Moving back down the ASX 5000 levels

Here is Peter Spanns view of the market.. update released today.

 

The Year Ahead

by Tolhurst Research

 

Thanks for sharing this stuff guys. Much appreciated.

 

Earth to ECB…Come in ECB!

Earth to ECB…Come in ECB!

Mr. Trichet says he ain’t cutting rates just because the world is falling apart around him; no way! It’s all about inflation don’t you know. Earth to ECB…Come in ECB!
Or maybe Mr. T never watched Lost in Space. It was sci-fi drama on the Telly when I was a kid. It was one of my favorites. Will Robinson, the young son who constantly swerved into trouble on alien planets, always had his trusty robot by his side when ever there was a problem. Maybe you remember the robot reminding Will: Danger! Danger Will Robinson! Get back to the ship!
Well, Mr. T needs a robot.

We know there are plenty of other central bankers that fit the bill, at least based on personality alone. If there are any central bankers out there reading this now, please tell Mr. T there is danger out there. And he doesn’t have to look far; not even to the stock market. He can check in his own back yard. The giant sucking sound, getting louder by the day, represents a pending housing bust (Spain and Ireland) and a fiscal debacle that Italians have become so adept at creating.
We noticed and concur with Bank of England Head Honcho Mervyn King’s comments regarding the 75-basis point Fed rate cut and pressure for others to follow in the Fed footsteps, as reported in the Financial Times this morning: “The repricing of risk…is not a process that we should try to reverse.”
US stock futures are plummeting this morning. It a bear market we think. And we also believe there is a WHOLE LOT more to go. The chart below, which we first saw at Elliott Wave International, and shared with our Members last week is a scary one.
It compares the Nominal Dow Jones Industrial Average to the Dow Jones Industrial Average Repriced in terms of Gold. The pair has diverged dramatically since around 2002.
That just happens to be about the time when former Fed Chairman Alan Greenspan created close to free money for the world by pushing Fed Funds interest rates down to an all-time low of 1%. Leverage already high in the system exploded higher. Paper was king and gold told the story.

Chart available here http://www.blackswantrading.com/files/ce4f16894f3e720/bsccc012308.pdf

Now we could be very close to a major debt/leverage repudiation. And if you remember the Japanese experience you realize that sometimes low interest rates may not help as much as one would otherwise expect. When the players are scrambling to survive, liquidity injections pay down existing exposure; it doesn’t go toward new lending or credit creation. And given that global derivatives represented 7.89 times total global GDP at the end of 2006, we have to believe that despite the seemingly massive writes-offs from some of the banks we’ve only seen the tip of a very large iceberg.

S&P 500 quarterly (fromJan18th)available here http://www.blackswantrading.com/files/ce4f16894f3e720/bsccc012308.pdf

These were the primary objectives of the Robinson Family’s Robot. We think all investors should incorporate these in this environment:
• Preserve Robinson family
• Monitor Planetary environment
• Give sufficient WARNING!!! if danger is imminent
Danger is imminent! Time to get back to the ship!

JackCrooks
Black Swan Capital

 

Tropo

Jack Crooks can criticise the European Central Bank all he wants
The point he is not seeing is that EU interest rates are already quite low so dropping IR's further could fuel another asset appreciation.

Also this scenario is similar to our situation and although we have much higher interest rates than the EU the RBA is not dropping interest rates either.

The US by cutting interest rates is IMHO only delaying the inevitable.

IMO they should be addressing the problems and they are not doing that
so it is possible that things will get to a stage where nothing will save us.

Interesting times...

 

What is it that they should be doing instead?

 

I would say that EU interest is low but in relation to OZ interest.
You are right. Interesting times.

Edit:
The U.S. Federal Reserve, which yesterday announced its first emergency rate cut since 2001 in an effort to calm U.S. recession worries, is ``doing the right thing, lowering interest rates,'' just not quickly enough, Soros said.
``I think the Fed is well behind the curve, and has been reacting instead of being proactive,'' he said, adding that the primary blame lies with former Chairman Alan Greenspan.
``Alan Greenspan mishandled it by keeping interest rates too low too long and also ignoring dangers in the housing market,'' Soros said.

Bloomberg.com: Worldwide

 

To tell you the truth I don't know if there is much they can do.
The fed reserve stopped the US stock market collapse, so now they probably need time for market forces to work.

 

Global derivatives 7.89 times greater than global GDP says it all.

Everyone is playing financial pass-the-parcel.

We all know that the assets backing this debt is fictitious - hence the shortage of lenders and the difficulty in businesses refinancing their debt.

Given the US economy has slipped to 26% of world GDP - do you really think cheaper money over there is going to stimulate new borrowings for real growth ?

DEBT IS NOT AN ASSET

Cheers,

Rob

 

"Given the US economy has slipped to 26% of world GDP - do you really think cheaper money over there is going to stimulate new borrowings for real growth ?"


Good question!
Hmmmm....eventually it will happen but do not ask me when.

 

Can you let me where you get this report? Can I download the latest one?

 

Can you let me know where you downloaded this report?

 

You need to subscribe to it.. paid subscription.

 

Looks like a very nice weekend for holders of BHP and RIO, RIO up 16% and BHP 12% in London, following a Chinese steel company buying 12% of RIO at 60 pounds a share.

It seems that someone else shares our enthusiasm for resources, Michael!

(I picked up another $12k BHP at $35.60 a few days back )


China buys $US15.6bn Rio stake, threatens BHP bid

By Eric Onstad and Lucy Hornby of Reuters

LONDON/BEIJING -- China teamed up with US aluminium producer Alcoa to buy a $US14 billion ($15.57 billion) stake in Rio Tinto on Friday and said it may make a bid, threatening miner BHP Billiton's efforts to win Rio.

The move by state-owned Aluminum Corp of China (Chinalco) is the country's biggest ever investment overseas -- Alcoa spent only $US1.2 billion -- and comes days before a regulatory deadline on Wednesday for BHP to make a firm offer for Rio or to walk away.

Chinalco and Alcoa said they had bought a 12 per cent stake in Rio's London-listed shares giving them a holding of over 9 per cent, including Rio's Australian listed shares. They said did not currently intend to make an offer for the whole of Rio, but reserved the right to do so if another party made a firm bid.

Rio, the world's second-biggest miner by market value, has rejected a 3-for-1 all share offer from top miner BHP, worth $US126 billion at current prices. Analysts have long tipped China to seek an influence as both companies' biggest customer.

Investors said the stake is not enough to stop BHP from buying Rio.

"They (BHP) would have to bid really big," said Graham Birch, a fund manager at BlackRock , which is a major shareholder in both Rio and BHP and sold some stock to Chinalco.

Investment bank Lehman Brothers said it bought the stake in Rio for Chinalco and Alcoa at 60 pounds a share, 21 per cent above Rio's closing price of 49.56 pounds on Thursday.

Rio shares leapt as much as 17 per cent to 58.00 pounds, while shares in Chinalco's unit, Aluminum Corp of China Ltd (Chalco), jumped by more than 15 per cent. BHP shares also surged as much as 14 per cent.

BHP's offer for Rio, now worth about 50 pounds a share, would be the world's second-biggest takeover and create a $US317 billion company with a massive controlling force across a range of commodities such as copper, aluminium, iron ore and coal.

The proposal, announced on November 8, has sparked a frenzy of bid activity in the mining industry, as companies jostle for scarce resources and to get a bigger slice of booming commodities markets. Brazil's Vale said last month it was in talks to buy Anglo-Swiss group Xstrata in a deal which analysts have said could approach $US100 billion.

Spur

Analysts were divided whether Chinalco and Alcoa's move would deter BHP or spur it into making a higher offer.

"The door is still very much open for BHP. 12 per cent is not a blocking stake... and 60 pounds a share is equivalent to about 4-to-1 (BHP shares per Rio share) and we think BHP can go up to about 4.5-to-1," said Liberum Capital's Michael Rawlinson.

But Julian Chillingworth, chief investment officer at Rathbone Investment Management, which owns Rio shares, said the stake made life much harder for BHP.

"BHP would have to raise the bid quite aggressively and I don't see these two new shareholders as sellers in the short-term because they obviously bought the stake to make sure they've got independent supply," he told Reuters.

John Meyer, head of resources at Fairfax, agreed. "If BHP wants this deal to go through, I think they have to offer some cash. I simply don't think cash is available to them."

BHP declined to comment.

Chinalco President Xiao Yaqing told reporters in London that the company had bought the stake for its own strategic reasons and the Chinese government did not interfere in its decisions.

"This investment was driven primarily by our strategy to develop into a diversified metals and mining company," he said.

Rio said the stake purchase reinforced its position that the current proposal from BHP undervalued it.

Chinalco and Alcoa bought the stake in Rio through Shining Prospect Pte Ltd, a Singapore based entity wholly owned by Chinalco.

The two companies have a long history together. In September 2007, Alcoa sold its stake in Chinalco's Chalco unit for $US2 billion -- a $US1.8 billion profit on an investment it held since Chalco's 2001 initial public offering.

A source familiar with the situation said China Development Bank, a policy lender that has backed some of the country's biggest overseas acquisitions, led the funding of the purchase.

British Prime Minister Gordon Brown's spokesman said when asked about the Chinalco deal, "I don't really want to comment on matters relating to individual companies. I think our general position on inward investments is well known." Britain has a liberal policy on foreign investment and allowing overseas firms to buy British companies.

Xiao said Chinalco said had been in touch with the Australian government and would make a voluntary submission to its regulators.

BHP is being advised by Goldman Sachs, Gresham in Australia, Citigroup, HSBC and UBS, while Morgan Stanley, Rothschild, Macquarie in Australia, Credit Suisse, JP Morgan, Cazenove and Deutsche Bank are acting for Rio. Lehman and China International Capital Corp are advising Shining Prospects.

 

Rod,

This purchase by the Chinese doesn't surprise me.
IMHO China have the funds to buy both RIO and BHP if they wanted to.

They also have the financial power to make those shares come down in price. So far they have been preoccupied with the Olympics but those will be over this year and their foreign currency reserves are HUGE and could be getting bigger.

IMO we should be watching key stocks around the globe as they could be changing hands and going east this year and China will make sure they don't pay full price for them.

If you can't beat them then you'd buy them out.

Cheers

 

This, from Alan Kohler at
Business Spectator - Jaws drop at BHP and Rio

And whatever happens, the fact that Chinalco is prepared to pay a 20 per cent premium and spend $US14 billion on Rio Tinto shares is a massive expression of confidence in the global commodities cycle.

In fact, Xiao Yaqing was explicit about this: "We made this investment primarily because of... our strong belief in the sustained strength of the commodity cycle."

And that's the customer talking!

 

Rio rejected BHP's offer of 3.4 shares.

 

Not nescessarily true I would think.

What do you do when you have a mountain (1.3? trillion and counting) of depreciating paper? Find what you think represents the best value at the moment and buy it as fast as possible.

Sure they must think it's a good idea, otherwise why invest? But there is obvously a huge element of too much paper which is being set on fire on purpose by the US FED and it's owners trying to dump it as fast as possible without ruining the whole game.

Whatever it's good for Australia generally and very very good for the smaller part of our population with direct exposure to commodities in some fashion.

** edit, maybe it's true, probably is, but perhaps not the whole truth! Anyway happy Chinese new year