Is it over yet? Opinions in the financial media are mixed over whether the worst of the credit crisis is behind is, or whether it’s half-time. The Australian market did not pause for reflection yesterday. It took action. The ASX/200 was up 261 points on the day to close within shouting distance of 6,000. It was the biggest one day gain in ten years.
And hold everything. The US Senate is getting involved in the crisis. That should fix things right up. Christopher Dodd, a Democratic Senator from the well-heeled state of Connecticut (home to thousands of Wall Street and hedge fund professionals) convened a meeting last night with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.
Dodd is a showoff. Doesn’t he know politicians belong in strip clubs, where they can do less damage to the public good? A politician is just as comfortable in a “gentleman’s club” as he is on the campaign trail. And how different are the two places anyway? In both cases you find elected officials doling out cash in exchange for favours. On the campaign trail, it’s taxpayer cash in exchange for votes. At least the strip club transaction does not involve the theft of a third party’s hard-earned wages.
How about BlueScope Steel (ASX:BSL)? The company reported net profits of AU$686 million for its full-year results, nearly double last year’s net profit. It’s benefiting from big infrastructure spending at the State level here in Australia and growth in its Asian business. It’s also a sign that there are indeed some businesses in Australia not directly affected by Americans who can’t pay their mortgage.
But we suspect the full effect of the crisis in the credit markets hasn’t been felt yet. It feels like a sucker’s rally in blue chips that allows sellers to liquidate in a rising market. Where will the buying come from, we wonder. The Future Fund?
The next two months won’t be smooth sailing. In October, US$50 billion in subprime loans re-set. Right now, behind closed doors, thousands of investors are busy trying to unload their exposure to asset-backed securities. But who is going to buy? The Fed?
We’ll have to cut the notes short today. We’re writing about positive black swans in the next issue of the Australian Small Cap Investigator. It’s the good kind of black swan, an unlikely event that turns out to be highly profitable for investors. There are certain kinds of businesses where positive black swans flourish. And many of them are now on sale after the recent correction.
Markets and Money