Brekky Edition 5/3

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The Dow Jones finished 45 points lower overnight however, at one stage it was 200 points down. Investors have come in to snap up the bargains. Major financial firm Merril Lynch reported a lower annual earnings prediction for citigroup. In the tech sector, Intel also lowered it's forcast for first quarter profit margins. The entire market is in a current cycle where it is trying to make a decision whether investor's perceptions are correct about big second half of the year profit rebounds.

The ASX dropped 30 points yesterday. Some analysts are suggesting that at the current levels, this represents a buying opportunity in the short term. The bad news isn't about to stop coming out of the US yet so no long term holds are in place at this stage. However, this is expected to be as close to the bottom of the barrel as it will get. Reports from our Reserve Bank has suggested that inflationary pressure is starting to drop (finally) and that we might see yet another rate increase next month but soon we will be able to hold steady - then the rate decreases!

Just my 2 cents.

[Aukiman]

havent the banks here been a little underhanded with the rates hikes, passing on higher values than were needed or expected by the reserve ?

[300]

Yeah, I am with you Aukiman. It just isn't cricket (keeping in mind this is a G rated forum)!! It appears to be a blatant money making scheme at the expense of the customers and for the benefit of the shareholders. Every index across the board has been hit since November (strickly talking with a stock focus) and the hits are going to keep on coming as the fallout continues in the US. This is buffering from the shock waves from OS. There is a chance that we could fall into a recession if the US isn't carefull with how they handle their policies. It is all a result of globalisation of the finance sector. Bare with me here....
A US housing market flops on it's head and houses are now worth 30% less than when the loan was taken out. In that time the owner has borrowed on the house loan and effectively hasn't paid much off it. Now the home owner owes the bank more than the house is worth - PROBLEM. So the bank looks over it's books and sees this is not an isolated case and (to make the example easier) all the same loans the bank has are in this state - BIG PROBLEM. It hit's up a national bank to quietly fund it until it can afford to fund itself and the national bank can't do it either because of the same problem - UGLY. The word get's out and it hits the stock market that a once solvent (has enough money to cover it's loans) bank is now in financial trouble and the share price plummets. Investors sell off stocks to get out of the falling investment. The stock values used to be able to guarantee other loans as part of the investor's overall wealth and all of a sudden a devalued house and devalued portfolio, the investor starts selling good stocks and even unrelated stocks like overseas stocks. Suddenly there is a mass sell off globally and that is not a situation that we want to see. That is the flow from the housing bubble in the US.

The US also has a credit bubble that has burst at the same time which has it's own path of least resistance to follow.

Next step is that with everyone losing money and no one spending, companies start to fall over - first the smaller ones. Then we have a commercial building bubble similar to the housing bubble.

It isn't fun at all this year and will take a while to get out of the woods.

Back to the Aussie banks. We have been known a nice bunch to deal with and with a strong economy we have foreign investment. Banks are investors and like others, have invested in the US economy because it has been going so well over the past few (7) years. Now they have been caught with the other investors and have to report their losses - but not just to themselves. So, as a way of reducing the bad news, they make a quick few million by upping their rate against what they pay.

It doesn't feel good, but in the end, if there is a real bad outcome this raising of funds might be the only way to head it off. From my readings, the next US rate cut is looking to be .50% as a given and there is speculation that it might be 1.00%. This shows us how seriously the US are taking their problems at the moment.