fall in 14 weeks. The ASX200 rose 56.2 points, or 1.2% to 4931.4 while the broader All Ordinaries gained 60.6 points, or 1.22%, to 5010.2. BHP Billiton lifted $1.20, or 3.08%, to $40.15, Rio Tinto gained $2.10, or 1.77%, to $121.00 and OZ Minerals surged 19.5 cents, or 11.57%, to $1.88. Babcock & Brown closed up 26 cents, or 11.71%, at $2.48, compared to $4.51 on Monday. Among the banks, Commonwealth Bank was up 78 cents to $41.38, NAB was steady at $23.55 and Westpac added 34 cents to $22.00. The ANZ was up 8 cents to $15.67 after delivering a report explaining its controversial involvement with collapsed securities lender Opes Prime. Insurance Australia Group reported a $261 million annual loss, but says its performance should improve this year. Its shares rose 6 cents to $3.75. And Caltex Australia reported a fall in first-half earnings due to refinery shutdowns affecting production, and a narrowing of refiner margins.

Caltex shares finished 20 cents higher at $11.95.

Energy stocks were higher Friday and that will reverse today after that sharp fall in oil prices. Woodside finished $1.85 higher, or 3.35%, to $57.00, Santos 72 cents to $18.90 and Oil Search 12 cents to $5.69.

Woolworths dipped 84 cents, or 3.11%, to $26.14 ahead of its results this week while Coles’ owner Wesfarmers slipped 95 cents, or 2.89%, to $31.95 as investors continued to give it the thumbs down for the poor Coles numbers in its report on Thursday.

European shares had the best day for a fortnight Friday rose the most in two weeks as investors speculated takeovers may increase and the plunge in oil prices sent car companies and airlines higher.

Europe’s Dow Jones Stoxx 600 Index added 1.9% to 283.82, the biggest rise since August 5 and cut the week’s loss to 1.5%.

Despite the optimism of Friday it was the worst week for shares in the region for a month as reports signaled faster-than-forecast inflation in the US and Germany and a shuddering halt to growth in Britain where second quarter growth stalled, according to figures out Friday.

But the optimists in Britain looked at the lower oil price, some corporate activity in insurance, saw the possible Lehman Bros deal and said yippee!

The FTSE 100 jumped 135 points or 2.5% to be up 0.9% over the week.

Oil fell sharply. Turning Thursday’s big rebound in commodity prices into a one-day wonder that only confirmed the weakness in sector.

At one stage crude prices dropped more than $US6 a barrel, dropping the most in percentage terms since December 2004, as the US dollar also rebounded from Thursday’s weakness.

The main driver of Friday’s fall was BP restoring shipments on a Caspian Sea pipeline through Turkey, and a belated realisation that a tropical storm was delivering rain, but not high winds to oil producing and distributing regions of the US Gulf of Mexico coast and Florida.

New York oil futures dropped $US6.59 over Friday to close at $US114.59 - the biggest one-day drop since 2004. That took its fall back over the 20% from the peak of $US147 a barrel reached in mid-July. Oil hit a low of $US112.87 on Monday. 

The dollar climbed 0.9% Friday to $US1.4772 per euro in New York from $1.4899 on Thursday, when it fell 1%.

In London October Brent crude oil dropped $US6.24, or 5.2% a barrel to close at $US113.92 a barrel.

Comex December gold fell $US9.50, or 1.1%, to $US829.50 an ounce in New York.

That cut the week’s gains to 4.7%, which came after an 18% fall over the previous five weeks.

But it recovered in after hours trading to finish off $US5.90 an ounce at $US833.80.

Comex December silver futures dropped 28.8 US cents, or 2.1%, to $US13.555 on Friday. That cut the fall this year to 5%.

LME zinc jumped 9% to $US1,825 a tonne last week, while nickel rose 11.5% per cent at $US20,850 a tonne, also helped by short covering.

Implosion of Babcock & Brown
It has been quite an interesting week. Record profits for BHP Billiton. Big profits for Commonwealth Bank of Australia. Talk of interest rate cuts in September. Increase in profits for Qantas.

But the story that has interested us for a lot of this week has been the implosion of Babcock & Brown. It is part of a story which we have been musing on ever since our days with The Daily Reckoning. Back then we expressed some concerns about the sustainability of infrastructure funds and the business model that they operated under.

Of course, Babcock & Brown is or was one big fund, a hedge fund, not a “small investment bank” at all. It has all the characteristics of a hedge fund, which in hindsight made it the first hedge fund to be listed on a stock exchange.

It borrowed money from investors (in this case shareholders), just like a hedge fund. It borrowed a stack of cash from banks, just like a hedge fund. It sought to take over or take control of large assets; it was not afraid of leveraging its position; it was prepared to pay a premium for an asset providing it believed it could still make a profit; it sought to resell assets back to the public; and most important of all, it paid executives massive performance bonuses based on profits… all just like a hedge fund.

What surprises us is that they managed to get away with a flawed business model for so long.

The amusing end to this charade is that based on the investor presentation on Thursday, B&B truly seem to believe that they have reorganized the company so much that it is a completely different beast. Not so. Part of the supposed reorganization trumpeted on Thursday was the change to the board. You don’t even need to look at it closely to see that it was just musical chairs. Six of the eight members of the ‘new’ board served on the previous board. Then if you add in the new CEO Michael Larkin who was previously CFO then you have seven board members with an indelible link to the current woes of the company.

One of the management changes was to create a new role called Chief Investment Officer. The person to take up this position is B&B’s current Head of Global Infrastructure; surely the very man who has ably assisted B&B to get to the position it is in now.

The company looks more and more like a secret men’s club the longer you look at it.

There is so much more that we could make comment on, but there just isn’t the space to do so. Therefore, the final comment we will make is on the salaries for senior executives at B&B, just in case you are not yet convinced that the company was and probably still will be, a hedge fund.

In 2007, Babcock & Brown made a net profit of $639 million. Pretty impressive. However, it would have been a lot higher if total executive remuneration hadn’t stripped $160 million or approximately 20% away from this.

Compare that to engineering company Worley Parsons who this week reported a net annual profit of $343 million and paid its senior executives just $15 million or 4% of net profits in total.

We would be surprised if this wasn’t the end of the story. The next phase will be to see if any investors take legal action against B&B or brokers or planners over the marketing of infrastructure funds as safe and reliable, growth and income investments when in fact they were all highly leveraged hedge funds.

So what lies ahead in the coming year, and a bit more for the world’s major mining group? How does it see demand and prices, and does the company still believe as strongly in the commodities boom, especially where China is concerned, as it has done in the past few years? The above graph shows the Australian dollar and the Chinese currency and they tell two stories: the Aussie’s weakness in the past month reflects the new belief that the bloom is leaving the commodities boom; the Chinese currency reflects its appreciation, which now seems to have stopped as the Government tries to keep the economy growing strongly. If that works, then despite some slow growth in coming months, there will be a revival in the value of the Aussie dollar, and that will be reflected in the performance by BHP (and its share price). But has the recent rapid drop in commodity priced, led by oil, the company’s major profit centre in 2008, caused any second doubts? From BHP Billiton’s point of view the coming year has two major tasks to do. The first is to complete or abandon the huge takeover for rival Rio Tinto. There’s not much the company can do until the European Commission rules on its 3.4 share $160 billion offer, probably around November. BHP’s CEO, Marius Kloppers said in yesterday’s profit briefing that the offer was value accretive for both sets of shareholders. “We believe the deal that we have on the table is value accretive for both sets of shareholders,” Mr Kloppers said on a conference call. Mr Kloppers said that the combination of BHP Billiton and Rio made “more sense than ever”. Mr Kloppers said the company was focused on the Rio Tinto proposal and scotched speculation that the group might move into platinum following Xstrata’s $US10 billion bid for Lonmin. BHP can continue to campaign publicly in favour of its offer, but until the EC rules, its powerless. The second is to navigate the company through the rapids of what is looking like a volatile time, with oil prices down, along with gold, copper, lead, zinc and nickel. Iron ore and coal remain high, but that could change if the bloom goes out of China’s boom. BHP is confident that won’t happen in the short or longer term: it sees greater volatility in prices, but no collapse in global price levels, even with the softening we are seeing in major economies. But it does see periods of weakness: not a turnaround in belief, more an acceptance of the current realities. Belief in the commodities supercycle is alive and well in the boardroom and management offices of the company. The big realignment of commodities and the US dollar is based on worsening economic prospects outside America with Europe, Japan and possibly China weakening. But BHP is sanguine. The company sees the strong possibility of slow growth in many western economies in coming quarters, but is confident the emerging major economies of China, brazil, India and Russia will not succumb to the slowdown. “The global economy has remained resilient in the face of significant structural weaknesses in developed economies. The continuing massive industrialisation in China is providing solid support to the global economy. “Over the past financial year there has been considerable weakening in most major developed economies. “The deflation of asset values within these economies has led to a reduction in wealth effect for consumers. “This appears to have ended the past decade’s unsustainable consumer debt driven economic growth, particularly in the US.

“However, a direct spill over into emerging market economies has remained largely contained.

“Emerging market economies have contributed more than their industrial counterparts to global growth since the year 2000.

“Led by China and India, economic growth in these economies has been strong with solid support from growth in domestic demand and strong trading activity with other emerging market economies.

“We expect short term global economic growth to slow as developed economies experience further weakening in the coming quarters.

“Liquidity is likely to remain low, and risk premia high for some time into the future.

“Rising inflation, particularly in food and energy, alongside weakening economic growth has restricted the flexibility of central banks to inject liquidity and stimulate their economies.

“Higher inflation will also have a likely negative impact on emerging market economies through their adoption of tighter monetary policies.

“However, emerging market economies should remain relatively strong on the back of continued domestic infrastructure investment and regional trade.

“While short-term disruptions may occur, we expect that their long-term economic growth will remain robust as they continue on the path to industrialisation.

“The 2008 financial year has seen higher average prices for most of our major commodities, than in the prior year.

“Demand for raw materials in the emerging market economies has remained strong. In particular, China remains a key driver of global commodity consumption through its position as a net importer of raw materials.

“China’s competitiveness and ability to innovate in downstream processing has been demonstrated again with sustained nickel pig iron production.

“In light of differing activity for the developed and emerging market economies, there have been mixed spot prices for key commodities.

“In particular, bulk and energy related commodities have tended to outperform the LME traded metals.

“The effects of current weaknesses in the developed economies on demand for our commodities should be minimal driven by ongoing strong demand from the emerging economies. Meanwhile, supply side pressures remain high.

“This has led to overestimation of the supply side response, and thus, price outcomes regularly being underestimated by industry observers.

“In the short-term, we expect prices to remain high relative to historical levels, albeit with higher volatility.

Looking to the longer term, demand for our commodities is expected to remain strong.

“We expect that higher long-run raw materials and energy prices and stronger producer currencies should place upward pressure on industry supply costs, and hence, prices of minerals commodities.

“We continue to expect that commodity prices will be driven by long-run marginal cost of supply.

“The world is confronting supply constraints for energy and mineral resources.

“While there are enough resources to satisfy the world’s appetite, the industry has not moved quickly enough to meet the growth in demand.

“We are continuing our efforts to meet these needs through a deep inventory of growth options. We have an abundance of tier one resources in fiscally stable regimes that provide us with a unique set of options to deliver decades of lower risk brownfield growth.

“We also have an extensive experience operating in emerging resource regions and the capability to capture additional opportunities as they arise.

“This experience enables us to continue to build and strengthen our position for long term value creation.”

Greetings, reader. This weekend’s topic? Commonwealth Bank (ASX:CBA) and its annual results. We’ve stripped them down though. They’re not dressed up here like in the report itself. All those bothersome words and fancy graphs are gone. Here are the bare facts.

The headline numbers sounded decent. Revenues were up by 12%. Net profit was up 7%. The final dividend will be $1.53, taking the total annual dividend to $2.66 (a yield of over 6% at today’s price).

Of course, Commonwealth Bank was one of the banks bleating about the cost of credit and the squeeze on its interest margins. After all, isn’t that what forced it to increase lending interest rates independent of the Reserve Bank of Australia?

We aren’t in the habit of telling anyone how to run a business…least of all a $58 billion bank. We’ll leave that to politicians, welfare groups and the mainstream press as they all deem themselves suitably qualified. We prefer to let them tell us and then we can decide whether to believe them or not.

Instead, here, we’ll restrict ourselves to just observing.

In the 2008 Profit Announcement document there were eleven separate mentions of higher “funding costs”. This compared with no use of that phrase in the 2007 profit announcement. Yet the net interest margin (NIM) for the 2007 financial year falling by 0.15% compared with a 0.1% fall in 2008.

So the margins have fallen both year…but only now is Commonwealth looking for a bigger handout from customers. All the four big banks have added an extra 0.5% to mortgage rates over and above the RBA’s official rate adjustments.

Yet margins are contracting. Despite the margin contraction, though, the bank still saw its net interest income increase in dollar terms. It rose by 12%. That was partly due to an increase in business lending of 22%. But its domestic deposit volume also increased by 23%.

And consider this, reader…CBA has the largest volume of retail accounts, many of which would be high margin transactional accounts. In other words, CBA pays next to no interest to customers for these deposits.

Honestly… of the four major banks, CBA probably has the least to worry about with its funding costs.

But the bank is making more loans for less money per loan. How long can it keep that up? We’re not sure.

As Al said yesterday…the crystal ball is rather cloudy in some sectors.

However, we do know one thing. Providing the banking system in general is able to weather the storm of increased funding costs, CBA would probably do well to not lay it on too thick with the “woe is us” act. Otherwise customers might be well justified in asking for some of their money back when (or if) the good times eventually return.

This Week’s Most Important Money Morning Story:

Earlier this week, the Reserve Bank of Australia told the world…wait for it…nothing new at all! But in true central banking fashion, it took 25,254 words to say so. We calculated: that’s the equivalent of one month’s worth of weekly Money Mornings (I know which I prefer to read). Fortunately Al was a little more succinct. Click here for the full story >>

Monday: Onesteel announced a 61% increase in half-year operating cash- flow earlier this year. It puts that down to the expanding business. Until steel makers are really starting to hurt, iron ore’s a buy. That’s not the case yet. Click here for the full story >>

Tuesday: It jumped from $1.77 to $2.25 in one week during 2007. And it kept rallying until recently. FMG’s year-high was $13.15 on June 25 this year. Basically, the stock rose by 643% in 15 months. Click here for the full story >>

Wednesday: It’s a little too early to be talking about stock market bottoms. But here’s our view…the best time to compare our own period with is the last real recession. Back in the early 1990s. Not the Tech Wreck. Click here for the full story >>

Thursday: As far as the bear market in equities goes, investors are certainly down on confidence. But they aren’t motivated by sheer terror just yet. That makes us think the market has more selling left in the tank. And more days like yesterday to come. Click here for the full story >>

Friday: This small-cap digger has discovered the third largest mine of its kind in the world. Not only that…but the mine just got bigger too. This company, though unpopular now, announced a huge new reserve figure last month. The ASX wasn’t ready for it. The stock added 25% in five days. It’s cutting a swathe through the gloomy market.

Midday Market Roundup 18/08/08
August 18 2008 - Australasian Investment Review – (AIR)

We have started off the week OK – up 36 – the SFE Futures suggested an 8 point fall in the market this morning. Resources up 1.4%, Financials up 0.4% after another 6% fall from Babcock & Brown this morning with Babcock & Brown Power down 30.6% on news of a big provision. MQG also down 2.6%. Market is waiting for BHP Billiton’s result – Last year they came out at 3:55pm. Expecting record $15.7bn profit. Commentary on China all important and will set tone for the resources sector which has fallen over 25% since May 19th.

Wall Street finished higher on Friday – up 44 – The main point was oil and commodities down again on a rising US dollar. Goldman Sachs says the US dollar has bottomed. Continuing credit-related concerns amidst multi-billion-dollar buybacks of Auction Rate Securities plus some weak economic numbers.  Wachovia announced it will buyback $8.5bn worth of auction-rate-securities and pay $50m in fines, retailers close up 1.8% on better-than-expected 2Q results and the University of Michigan’s July consumer sentiment figures were up less-than-expected – suggest an economy still under pressure.

• Both BHP and RIO down 1.77% in ADR form on Friday.
• Metals mixed – Zinc up 1.33%, Aluminium up 0.22% and Nickel down 2.2%. Copper down 0.04%.
• Oil price down $1.59 to $113.46 on growing concerns about demand in industrial nations and the stronger dollar. Woodside up 122c to 5542c.
• Gold down $22.30 to $788.40. Newcrest up 40c to 2483c.
• US Bonds up with the 10 year yield down to 3.84% from 3.90%.

We have a busy week ahead with a host of results as we get into the guts of the reporting season. Most notable companies reporting include: Tuesday: CSL, Boral, Newcrest Mining, Wednesday: Coca-Cola Amatil, Perpetual, AGL Energy, Thursday: Amcor, Tabcorp Holdings, QBE Insurance and on Friday we have Wesfarmers, Caltex and Boral.

Results Today…

• Ansell’s (ANN) – GOOD - Final result has come in better-than-expected. FY net profit up 2.6% to $102.6m, better than $97.2m analysts’ had expected. Declared a final dividend of 15.5c. ANN up 5c to 1129c.
• Seek (SEK) – BELOW EXPECTATIONS - Has announced a 37.4% increase in FY net profit to $76.3m, stronger than UBS Warburg’s forecasts of $75m but below Credit Suisse’s bullish prediction of $80.7m. GSJB Were expected $78.1m. SEK up 5c to 514c.
• BlueScope Steel (BSL) – GOOD - Announces an underlying profit of $816m, up 27%. UBS Warburg expected $728m. After significant items, FY profit came in at $596m, down 13%. Declared a 27c final dividend, up from 26c last year. BSL unchanged at 1329c.
• Sino Gold (SGX) has posted a net loss of $2.6m compared to the $3.12m loss announced last year. Revenue of $100.2m. No dividend. SGX down 13c to 421c.

Other Announcements

• Babcock & Brown Power (BBP) announced it will take a total impairment charge of $452m relating to the takeover of Alinta. Reaffirmed EBITDA and has realized $40m from its decision to sell its Tamar power stations project. BBP down 30.6% to 30c.
• Babcock & Brown (BNB) has also confirmed its interim result guidance saying the guidance (profit warning) last week included the impact of the impairment charge. BNB down 19c to 426c.
• Talk of Commonwealth Bank of Australia making a $6bn plus takeover offer for BankWest having pulled out of the race to buy ABN AMRO’s Australian investment banking operations. CBA down 104c to 4265c.
• Straits Resources (SRL) announced they will sell their coal assets – Madagascar and Brunei - to its subsidiary Straits Asia for US$100.3m. SRL down 12c to 488c.
• Emeco Holdings (EHL) has successfully executed a 3 year $630m senior debt package. Cost of debt up 130bps after the refinancing. EHL up 0.5c to 109.5c.
• Perpetual (PPT) says funds under management fell slightly in July to $30.2bn from $30.3bn in June. PPT up 205c or 4.6% to 4705c. 
• Allco Finance Group (AFG) announces Credit Suisse Group has agreed to waive Rubicon America Trust’s (RAT) financial covenants and obligation to make a debt repayment until August 22. AFG unchanged at 48c.
• GSJB Were maintain their OUTPERFORM recommendation on Crown (CWN) and 1060c target price ahead of its result tomorrow. CWN down 1c to 825c.
• Fairfax Media (FXJ) only down 2c to 273c despite Citi cutting its target price on the stock by 22% to 291c from 371c. They say advertising outlook in New Zealand and regional Australia looks soft. FXJ down 2c to 273c.
• No indication from Treasurer Wayne Swan as to whether the government will approve Westpac’s (WBC) bid for St. George (SGB). He has also told the banks to follow the RBA’s lead and cut rates if the RBA does reduce interest rates at their next meeting.

LONDON - An influential body representing British business said there was a “distinct possibility” of the United Kingdom facing recession in the next six or nine months, in a report published on Sunday.

BERLIN - Germany’s Deutsche Telekom, the biggest telecoms group in Europe, intends to shut nearly half its call centres in Germany, according to a report due out Monday in the Focus newsweekly.

ZURICH - Switzerland’s biggest bank UBS, which has lost billions in the United States subprime crisis, would return to profitability next year, its chairman Peter Kurer said in remarks published Sunday.

DUBAI - The government of Dubai, which is vying to become a global financial hub, vowed on Sunday to crack down on corruption amid a series of probes into alleged financial irregularities in high-profile firms.

HONG KONG - Growth in Hong Kong air passenger traffic slowed last month to the lowest rate this year as soaring crude oil prices dampened demand for air travel, the airport authority said.

SINGAPORE - Foreign talent and migrants in Singapore give the economy an extra boost, Prime Minister Lee Hsien Loong said on Sunday amid worries among locals that they are losing out to the newcomers.

LOCAL NEWS

CANBERRA - The federal government is insisting it will fight to establish a national FuelWatch scheme, saying it could save motorists $10 on a tank of petrol.

SYDNEY - A rudder problem has forced Qantas to delay the departure of a Sydney-bound airliner from London’s Heathrow airport by more than 16 hours.

SYDNEY - Fears are growing that the commodities boom is ending as investors who have fled the oil market desert gold, copper and other metals.

MELBOURNE - Former federal treasurer Peter Costello is by far the most popular choice to lead the Liberal Party, a Fairfax/Nielsen poll has found.

STOCKS TO WATCH ON THE AUSTRALIAN STOCK EXCHANGE TODAY:

CSR - CSR LTD - down nine cents to $2.43
CSR has warned shareholders to beware of unsolicited offers they may receive for their shares. The warning follows CSR being approached for a copy of its share register by Share Buying Group Pty Ltd.

GNS - GUNNS LTD - down 16 cents to $2.15
Woodchipping firm Gunns expects to report a net profit of about $67 million for 2007/08, based on unaudited figures.

BJT - BABCOCK AND BROWN JAPAN PROPERTY TRUST - up four cents to 83.5 cents
BNB - BABCOCK AND BROWN LTD - down 55 cents to $4.45
Babcock & Brown Japan Property Trust has forecast total distributions in fiscal 2009 to at least stay steady, helping its units to surge over 14 per cent.

MAP - MACQUARIE AIRPORTS - down four cents to $2.81
The east-west runway at Sydney airport will remain open during upcoming safety upgrades, federal Transport Minister Anthony Albanese says.

FUN - FUNTASTIC LTD - in trading halt, up 0.5 cent to 49.5 cents
Shares in toy wholesaler Funtastic Ltd have been placed in a trading halt pending an announcement.

QAN - QANTAS AIRWAYS LTD - up six cents to $3.50
Qantas flights continue to be dogged by maintenance issues. A small body panel has fallen off a Jumbo jet on its way to Singapore from Melbourne, and a flight from Brisbane to Melbourne was delayed by more than half an hour today due to a technical problem. On the brighter side, Qantas has confirmed its new A380 super jumbo will make its debut flight for paying passengers on October 20.

MCW - MACQUARIE COUNTRYWIDE TRUST - down 0.5 cents to 97 cents
Retail sector property vehicle Macquarie Countrywide Trust has moved to reduce debt by selling its Adelaide-based Seaford Plaza shopping centre for $72 million.

IRN - INDOPHIL RESOURCES NL - steady at $1.33
Xstrata Plc has extended its $540 million takeover bid for Indophil Resources NL, its joint venture partner in the $3 billion Tampakan copper and gold project in the Philippines.

MTN - MARATHON RESOURCES LTD - down 3.5 cents to 72.5 cents
Marathon Resources says it aims to prove the company can be “responsible participants” in the mining industry after drilling at a South Australian uranium project was suspended following the incorrect disposal of waste.

MAH - MACMAHON HOLDINGS LTD - down two cents to $1.53
Contracting and services group Macmahon Holdings has won a $78 million design and construct contract to extend the Reid Highway in Perth.

NCK - NICK SCALI LTD - up three cents to 66 cents
Listed furniture retailer Nick Scali says conditions in the industry remain subdued after booking a 24 per cent decline in its 2007/08 profit.

AIA - AUCKLAND INTERNATIONAL AIRPORT LTD - up one cent to $1.63
An expenses claim following the unsuccessful Canadian bid for a stake in Auckland International Airport (AIA) has been settled, the parties say.

TEL - TELECOM CORPORATION OF NEW ZEALAND LTD - steady at $2.63
FCL - FUTURIS CORPORATION LTD - up 10 cents to $1.40
New Zealand Telecom is suggested as a possible buyer of the 50 per cent stake in Perth telecommunications company Amcom being sold by Australian agribusiness and car parts supplier Futuris Corporation.

BRUSSELS - Europe has swung towards recession, with the eurozone economy shrinking for the first time since its formation and inflation hovering at a record high as the sharp global downturn takes hold.

BERLIN - Germany’s economy contracted for the first time for nearly four years in the second quarter of 2008, as demand for its exports fell and inflation hit consumer confidence.

PARIS - The French economy suddenly recoiled under global pressures in the second quarter, contracting by 0.3 per cent, raising a strong prospect of recession.

MOSCOW - A court in the Russian capital on Thursday barred the chief executive officer of oil company BP’s troubled Russian joint venture, TNK-BP, from office for two years, TNK-BP said.

WASHINGTON - The United States Federal Reserve said banks borrowed slightly more over the past week from its emergency lending program while Wall Street firms did not draw any loans for a second straight week.

NEW YORK - US banks JPMorgan Chase and Morgan Stanley joined other large banks in agreeing to buy back billions of dollars of stressed securities from investors, New York officials said.

LONDON - American Airlines, British Airways and Iberia of Spain said Thursday they had signed a commercial agreement to co-operate over flights between North America and Europe to help overcome soaring fuel costs.

CONCORD - New Hampshire securities regulators on Thursday accused Swiss banking giant UBS of defrauding the state’s leading issuer of student loans.

SEATTLE - Yahoo Inc said Thursday it will add the former chief executives of Viacom and Nextel Partners to its board of directors as part of the company’s deal to ward off a proxy fight with billionaire investor Carl Icahn.

WELLINGTON - Invercargill-based co-operative the Alliance Group said with sheep numbers declining around the world, Alliance was looking at supplying North American and European markets with South American lamb to meet demand.

WELLINGTON - Grocery co-operative Foodstuffs is understood to be one of several parties interested in buying liquor retailer Liquorland.

LOCAL NEWS

SYDNEY - Qantas said the steering of a Boeing 767 was affected as it landed at Sydney airport on Wednesday. A trail of hydraulic fluid was left along the runway, forcing closure for 40 minutes.

MELBOURNE - The review of Australia’s car industry by former Victorian premier Steve Bracks will be released in Melbourne today. The Federal report is expected to recommend a soft approach toward reducing tariff protection.

STOCKS TO WATCH ON THE AUSTRALIAN STOCK EXCHANGE TODAY:

LEI - LEIGHTON HOLDINGS LTD - in trading halt at $42.36
Leighton Holdings forecast that net profit would grow by at least 15 per cent this year, as Australia’s biggest construction firm continues to benefit from spending on infrastructure and resource development.

DJS - DAVID JONES LTD - up 39 cents to $4.04
David Jones upgraded its full-year profit guidance after increasing annual sales by 5.8 per cent.

SGP - STOCKLAND GROUP LTD - down 31 cents to $4.68
Property developer Stockland Group reported a fall in bottom-line annual profit and said it faces a tough market in the year ahead.

ORI - ORICA LTD - up 25 cents to $23.85
Orica, the world’s largest explosives maker, acquired a partner’s interest in the Samex joint venture in Peru for $US58.2 million ($A66.61 million).

FCL - FUTURIS CORPORATION LTD - up five cents to $1.30
Futuris Corp reported a 65.4 per cent fall in full-year profit and maintained its earnings guidance for the new year, saying agricultural markets remain strong.

ASX - ASX LTD - up 86 cents to $35.66
ASX Ltd, the owner of the Australian Securities Exchange, said it remains cautiously optimistic for the medium term after delivering a 16.9 per cent increase in annual profit.

PMP - PMP LTD - up 10.5 cents to $1.25
Printer PMP Ltd said it expects challenges in the current year after booking a 70.2 per cent lift in annual profit.

CDI - CHALLENGER DIVERSIFIED PROPERTY GROUP - untraded at 56 cents
Challenger Diversified Property reported full-year net profit down 41 per cent as the group’s portfolio value declined.

TBG - TUTT BRYANT GROUP LTD - down 9.5 cents to $1.40
Tutt Bryant Group said first-quarter net profit rose 17 per cent, in-line with expectations, and said it expects to achieve a strong full-year result.

UGL - UNITED GROUP LTD - up 12 cents to $13.24
Infrastructure services company United Group secured a 27-year, $100 million contract to provide facilities maintenance and operation management for the new Institute of Technical Education College West in Singapore.

PSA - PETSEC ENERGY LTD - up four cents to 50 cents
Gas producer Petsec Energy downgraded its full-year production forecast, with pipeline issues preventing output from its Main Pass 270 operation in the United States for longer than expected.

Midday Market Roundup 13/08/08
August 13 2008 - Australasian Investment Review – (AIR)

The market is down 110 – a fair bit worse than the 33 point fall predicted by the futures this morning. Resources down 2.2% despite BHP being up in the US. Financials flogged following the 5.2% fall in the US financials index overnight.

Dow down 139. Down all session – down 180 at worst. Resources up. Gold down heavily again. Financials worst performing sector by far - down 5.2% - Morgan Stanley buys back $4.5bn in auction-rate-securities, UBS posted 4^th-straight Qrly loss, Wachovia reported bigger-than-expected 2Q loss, JP Morgan announced a loss of $1.5bn, and Goldmans earnings estimates were cut by Oppenheimer. The Tradedeficit narrowed more-than-expected, the Budget deficit blew out to $102.8bn (triple last year’s number), retail sales growth slowed and consumer confidence remained at all-time lows. Sub-prime losses topped $500bn for the first time.

• Both BHP and RIO up in ADR form overnight, 0.69% and 0.92% respectively. BHP down 85c to 3636c. RIO down 347c to 11050c.
• Metals mostly down overnight – Zinc down 4.4%, Copper down 3.28% and Aluminium down 2.2%. Nickel up 0.75%. Oz Minerals down 7c to 166c.
• Oil price down $1.34 to $113.10 – hit a 14 month low down 23% from its record but still up 58% from last year. Woodside down 47c to 5147c.
• Gold down $13.50 to $810.80 – it was the eighth straight fall, the longest streak since 2001. Somehow Newcrest has managed to go up 61c to 2410c.
• US Bonds up with the 10 year yield down to 3.91% from 4%.

Main stories

CBA RESULTS OK BUT NOT GREAT- down 1.8% - results described as “solid” and broadly in-line with no nasty surprises - posted full year net profit up 7% to $4.79bn. Cautious outlook for FY09. All-important cash profit up 5% to $4.733bn on strong business lending and robust fund management business - was slightly above the consensus of $4.729bn. Operating income up 10% with some impressive statistics around new deposits and gains in market share. Final dividend at $1.53 compared to the expected $1.55. Higher-than-expected loan impairment charges jumping to $930m from $434m last year – bit above broker’s forecasts, but are low compared to peers and doesn’t seemed to have upset anyone.

TESLTRA RESULTS A BIT FLAT - down 3.1%– net profit slightly below expectations posting $3.69bn compared to consensus of $3.78bn. EBIT up 7.7% against company guidance of 6-8%. Dividend remains 14c as expected. Guidance bit below expectations with FY09 revenue growth forecast at 3-4% and EBIT growth of 6-7% compared to analyst’s 8.5% forecast rise in EBIT.

Other

IRONORESECTOR DOWN - FMG down 4.5%. Iron ore stocks being punished – PMM down 1.2%, MGX down 5.9% and MMX down 11.7%.

GOLDS SURPRISINGLY HIGHER- Major gold stocks up despite the gold price fall – NCM and LGL up 4.3% and 3.8%.

Australian consumer sentiment bounces in August up 9.1% from July – index at seasonally adjusted 86.2 from 79.0 – reflects lower fuel prices, talk of interest rate cuts and delivery of tax cuts. Good sign for consumer stocks.

RBA clashing with the view of Australia’s major bank CEOs about dropping interest rates despite rising funding costs – RBA says the banks have no case to delay cuts if rates fall – another sign for an imminent September cut. One broker predicting 5 cuts between now and the end of 2009.

Computershare (CPU) down 8.41% on results - Full year net profit was up 21% to $282m from $233.8m a year ago - below the $324.9m expected. Dividend 11c up from 9c a year ago. Earnigns guidance for 2009 was +10%, ahead of some expectations. CPU also to buy ABC Learning’s UK childcare voucher business for GBP90m.

Goodman Fielder (GFF) down 2% on a disappointing trading update including a write down of $170m on its dairy products division. EBIT declined from $70m in FY06 to $50.5m in FY07. Guidance on ‘normalised’ net profit for the year remains the same if you ignore the write-down. Dividend unchanged at 13.5c.

Equinox Minerals (EQN) down 3.62% on results (a loss) – the 1H loss was less than the circa $18.2m expected due to lower exploration and admin costs expensed. Has sufficient funds to complete the Lumwana project.

CSL Ltd (CSL) in a trading halt pending the release of an announcement about a $1.5bn institutional share placement to raise cash for a $3.5bn acquisition of Talecris Biotherapeutics. .

HastingsDiversified (HDF) down 2.64% as Epic Energy enters into a gas transportation agreement with Adelaide Brighton forecast to earn $42m in revenues over 10 years.