Crikey

Our market is in freefall on the back Wall Street’s falls overnight – we are down 158. The SFE Futures suggested a big 152 point fall in the market this morning.

The Dow Jones was down 311 moving in a big 449 point range and closing down 2.3% its biggest falls since the February correction earlier in the year. The Dow Jones Index fell as much as 449 points in early trade before recovering. Concerns about the subprime mortgage and corporate lending markets, worse-than-expected earnings results, disappointing economic figures and a lack of corporate activity were all to blame. World’s biggest oil producer, Exxon Mobil, fell 6% after reporting a 1% fall in 2Q earnings on the back of production problems, and homebuilders finished lower after the Commerce Department announced sales of new homes decreased 6.6% last month, the largest percentage fall since January. The big falls spread to overseas markets, the FTSE was down 3.1%, Germany’s DAX fell 2.3% and France’s CAC-40 2.7%.

It seems the Greenspan legacy of debt debt debt is suddenly coming home to roost. It is a house of cards based on property values. The US consumer is in the firing line and the US economy with it.

Everything is well down in Australia as well, resources underperforming the banks and the market. The market is down 2.6% but BHP is down 146c or 4% to 3584c and RIO is down 338c or 3.6% to 9050c. Both were down in ADR form overnight, 5.36% and 6.07% respectively. Metals all down overnight, Nickel down 0.6%, Copper down 0.2% and Zinc down 3.9%. Aluminium down 1.2%. Zinifex down 63c to 1906c. Oil price down 78c to $74.96. The US Energy Department said oil inventories fell 1.4m barrels last week. Woodside down 131c or 3% to 4313c. Gold down $11. Newcrest down 96c or 3.8% to 2464c.

The herd has taken over…doesn’t really matter what announcements are made or results are released it all goes south.

You have to love this game.

• A month ago the bond markets were a terrible threat. Today they are a safe haven (US Bond yields down from 5.3% to 4.78% in a month).
• A day ago equities were a fantastic opportunity. Today they are risky and to be avoided.
• Yesterday the morning meeting was full of colleagues in their natural state – optimistic stockbrokers. This morning it was attended by Funeral Directors talking about margin calls and settlement risk.

It is quite clear – the stockmarket is not a science – it is an art and it is driven by emotion. So there are no sure answers to what will happen next. Everyone is guessing. Working out the intrinsic value of a company is possible, guessing what the herd will do is virtually impossible, good luck to anyone that thinks otherwise. Want to know what’s going to go down the most in the short term – what went up the most in the short term. People are taking short term profits this morning, that means selling the stocks that have made profits in the short term. In the newsletter today we have a list of the best performers in the All Ords in the last month. You will notice the plethora of small resources stocks, most of which are used for trading rather than investment purposes. Traders are active, that means they will be selling this morning.

The margin calls won’t hit till tomorrow (although they are unlikely to be too bad just yet).

• Zinifex (ZFX) have had disappointing production numbers – FY production down 5% on lower grades and maintenance shutdowns at some of their smelters. 4Q production was good – up 8% on the 3Q. ZFX down 44c to 1925c.
• CSL Ltd (CSL) down 141c to 8613c, they announced their subsidiary CSL Behring was granted marketing approval from the US Food and Drug Administration for their intravenous immunoglobulin drug, PrivigenTM.
• Portman (PMM) down 93c or 9.3% to 916c despite reporting a better-than-expected 2Q unaudited earnings of $28.1m, down $7.4m from last year on the back of costs associated with waste removal.
• UBS Warburg upped their recommendation on Lion Nathan (LNN) to “Buy” from “Neutral” and their target price to 980c from 949c. They say the company is undergeared by $300-$400m and shows willingness to return capital, the threat of new beer entrants has not affected earnings and the medium term earnings growth outlook is supported by $15m Project Invest savings. LNN down 4.5% in the last Q and down 20c today to 861c.
• ABN AMRO cut their recommendation on James Hardie (JHX) to SELL from BUY and their target price to 735c from 1000c saying they expect the US market to drag EPS down in FY08-09 and that housing inventories should remain “bloated” for the next 2 years. JHX down 41c or 5% to 769c.
• KLM Group (KLM) down 1c to 79c, they announced a multi-million dollar defence contract to supply and install data and communications cabling to the Defence Headquarters Joint Operations Command project in Canberra.
• Macarthur Coal (MCC) have maintained their FY profit guidance despite the impact of bad weather and infrastructure bottlenecks on production. The expect to report a profit of between $63m and $73m for 2007. MCC down 46c or 6.7% to 637c.
• Not the best of days to be listing a company, RAMS Home Loans Group is scheduled to list at midday today. Talk was they would list at a premium…not so sure now. Issue price was 250c. Credit Suisse have a 260c valuation implying a PER of 16.4.
• Seven Network (SEV) down 44c to 1096c after the Federal Court announced in favour of News Ltd in their long-running case brought forward by SEV. The problem for SEV is they now must not only pay their own legal fees, but also those of News Ltd estimated to be around $200m.

I have an article in Marcus Today today talking about the current market correction, why its happened, whats likely to happen and what to do. I also have a golden oldie on taking losses. If you have a stock in loss see if you can read the whole list without selling it.

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