Our market is up 24 and doing a lot better than the 2 point fall the SFE Futures predicted. Up 33 at its highest and down 6 at its lowest.

Dow Jones closed lower for the fourth time in five sessions – down 23. It was the lowest volume session this year. Financials down 2.4% on poor results from Wachovia (the 4th biggest bank). That compounds the poor results season with poor results from Alcoa, GE and UPS so far. Wachovia down 8.1% to a 7 year low after it posted an unexpected $393m 1Q loss – earnings of -20c against forecasts for +40c against +120c the year before. The fourth largest US bank cut its dividend, slashed 500 jobs and raised $7bn through a share and note issue. CEO Kennedy Thompson said he was “deeply disappointed” having had the first quarterly loss since 2001. This latest cash injection comes after a total of $140bn raised by major banks and other lending institutions since last year and after a total of $245bn of losses resulting from the subprime crisis. The CEO also said the housing slump will not end until sometime next year. Late payments on loans are at a record 3.1%. It looks like the deterioration in financial business in the last Q has caught everyone by surprise including GE and Wachovia. The question now is who else? The results are about to cascade in, so we’ll know soon enough. Either way the risk appears to be on the downside. Newscorp fell the most in five years – down 4.6%. Analysts cut their estimates on Newscorp citing slower upcoming growth. The NASDAQ closed 0.6% down.

The minutes of the RBA Meeting are out. There is a lot of detail which we have summarised in the newsletter. But the main message is that the RBA are on a “Wait & See” strategy and interest rates are on hold for the foreseeable future. Some brokers saying the next move will be down.

  • Both BHP and RIO down slightly in ADR form overnight, 0.3% and 0.4% respectively. British brokerage firm Liberum Capital believe BHP Billiton (BHP) could significantly lift its chances of winning over Rio Tinto’s (RIO) board if it offered a cash sweetener to its $160bn takeover offer. BHP up 21c to 4186c but RIO down 30c to 13800c.
  • Metals mostly down, Aluminium down 1.5%, Copper down 1.1% and Zinc down 0.4%. Nickel up 1.4%. Zinifex up 17c to 952c.
  • Oil price up $1.57 to $111.71. Woodside up 170c to 5600c.
  • Gold up $1.70 to $928.70. Newcrest up 41c to 3300c and Pan Australia (PNA) down 3c to 115c after putting on nearly 10% yesterday on no announcement.
  • US Bonds down with the 10 year yield up to 3.51%.

FORGET THE OLD HIGHS – The bank sector recently bottomed and bounced 20.8% in a couple of weeks. As it slides away again we begin to wonder if perhaps we aren’t going to be in a bear market for some time and that our hopes of recovery were terribly premature. As usual with big market corrections, the old highs will be recovered years later, not months later and will be recovered for different reasons, not the old reasons.

Making the news today…

  • QBE Insurance Group (QBE) has told the market this morning that it had approached Insurance Australia Group (IAG) with a $7.4bn takeover offer last week, but was told ‘no thanks’. QBE down 54c to 2266c and IAG up 10% on the back of the news, to 427c. There is clearly some significant benefits to be had out of a merger ($300m of synergies) and both seem to agree on it. But IAG have rejected the approach on price and you can sort of understand that. Their share price has been a dog and the bid only brings it back to the price is was a couple of months ago. They don’t want to get picked off at the bottom of the cycle and the market. The fact that they have rejected the price not the logic there is life in the idea despite the rejection and that further developments may come. In a bear market it can be quite a good bet to leave money in a takeover stock with a bit of underpinning.
  • Banks recovering a bit today although the ANZ is lagging on the press about their exposure to a third margin lender in trouble with $500m exposure to ANZ – Chimaera Capital.
  • Energy Resources of Australia (ERA) announced its 1Q uranium production increased by 32% to 2,925 pounds, despite production falling 15% due to lower grades. ERA down 41c to 1989c.
  • Talk is that AMP Capital Investors – AMP’s investment management division – and Meridien are looking at splitting their $1bn JV that they set up in April last year. AMP up 21c to 791c. The whole insurance sector is up on the back of the IAG bid.
  • Amcor (AMC) announce it will sell two flexible packaging plants in the U.K. and Sweden to private equity as part of its restructuring process in Western Europe. AMC up 6c to 667c.
  • Oil Search (OSH) has sold off its Middle East and North Africa assets to Kuwait Energy for US$200m, plus working capital, as part of its strategic review. The cash will assist OSH fund its $US10bn PNG LNG JV project. OSH up 5.7% on the back of the news to 504c.
  • The Kolsen consortium which includes some of Australia’s richest men, has sold around 20,48m shares in Iluka (ILU), or around 6% of ILU’s capital, at prices between 433c and 410c. Iluka up 17c or 4.25% to 417c. Overhang gone.
  • Bannerman Resources (BMN) announced exposure to Lift Capital – nothing serious, 3,600 shares. BMN up 6c to 161c.
  • Atlas Iron (AGO) is in a trading halt. Will remain so until Thursday. AGO last traded at 220c.
  • Rubicon America (RAT) has sold One Riverview Square, in Miami for US$49.6m, $US2.7m above RAT’s valuation for the asset. RAT up 1c to 17c.
  • Stocks exposed to Lift Capital include BluGlass, Paladin and Deep Yellow.

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