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Good morning. Welcome to the

program. In 'Business Today' -

in decline. The World Bank

delivers a negative growth

forecast as Japan posts a deficit. Stimulus deficit. Stimulus effect. Has

Beijing's package been enough

to prop up Chinese investors?

And bargain buys. From the US

rust belt to waterfront Sydney,

it's a buyer's market! Those

stories shortly, but first,

let's take a quick look at the

market numbers.

Now for more on that market

action I'm joined by Matt Lewis

from CMC Markets. Good morning,

Matt. Now, Wall Street fell in

late trade as investors worried

about the pessimistic economic climate? That's exactly right. Unfortunately, another negative

start to the week for US equity

markets, with the Dow Jones

closing the session on its lows

down 80 points or 1.2% with the

S & P 500 and the Nasdaq

following suit. Unfortunately,

negative comments from Warren

Buffet last night certainly

didn't help the market. Warren

Buffet commented that the US

economy was falling off a

cliff. Not surprisingly, US

traders sold down the overall

market, with defensive stocks

among those that were heavily

sold off. Pharmaceutical

companies Merck and Johnson &

Johnson both fell 4.7% and 2.7%

respectively. On a brighter

note, US financials rebounded

from 17 year low with the

financial index overall up

about 2.5%. Bank of America

leading wait there. Can you

give us some details on that

deal which will create one of

the world's biggest drug companies? We saw last night

further consolidation in the

pharmaceutical sector. We have

seen a fair bit of this in

recent weeks. Last night, Merck

& Co confirmed they had sealed

the deal with Shearing Plough

Company for about $41.6 Company for about $41.6

billion. Shearing Plough holders will receive just over

$23.61 in a combination of cash

and scrip for their stock.

Essentially, a 34% premium to

the last traded price of the

company on March 6. The tie-up

of the two con glom rates

certainly makes it one of the biggest pharmaceutical

companies in the sector and

both gives a wide range of scope,

both to products and markets.

Moving to commodities now -

there's expectations that OPEC

will cut its output again. How

has that impacted the oil

price? We saw the price of

crude oil rise about $1.70

overnight or 375%, pushing oil

above $47 a barrel, and

extending the gains we've seen

over the past two weeks,

pushing crude towards $50 pushing crude towards $50

again. We have seen the cuts

that OPEC have made since

September. We've seen cuts to

production by around 13%, and

with forecasts that crude

demand once again to come in

negative for a second

consecutive year, it's on the cards definitely that will be

further production cuts when

OPEC Middle Easts on March 15.

At this stage, most analysts

are forecasting cuts to daily production in the production in the sphere of

around 500,000 to a million

barrels a day. Notably, it is

important that we have seen

OPEC publicly comment that they

see the pair price of crude oil

at $75 a barrel so certainly a

long way to go. How is all of

this expected to impact

regional markets today? Unfortunately, a fairly

expected across the Australian flat to negative lead is

and Asian regions.

and Asian regions. Currently,

the futures contract in

Australia is pointing towards a

15 point negative start to the

day. It's likely that the gold

sector and gold stocks will

come under some degree of

pressure after we saw the

precious metal fall overnight.

We may see the market held up a

little bit by the energy

sector. Largely on the back of

the strength we've seen in

crude. In terms of other

regional markets we are

expecting a further downside to expecting a further downside to

the Japanese market. Hong Kong,

we saw that off 4.5%. We're

expecting declines further

today, unfortunately. Thanks

very much for the update. Matt.

That was Matt Lewis from CMC

Markets there. Now let's take a

currencies and commodities. look at what's happening with

Well, the World Bank President Robert Zoellick has

warned developing nations face

a major debt crisis with a

funding shortfall of more than

$1 trillion. His comments come

as the World Bank forecasts global growth will contract global growth will contract

this year for the first time

since World War II. The

situation in the United States

and Great Britain is now so

dire that both central banks

are printing money. In fact,

the World Bank has been forced

to lower global growth

forecasts again and now says the world economy will shrink

by half a per cent this

year. It's no worse than we

global outlook this year is already know. We know gnat

global outlook this year is

terrible. The World Bank is

most concerned about the

knock-on effects for developing

nations. It says that nearly

130 countries won't be able to

fund their budget and current

account deficits. The World

Bank President Robert Zoellick

says we need investments in

safety nets, infrastructure and

small and medium size companies

to create jobs and to avoid

social and political unrest. With just about With just about every

government around the world

competing for funds the World

Bank says it's developing

nations that will miss out and

warns of a funding shortfall of

$1 trillion Australian. Well,

the World Bank is lobbying for

more funding for poor countries

and it wants that agreed at the

G20 meeting in April. What

you're seeing at the moment,

particularly amongst the global

institutions, is arguments that

are addressed basically to how

they should be governed and how

they should be funded. The

World Bank also predicts that

trade will record its largest

decline in 80 years, and East

Asia will be hit hardest. Japan

is a case in point, and today

revealed its first trade

deficit in 13 years. Pretty

much signals the end of one of

the few areas of growth in the Japanese economy. Japan's

economy has been kept growing

by its exports for pretty much

the last decade. They kept a

cheap yen and they've pumped

out manufactured goods

States and that business is particularly cars to the United

dead. A $2.8 billion deficit

and the global financial crisis

is creating a vicious cycle for

the Japanese economy. Their

domestic stock market is

collapsing. As it goes down,

Japanese investors have to sell

out. They make the decision to

sell out offshore, they bring

that money home. In doing that,

they drive the yen up, so we

see it going towards 90 yen to

the dollar. At that point,

their export sector is no

longer viable, and you start to

see automotive exports collapse

and so the stock market goes

down even further. It's a self-fulfilling prophecy. That

means demand for resources will

remain weak for some time yet

and a quick recovery here will

depend on domestic demand. It's terrible for Australia,

terrible for our exports,

terrible for investment plans

in Australia. It does mean

we're going to have to be

reliant on household

consumption, on a recovery in

home construction to get

through this year without a

very serious downturn. As we

heard, influential invest

billionaire investor Warren

Buffet has warned the United

States economy has taken a

steep dive. In a television

interview the 78-year-old has

said fear has taken hold. Mr

Buffet says the US economy is

being hit by falling business

activity and rising

unemployment, cause ing

consumer confidence to

tumble. It's fallen off a

cliff, and not only has the

economy slowed down a lot,

people have really changed

their behaviour, like nothing I

have ever seen. Luxury goods and that sort of thing have

just sort of stopped. Mr

Buffet said a rebound could

spark worse inflation than

experienced in the late 1970s,

and called for bipartisan

government action to fix the

economy.

Well, plunging base metals

prices and concern about

weakening demand in Australia's

top export commodities are

proving a challenge for the

country's miners. A Merrill

Lynch report on declining

metals prices has estimated

that Rio Tinto's 2009 profit

could be around 45% lower than

its previous estimate. The

broker also tipped the world's

largest mining company, BHP

Billiton, could post a result

17% lower than earlier

estimates. To discuss the economic factors affecting

Australia's big miners, I'm

joined by Jonathan Barratt

from Commodity Broking

Services. Good morning, welcome

to 'Business Today'. Thank

you. Now, the report from

Merrill Lynch has painted a

fairly negative outlook for

Australia's two biggest miners

but I imagine it comes as no

shock given the economic

climate? Look, I think that's the projections, what people

are actually looking at. But

the economic climate is

certainly not conducive to good

profits but we have to take the

approach we're a bit more

optimistic because many of

these base metals have in fact

in our mind actually found a

low. So we actually feel that these reports

these reports or these numbers,

returns will be low but I don't think they will be as low as

some analysts have expected.

So China is obviously a big

factor for people at the moment

when thinking about our export

commodities, and there were

hopes we'd see a second

stimulus package from China,

but this has failed to

materialise as of yet. Has this

increased worries we'll see a major slowdown in the

country? I think it was - when

China actually met to discuss

the second stimulus package, I

think it was prudent of them

not to come out and say that

they would have another one so

quickly. Remember, they're

spending close to $920 billion

Australian on stimulus. And I

actually feel that it's more

positive they don't actually

come out and say they're going

to put another stimulus package

together because that will only

see prices or traders and

investors actually bid up the

prices for the commodities and

that would be more of a concern

for me if they did do that. In

a nutshell, I think China is

well placed actually to help

Australia come out of this

recession. In going back to

that report, we didn't really

see a very big reaction to it

on the ASX yesterday? No, we

didn't. I think people are

saying "We're getting close to

that value, that value in some

of these miners that any uptick

in the economic activity which

we're slowly starting to see

out of China will translate to

some of the low for the BHPs

and the Rios. If anything I

actually feel the market in

itself is finding value at

these levels. So the market

had pretty much priced in BHP

and Rio's potentially lower

earnings based on lower base

metal prices. Where are we

seeing the major base metal prices trading at the moment? This is one of the

keys, I think. Base metal

prices are trading close or

below the average marginal

costs of production. So it

makes sense for a lot of

companies, miners not actually

to produce, because it would be

at a loss. Having said that,

then we find a lot of investors

will then come back to the

market because it represents

good value. So if anything, if

you look at the prices of base

metals, they are tul -- they have been tracking

sideways for some time. In my

mind we're getting very close

if not already at a low for

these prices for metals. Can

we look specifically at iron

ore now? How sensitive is Rio

Tinto to price drops in this commodity? Rio was highly

leveraged to steam. When you

actually see that they're also

highly leveraged in terms of

their costs, so if anything I

think pree yo is at more of a

disadvantage say to BHP, and if

the economic stimuluses don't

start to kick off, then I think

that discount that Rio was

trading to BHP will actually

widen. So if anything, Rio's

shares will trade more at a

negative to BHP. And still on Rio, it's struggling at moment

to convince shareholders to

approve Chinalco's $19.5

billion bid for a stake in it.

How important is it for the

company to approve this

deal? Look, I think it's

essential for the company,

because when you look at Rio's

position and the concern that

the market has over their

balance sheet, this deal

actually creates that liquidity

for them to allow them to

continue and to keep on

expanding. So I think it's a

cash injection which is needed

at had time in the market for

Rio, and if they can't convince

their shareholders to do it,

then there are major concerns

for it. Now, looking at it its

rival, BHP Billiton, and in the

scheme of things, it appears

its CEO Marius Kloppers is steering the company in the

right direction through this

financial downturn? It does

look like they're doing it. I

think the interesting thing

here would be what would've

happened if in fact BHP took

over Rio and how that situation

would actually occur. I think

the Gods have actually played

into his hands there, because

BMP is certainly well

positioned to take advantage of

any uptick from here,

particularly over Rio. So if anything this has played into

anything this has played into

his hands and I think BHP is

as solid as a rock. Jonathan Barratt from Commodity Broking

Services we'll have to leave it there today, but thanks very

much for your time. OK.

Economists will be keeping a

close eye on industrial and

trade data coming out of China

this week. It could give an

indication of how effective the

government's $585 billion

stimulus package has been.

Other recent data has pointed

to a slight turnaround in Asia

's second biggest economy but

by all accounts companies are

still shedding jobs. The litter

of sacked workers outside

soulless empty dormitories is

one view of China's recent

economy. Factories closed and

sealed by the courts. The devastation

devastation wreenged by

collapsing exports. Why have an

estimated 20 million lost their

jobs in recent months, sparking

protests and passionate calls

for the payment of withheld

wages that were earned, they

say, with their blood and

sweat. The 5,000 stalls at this

vast trade fair in Shanghai

tells the story, in the form of

20% fewer

20% fewer orders. Toy companies

are being squeezed. The order

now is less and less. And

demand for Chinese-made cuckoo clocks isn't what it

was. Because the economy now, t

world is not so good. So have

to search for new market to

sell the clock well. But in

dinghy airless trading rooms

for private investors like this one in Shanghai,

one in Shanghai, hope and

optimism have not been

surrendered. Ordinary Chinese

savers are still investing

their precious savings in

Chinese companies because their

economy is the only economy

among the world's big five

that's still growing and isn't

overburdened by debt. The most

robust of the US car makers,

Ford, has won a fresh round of

concessions from unions as

members agreed to

members agreed to reductions in

compensation and benefits. But

there's waning political and

public support for any more

money for General Motors, which has warned it's facing

bankruptcy. Many analysts

believe that that would be the

best option for the company,

buying it time to restructure.

What exactly is bankruptcy?

It's not going out of business.

Continental, Delta and United Airlines all did it

Airlines all did it and are

flying now. It is restructuring. It would allow

GM to cut new deals with its

unions and suppliers. The

existing contracts are all up

for grabs. A bankruptcy court

would almost certainly allow GM

to reduce the $98 billion in

pension costs and $43 billion

in health care it owes its

workers and retirees. It gives

the company the possibility of

emerging as a

emerging as a healthier,

leaner, going concern. In

bankruptcy, GM would need a new

line of credit, almost

certainly another huge loan

from the government, but the

benefit to the taxpayer by law,

the government will be repaid

faster than they would with the

hand-outs now. Who would be

hurt? GM executives don't like

it. The consequences would be devastating. Maybe because

they would almost certainly

lose their jobs. There would

also be job cuts for some of

also be job cuts for some of

GM's 240,000 employees, and

benefit cuts for those who

remain. Some worry that

consumers won't buy cars from a

bankrupt company. But not a lot

of people are buying from GM

now. If I own a General Motors

car, what does bankruptcy mean

for me? Nothing. You may have

to go a little further to get

your car serviced than you did

before. Some of their 6300

dealerships might close and

some of their models

some of their models such as

Pontiac and Is the turn but all

but disappear. In bankruptcy,

GM would become a drastically

different company but it might

be the only way to keep it an

existing company. The home

foreclosure crisis in the US is

throwing up some very cheap

bargains. Banks now own many

homes and with monthly

maintenance costs and taxes

adding up to thousands of

dollars, they're keen to sell,

even for just $1! A dollar

doesn't buy much these days.

Unless you're house shopping in

Detroit. It's recently sold for

a dollar. For a dollar? One

dollar. Real estate agent Ian

Mason gave us a tour. The paint

is peeling. The carpets filthy. It's an interesting

smell in here. Yeah. The

bathroom's a mess. But this

two bedroom 800 square foot

house isn't all bad. Mason says it's structurally sound, free

of mould, and the hot water

heater and furnace seem fine. I

think you can make this house,

clean, safe, functional or $500

to $1,000. Granted, most homes

in Detroit will cost you more

than a dollar, but not much

more. How much were some of these homes going for three

years ago? $75,000. Now, there

are plenty to pick from under

$5,000. Why so cheap? A vacant

foreclosed home is a drain on a

bank. There's maintenance,

taxes and lost credit. So many

banks are eager to sell. And

not just in Detroit. This

weekend, hundreds of foreclosed

homes are being unloaded at

fire sale prices at giant

auctions in New York and New

auctions in New York and New

England. In Detroit many buyers like Brett Russell has

purchased, rehabbed and resold

more than 120 homes. You're

buying a home for $10,000, it

goes down todz 8,000, your

rents are very strong. The

bank saves money, you make

money and the buyer gets a

house for a rock bottom

house? Yes and the

neighbourhood gets a person

inside a vacant house. The new

reality in a market that values

every dollar. The price falls

in homes in Australian cities

hasn't been quite as dramatic

but there have been significant

reductions from 12 monthing

ago. A government plan to

support first homers has

resulted in a badly needed

revival at the lower end of the

market. This Melbourne couple

have taken the plunge and

bought their first home much

spooner than they anticipated.

They're part of an army of

buyers unleashed onto the

market since the Federal

Government boosted grants for

first home buyers late last year. With mortgage interest

rates the lowest in decades,

they've taken on a loan of

$378,000. The repayments we're

looking at are about $550 per

week. So compared to renting,

it's only about a difference of

$100 to $150. Across

Australia, business is booming

for developers and real estate

agents at the low and medium

end of the market. And still

request with no deposit. In

the four months to the end of

January, 30,000 home buyers

applied for grants ranging from

$14,000 for an existing home to

$21,000 to build. Devine in

Victoria has seen an increase

in sales of 50%. Those same

numbers have been recorded, an

increase of over 50%, in our

South Australian operation, and

Queensland has also had a big pick-up in take-up in the

months of January and

February. You know all about

the grant? On top of the Federal Government $21,000

grant, Matthew and Sarah

received $5,000 from the

Victorian Government and a

further $6,000 from the

developer as their $32,000

deposit. It's a great home to

start a family in, so we're

pretty much setting up for our

future with this house. The

Rudd Government is also hoping

the economic activity generated

by the building of new homes

will help combat the downturn from the global financial

crisis. I think the boost scheme, we'll look back upon

that as being one of the

linchpins for the recovery in

the economy. The

construction sector accounts

for about 9% of employment in

Australia. It's absolutely

vital to keep the industry

strong, to keep those people

employed. But while the lower

end of the property market is

booming, the top end has taken

a direct hit from the global

financial crisis. We did some

surveys quite recently on

first-time owners ... Martin

North is an analyst with

Fujitsu Consulting and his

February report on mortgage

stress tells the story If you

have stock market investments

or superannuation income those

are being killed. As a result

of that the feedback from our

research is that many people

who are more affluent are now

in some deep kist. In the

wealthier postcodes like Toorak

in Melbourne and Vaucluse in

Sydney, houses are being put on

the market in far greater numbers. On the Gold Coast in

Queensland, prices have fallen

as they have in Doddses of million dollar suburbs in

Perth. -- dozens of million dollar

suburbs in Perth. The change

that's occurred in the market

in recent times has been a

flood of stock on the market,

whereas 18 months getting

quality property at the

prestige end of the Sydney real

estate market was very

difficult. This man

specialises in buying prestige

properties in Sydney. He helps

clients find properties values

between $1.5 and $15 million.

For three weeks to the end of

February he tracked 33 such

properties in Sydney and found

75% of didn't sell. Buyers are

sitting there with their hands

in their pocket, not prepared

to bid. And that's - so that explains the low clearance

rate. For a typical recovery in

the housing sector that we saw

coming out of the recession

from the early 90s, low rates,

undersupplied housing market,

and in that environment, we got

a large and extended pick-up in

terms of house building, and

that's what we're going to rely

on again for this cycle. These

first home buyers in Melbourne

are confident they will be able

to face the years ahead and

absorb any rate rise. We've

budgeted so far for them to

increase to about 8%. In the

event they do exceed that we'll

have to work out some new

strategies about how to handle

that, I guess. Well, now,

let's take a look at what's

making headlines around the

region. The 'Standard' reports

on the last-minute plunge on

HSBC stocks yesterday, which

has prompted Hong Kong market

regulators to investigate

claims of short selling. The

'Financial Times' looks at the

tumble on Japanese markets to a

26-year low yesterday, stoking

fears of a deepening recession.

And the 'Wall Street Journal'

says Merck has agreed to buy

rival Shearing Plough in a $41

billion deal as the aiming

pharmaceutical industry

consolidates to bigger and more diversified companies. And

that's all for this edition of 'Business Today'. But if you

would like to look back over

any of our interviews, please visit our web site.

We look forward to your

feedback. I'm Alicia Barry.

Thanks for joining me. Enjoy your day.

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