NEW YORK - Wall Street lost ground in a late-day selloff as traders feared the US government’s banking sector bailout faces delays at it passes through congress.
The Dow Jones Industrial Average closed down 161.52 points, or 1.47 per cent, to 10,854.17.
The tech-heavy Nasdaq composite slumped 25.64 points, or 1.18 per cent, to 2,153.34 and the broad-market Standard & Poor’s 500 index lost 18.87 points, or 1.56 per cent, to a close of 1,188.22.

LONDON - The FTSE 100 share index closed down 100.2 points, or 1.91 per cent, at 5,136.1, as investors waited for US congress to pass the bailout measures.

FRANKFURT - the DAX shed 39.22 points, or 0.64 per cent, to close at 6,068.53 points.

PARIS - The CAC 40 fell 83.69 points, or 1.98 per cent, to 4,139.82 points.

TOKYO - Japan’s markets were closed for a public holiday.

HONG KONG - The benchmark Hang Seng Index closed down 759.35 points, or 3.87 per cent, at 18,872.85.

WELLINGTON - In a quiet day’s trade, the benchmark NZX-50 finished down 27.526 points, or 0.845 per cent, at 3228.189.

SYDNEY - The Australian stock market is expected to open lower today after US stocks fell again as investors worried that the US congress was beginning to doubt the need for a government bailout of financial institutions as a way to revive credit markets.
At 0802 AEST, the Sydney Futures Exchange’s December Share Price Index contract was down 71 points at 4,939.
In news today, retailer David Jones delivers its full year results.
Air New Zealand and the Australian Securities Exchange (ASX) hold annual general meetings.
Empire Oil & Gas NL holds a general meeting.
Mercer will host a briefing on sovereign wealth funds by Future Fund chairman David Murray.
The Department of Education, Employment and Workplace Relations releases its skilled vacancies survey for September.
Australian Bureau of Agricultural and Resource Economics executive director Phillip Glyde will speak at an Australian Business Economists briefing on the outlook for soft commodities.
The Industrial Foundation for Accident Prevention’s (IFAP) Safety 08 conference continues in Perth.
The Mining & Energy NSW exhibition concludes.
Yesterday, the benchmark S&P/ASX200 index closed 97 points lower, or 1.93 per cent, at 4923.5 yesterday, while the broader All Ordinaries lost 92.4 points, or 1.83 per cent, to 4957.7.

NYMEX
Oil prices pulled back after a record rally on Monday, dropping for the first time in five days of trade as uncertainty over the US financial bailout plan and a stronger dollar led investors to shed commodities.
Light, sweet crude for November delivery fell $US2.76 to settle at $US106.61 on the New York Mercantile Exchange, after earlier dipping as low as $US104.05.
In London, Brent North Sea crude for November shed $US2.96 to settle at $US103.08 a barrel.

COMEX
Gold for December delivery fell $US17.80 to settle at $US891.20 an ounce on the New York Mercantile Exchange.
December silver fell 28 cents to settle at $US13.17 an ounce on the Nymex, while December copper lost 10.3 cents to settle at $US3.152 a pound.

Earlier today some others criticized the Paulson bail-out plan for assuming that the investment banking model on Wall Street could survive the current crisis, provided it was cleansed of its bad assets. It turns out the model didn’t even make it to Monday’s New York Open.

In a move that marks the end (for now) of the high-leverage, no oversight, risk-taking investment bank model, the Federal Reserve announced that its board had approved, “Pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.”

It’s too early to reach conclusions, but here are some initial observations on why the move was made and what it means going forward:

• The ban on short selling hits leveraged players the hardest. You don’t get more leveraged than Goldman and Morgan Stanley. The banks have to de-lever in an orderly fashion without being driven into the arms of a commercial bank partner with deposits. Goldman and Morgan have accepted the oversight that comes with commercial banking in exchange for maintaining their existence.
• Goldman and Morgan move from being prey to predators. As bank holding companies, they can now take deposits. But it’s much more likely they’ll simply acquire deposits. They can acquire the deposits of firms like Washington Mutual or Wachovia. Or, even better from their perspective, the deposits of regional banks hit hard by the collapse in Fannie and Freddie bonds.
• Goldman and Morgan gain enhanced access to Fed lending facilities now that they are bank holding companies. Even though the Fed had already set up a Primary Dealer Credit Facility, as deposit-taking institutions the new Goldman and Morgan have even greater access to more Fed loans (should they need them. What’s more, the new versions of the old investment banks would presumably be covered by the FDIC as deposit taking institutions.

The Fed must hope this moves Morgan and Goldman out of the “problem” category and into the “solution” category. Given a big enough line of credit by the Fed, these new bank holding companies can become new non-government homes of “good assets” while the Fed and Treasury deal with the bad assets. It also keeps the unthinkable from happening: Wall Street losing all its investment banks and two big counter-parties in the derivatives market.

***Treasury includes all asset-backed securities in new plan

Even though it is just a few days old, the scale of the proposed US$700 billion bailout of troubled mortgage-related assets has already gotten bigger. Bloomberg reports today that the Treasury Department has suggested the new program include a much wider variety of asset-backed securities than previously suggested.

“The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset. That may force an eventual increase in the size of the package as Democrats and Republicans in Congress negotiate the final legislation with the Bush administration, analysts said.

“How much are we talking about here? At least another US$500 billion. According to a September third article by Bloomberg’s Sarah Holland, “More than $358 billion of credit card asset-backed securities were outstanding as of March 31, according to the Securities Industry and Financial Markets Association. Another $196.6 billion in securities were backed by auto loans.”

Click to Enlarge

However the SIFMA’s latest data from 2007 (above) shows that once you include home equity lines of credit (HELOC) and student loans, the number quickly jumps to over US$2 trillion. It is almost certain that student loans would be eligible for purchase under the Treasury plan. But HELOCS?

If Paulson and company are doing a true “Control-Alt-Delete” systemic re-boot of the financial sector, then all securitised assets that will be affected by consumer non-payment (nor or in the future) must be transferred from private balance sheets to the public.

That means that though he’s only asked for $700 billion up-front to deal with the bad assets, the Paulson plan could eventually require as much as $2 to $3 trillion in new Treasury money to buy asset-backed securities. Of course Wall Street will only want to get rid of the worst paper and keep the best for itself.

But you are still looking at a number that’s likely to be much bigger than what Congress has been told. That number is even more bearish for the dollar than the current one, which is already bad enough.

***Forget the short-covering rally, a Futures Freeze?

One point we failed to make clear earlier today is that by eliminating shorting from the market today, regulators make it harder for the market to find a bottom, even though they are trying to help the market find a floor. Why?

Shorts help begin a new bull market by covering their positions. They do this, naturally, by being the first buyers of shares. To cover your short you buy back the shares you previously lent. Without the shorts in the market, who’s going to step in and buy at the lows?

In any event, there are still a few tricks up the regulatory sleeve if the prohibition on short-covering fails. First, there is the futures market, where one can still go short an index or security. Activity in the futures market could be shut down if the regulators think it would help. We’re not saying it would help. But now that we’ve gone through the looking glass, anything is possible.

Resource Stocks Selling Below Book Value

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

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

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

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

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

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

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

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

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

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

But every commodity is different, with different sources of supply and demand. We guess if you wanted an analogy for the financial market…they only trade mainly in one commodity: interest rates.

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

Some are even trading below their book value.

Companies in the Materials Sector Trading Below Book Value

Companies in the Energy Sector Trading Below Book Value

Flat Rates…Falling Oil…Wall Street Gains 3%

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

A 3% bounce in the Dow.

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

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

Gold is the December contract on the COMEX division of the NY Mercantile Exchange. Silver and Copper are the September contracts on NYMEX.)

NEW YORK - Wall Street retreated again on Friday after readings on jobs and manufacturing - the first reports for the third quarter - indicated that businesses and workers still face a tough economy. The major indices ended a turbulent week mixed.
A massive quarterly loss at General Motors Corp and rising oil prices also gave investors reason to trade cautiously, but the market was considerably calmer than the first four sessions of the week, when the Dow Jones industrials rose or fell by triple digits each day.
The Dow fell 51.70, or 0.45 per cent, to 11,326.32, ending the week down 0.39 per cent.
Broader stock indicators also lost ground on Friday. The Standard & Poor’s 500 index fell 7.07, or 0.56 per cent, to 1,260.31, and the Nasdaq composite index fell 14.59, or 0.63 per cent, to 2,310.96.

LONDON - European share prices suffered steep falls on Friday as oil prices climbed and US automaking giant General Motors reported a huge loss.
In London, the FTSE 100 index shed 57.2, or 1.06 per cent, to end the week at 5,354.70.

FRANKFURT - The DAX fell 83.1, or 1.28 per cent to finish at 6,396.46.

PARIS - The CAC 40 lost 78.02, or 1.78 per cent to close at 4,314.34.

TOKYO - Japanese share prices closed down 2.1 per cent on Friday at a two-week low, hit by a slump on Wall Street, disappointing domestic earnings news and political uncertainty, dealers said.
The Tokyo Stock Exchange’s benchmark Nikkei-225 index slid 282.22 points to end at 13,094.59.

HONG KONG - Hong Kong share prices closed 0.6 per cent higher on Friday, tracking a recovery in the mainland on hopes that Beijing may ease controls to spur growth, dealers said.
The benchmark Hang Seng Index was up 131.5 points at 22,862.6.

WELLINGTON - The New Zealand share market as a whole was down, with the benchmark NZSX-50 index off 33.12 points to 3303.16.

SYDNEY - The Australian stock market is expected to fall after US equities slumped on readings on jobs and manufacturing which indicated that businesses and workers still face a tough economy.
The miners may decline as metals including gold and copper slipped on Friday.
At 0745 AEST on the Sydney Futures exchange, the September share price index futures contract was 38 points lower at 4,875.
In economic news today, the Australian Bureau of Statistics releases its house price indices for the June quarter.
Australia and New Zealand Banking Group releases its job advertisements data for July.
In other news, the Diggers & Dealers Mining Forum begins today in Kalgoorlie.
Argo Investments announces its annual results.
The Australian share market resumed its downward march on Friday, closing almost 1.5 per cent lower, led by falls from the financial sector amid further signs of a deteriorating economy.
The benchmark S&P/ASX200 fell 73.4 points, or 1.47 per cent, to 4904, while the broader All Ordinaries shed 74.6 points, or 1.48 per cent, to 4978.

NYMEX
Oil prices ended slightly higher on Friday, pushing back above $US125 a barrel as the threat of a conflict with Iran rattled energy markets after a week of wild swings.
The gains, however, were limited by lingering beliefs that fuel prices are still too high for cash-strapped Americans who are already cutting back on driving to save money.
Light, sweet crude jumped more than $US4 to a high of $US128.60 a barrel on the New York Mercantile Exchange, its highest level in nine sessions, before easing back later to settle at $US125.10, up $US1.02. Prices fell $US2.69 to settle at $US124.08 on Thursday.
In other Nymex trading, heating oil futures fell about 2.25 cents to settle at $US3.437 a gallon while gasoline futures added 1.34 cents to $US3.0843. Natural gas futures added 27 cents to settle at $US9.389 per 1,000 cubic feet.
In London, September Brent crude rose 62 cents at $US124.60 a barrel on the ICE Futures exchange.

COMEX
Gold futures turned lower after the dollar strengthened against the euro, weakening the metal’s appeal as a safe haven against inflation and weakness in the US currency.
Gold for December delivery fell $US5.20 to settle at $917.50 an ounce on the Nymex, after earlier falling to $910.30 an ounce.
Other precious metals also fell. September silver lost 27 cents to settle at $US17.52 an ounce on the Nymex.
September copper dropped 8.3 cents to settle at $US3.5785 a pound.

INTERNATIONAL NEWS

BOSTON - The rich are sharing America’s financial pain - and contributing to it. It may have taken longer and it may not be as acute as for the middle class, but there are early hints that the economic slump is crimping the lifestyles of rich Americans.

LONDON - The Royal Bank of Scotland (RBS) will this week unveil the biggest loss in the history of British banking due to a multi-billion-pound hit from the global credit crunch, The Sunday Times reported.

MADRID - Spain’s once-booming economy is in worse shape than expected and could slip to zero growth, the finance minister said in an interview published Sunday.

BAGHDAD - Iraq is inviting bids from contractors to drill seven new oil wells and complete work on four natural gas wells.

LOCAL NEWS

CANBERRA - Official house price figures due out today could give another clue to the prospects of an early interest rate cut.

CANBERRA - The aviation watchdog has formed a special team to investigate Qantas amid growing public concern the airline’s safety standards may have slipped.

SYDNEY - Qantas cabin crew have ruled out any industrial action over recent security scares, despite asking to meet company officials after another of the airline’s jets was forced to make an emergency landing.

MELBOURNE - Australian banks are profiteering from customers despite claims by the industry that margins are suffering from a troubled credit market, a new report shows.

MELBOURNE - The latest Ford Falcon is the first Australian-built car to win a world-best five-star rating for its crash safety.

SYDNEY - Iron ore tycoon Andrew Forrest’s paper fortune has slumped by more than 37 per cent in the past month in response to a short-selling blitz by international hedge funds against his Fortescue Metals Group.

MELBOURNE - Junior explorer Avalon Minerals Ltd plans to spin out the company’s Western Australia uranium assets into a new vehicle, Caliburn Resources Ltd, through a $2.4 million initial public offer (IPO).

MELBOURNE - The number of job ads dropped slightly in July despite a host of falling economic indicators, with the building and construction sector hardest hit, according to a survey.

STOCKS TO WATCH ON THE AUSTRALIAN STOCK EXCHANGE TODAY:

QAN - QANTAS AIRWAYS LTD - down one cent to $3.31
Australia’s aviation watchdog will launch an investigation into Qantas safety and maintenance operations following three mid-air emergencies on its jets in less than 10 days.

SUN - SUNCORP-METWAY LTD - down 1.85, or 13.83 per cent, to $11.53
Suncorp Metway Ltd says severe storms and the global credit crunch would cut its annual profit by half, prompting it to maintain a flat dividend in fiscal 2009, and sending its shares into a tailspin.

FMG - FORTESCUE METALS GROUP LTD - down 43 cents to $8.27
Shares in Fortescue Metals Group fell by as much as six per cent after a bulk carrier, transporting the company’s iron ore, lost steering and ran aground off Western Australia, blocking the vital Port Hedland shipping channel.

BUG - BUDERIM GINGER LTD - up 1.5 cents to 48.5 cents
Buderim Ginger Ltd has forecast its annual pre-tax profit to rise by as much as $2 million, in line with guidance.

CSR - CSR LTD - up one cent to $2.12
CSR Limited will spend $17.8 million to increase its ethanol production capacity to 60 million litres per annum, the company announced today.
AAP dlm/pe

Wall Street Rises on Falling Oil

The Dow-oil ratio continues to grow. A 2% drop in oil translated to a 2.4% gain in the Dow Jones index last night. It helped that consumer confidence was up too.

And that housing market release we were worried about earlier in the week? It was miserable. It was ugly. It was woe-begone. But it wasn’t as bad as analysts thought it could’ve been.

US house prices have fallen 16% in the last year. That takes a lot of home-owners back to 2004 prices.

But last night, the flavour of the Dow was oil. House prices won’t be dragging down the ASX today, reader. They’ll have to wait for another occasion. And there’s still an opportunity for shares to trip up later in the week. American unemployment figures are tagged and released into the wild on Friday.

July 28 2008 - Australasian Investment Review – (AIR)

Wall Street finished the week cautious and wondering where to go to next. Figures out Friday suggested that the US slowdown might be easing with better-than-forecast reports on durable goods orders, consumer confidence and new-home sales. But consumer confidence and new home sales were not a sign of a rebound: new home sales only account for 15% of the still huge US housing sector and it still remains weak. Consumer confidence is still poor and durable goods orders also reflect the continuing solid performance of the US export sector, as well as domestically. The Standard & Poor’s 500 Index rose 5.22 points, or 0.4% on Friday; the Dow 21.41 to 11,370.69 and Nasdaq added 30.42, or 1.3%, to 2,310.53. The S&P 500 cut its weekly retreat to just 0.2% for the week, the Dow lost 1.1%, but Nasdaq climbed 1.2%. The S&P 500 has risen 3.5% since July 15, but it is still down 14% this year and almost 20% from its October 9 record. US new home sales eased 0.6% to an annual rate of 530,000, from an upwardly revised 533,000 in May. Economists had forecast a drop. The number of properties on the market dropped by the most in four decades, indicating builders are making some headway in clearing out inventories. The Reuters/University of Michigan final index of consumer sentiment increased to 61.2 in July from 56.4 in June. Economists had forecast an unchanged reading of 56.4 in July. Oil fell to $US123.30 a barrel, a seven-week low. US shares rose, despite new figures showing that home foreclosure filings more than doubled in the second quarter from a year earlier. According to RealtyTrac, one in every 171 US homeowners lost their house to foreclosure, received a default notice or was warned of a pending auction in the second quarter. That was up a huge 121% from a year earlier and 14% from the March quarter. Friday also produced more bad news for US financials. Those rising foreclosures and a warning from S&P that it might cut certain of the ratings of Fannie Mae and Freddie Mac hit both struggling mortgage groups. The pair fell 3.9% to $US11.55 and 6.1% to $US8.27, respectively. The financial sector as a whole lost 0.6%, and then the US banking regulators seized two small western banks after trading closed and sold them off. They were only small operations, a few billion in assets between them, but the move will remind the markets that banks remain stretched. Two weeks after the Federal Deposit Insurance Corp seized IndyMac of California; the Office of the Comptroller of the Currency said it closed First National Bank of Nevada and First Heritage Bank NA of California. First National had total assets of $US3.4 billion and $3 billion in deposits while First Heritage had assets of $254 million and $233 million in deposits. The FDIC said the cost of the transactions to its insurance reserve is estimated to be $US862 million. The 28 offices of the two banks will reopen on Monday as Mutual of Omaha Bank. Mutual of Omaha Bank currently has more than $US750 million in assets .It is a subsidiary of Mutual of Omaha, a 99-year-old insurance and financial services company with more than $US19 billion in total assets.   European shares fell Friday for the third day this week on concerns about continuing losses in financial services.The huge re-insurer, Munich Re (it’s the world’s second-biggest reinsurer) suffered the biggest fall in five years after it warned of “substantial” write-downs on its equity investments and another German, re-insurer, Hannover Re also tumbled as it also warned that achieving forecast earnings this year will be much tougher. That makes three German blue chips revealing earnings problems: earlier in the week Daimler warned that earnings would be off more than 10% in the 2009 year, despite higher revenue and a small rise in sales in the first quarter.

Despite those drops, the German market finished all but square on the day, but investors are wondering if big investors will now start reporting write-downs and losses, just as banks seem to be on the improve.

The Dow Jones Stoxx 600 Index fell 0.2% on Friday, trimming the week’s gain to 0.4%.

Those surprise US durable goods orders helped European market sentiment.

National indexes slipped in all 18 western European markets except France and Sweden. Germany’s DAX slipped less than 0.1%, while the UK’s FTSE fell 0.2% and France’s CAC 40 rose 0.7%.

Most German stocks though rose, sending the benchmark DAX Index to its second straight weekly gain, finishing up 0.9% overall. The London market ended the week down 04% overall.

The failure by Samsung Electronic to reach profit forecasts also hurt on Friday, as did the highest inflation figures in Japan for more than a decade on Friday at 1.9% annual in June.

The MSCI Asia Pacific Index rose 3.0% last week, the biggest weekly advance since May 16.

Japan’s Nikkei ended its six week losing run by finishing up 4.2%. All other Asian benchmark indexes rose.

The MSCI Asian index had risen 5.9% up to the close of trading on Friday, but Friday’s spate of bad news and the reaction to Wall Street’s big slide overnight Thursday saw the index lose 2.5% on the day.

In Japan the inflation figures were worse than forecast.

Surging energy and food prices had a bigger impact than forecast.

Corporate goods prices jumped 5.6% in the year to June, according to the Bank of Japan. Those figures seem to suggest that companies had cut profit margins because they were unable to full pass on their higher costs to all customers.

Japan’s core consumer price index, which excludes fresh food, increased at an annual rate of 1.9% in June, compared to 1.5% annual in May. It was the most since late 1992 excluding a one-off spike when consumption tax was increased in 1997.

The news came two days after Japanese exports surprising fell 1.7% in June, led by a 15% slump in exports to the US and lower shipments to Europe and slowing shipments to Asia.

Easing commodity prices also saw the likes of BHP and Rio Tinto lose more ground.

The NAB dropped by almost 14% after revealing the write-down of $830 million on its off balance sheet investment in collateralised debt obligations.

The ASX 200 fell 173.60, or 3.4%. The drop was the biggest since January 22 and extended Index’s loss this year to 22%. The All Rods finished down 157.4 points. But the overall market finished the week up around 2.3% because of good gains earlier on.

The NAB fell 14% to $26.56 and the ANZ slumped 8.7% to $17.75.

BHP eased 1.7% to $36.92 as gold, copper and oil all eased over the week. Nickel dropped sharply in London.

Stock land, the largest housing developer in the country, plunged 60c, or 11%, to $5.03 after its rating was cut to “hold” from “buy” by analysts at Citigroup.

Hong Kong shares dropped 1.5% on Friday, but the main index rose 4% over the week, posting its best weekly gain in three months.