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Lateline Business -

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(generated from captions) industrial producers of

electricity generation, as

China rapidly industrialises

and urbanises this is a central part of process. part of the industrialisation

First to the markets, and

upbeat US company earnings

together with better than

expected Chinese growth figures

ep insured Australian shares

enjoyed another day of - of

solid gains, All Ords within

sight of 4,000, buoyed by gains

in mining stocks, ASX 200

jumping 2% to a one-month high,

Nikkei ending in positive

Territory, for a third Territory, for a third day,

Hong Kong's Hang Seng adding

thafl a per cent and the FTSE flat.

China 's Government appears

to be pulling off an economic

miracle engineering faster miracle engineering

growth in the worst global

conditions, most coming from

public investment, good for

Australia's miners, but the

lack of private spending is

cause for concern. Richard

Lindell reports. Dubbed the world's factory during the

boom, China's economy is

holding up remarkably well in

the bust. Exports are a drag on

the economy, there's no denying

that. This is a domestic

rebound in investment,

substantially centred on public

economic activities, the public

sector is a big part of the

Chinese economy, it's not as

big as it was some decades ago,

but the Government can mobilise

a huge amount of resource

insist a small amount of

time. That fire power includes

$700 billion stimulus package,

and state-owned banks lending

for investment at a rapid rate.

It's bought GDP growth of under 8%, industrial production up

11%, investment surging a

staggering 34%. China

operates on a rough five-year

plan system, they hadn't built

the infrastructure they planned

for in the first three years of

five and are backloading it

into the last two years, what

we think of here is five years

worth of rail with as built in

sanitation projects built in two, five years worth of

two, a lot of utilities, water

quality projects, a lot of

railways. Huw McKay says China will invest in these projects

for years to come, underpinning

commodity prices helping Australian exporters beyond the

miners. These are the bamboo

shoots we were talking about,

not just green shoots, it will

drive further export growth for Australia, not just coal and Australia, not just coal

iron ore, but a lot of architects, lot of our

construction, lot of our

professional services

outreaching into the rest of

China, not just Beijing and

Shanghai. Spending is funded by

$2 trillion in foreign reserves

and savings, allowing china to

rebalance the economy and fill

the void left by weaker

exports. The rapid growth in

money is causing imbalance

elsewhere. A lot of money is

handed out by the banks to

state-owned enterpriseless,

there's two areas it could be

leaking, into the Chinese stock

market, that is up 70% this

year, the best performing stock

market in the world. The second

area it could be leaking is

into the residential property market. Richard Martin consults

to hundreds in China and says

banks are lending above quotas,

risking big losses down the

track. What they face next year

is the potential that a lot of

money going out turns into bad

loans, this is hotly debated.

Back in April we saw Yu Ming

Kum put up his hand saying,

"Stop the lending, it's

dangerous", he appears to have

been overwritten and they kept

the pedal flat to the floor. Westpac's Huw McKay

agrees some projects will fail

and says there's an asset

bubble developing somewhere in

China. The more important

imbalances is the mix between

the wage share of income, the

profit share of income, the

investment share of output and

consumption share of output.

The missing link between all of

that is how much revenue the

Government can accrue, how much

they can get from the corporate

sector, redistribute through

social safety nets and

encourage the consumer to spend

a higher proportion of their

income. An important economic

and political goal as Beijing

fights to maintain control. The optimistic news

wasn't restricted to China,

with the US Federal Reserve

lifting growth forecasts for

the recession-hit American

economy. The Central Bank

believes growth will contract

between 1-1 boy 5%, an

improvement on the earlier 2%

forecast. The Fed is expecting

the job market to continue deteriorating warning

unemployment could hit 10% this

year compared to the previous

forecast of 9.6%. Well, the

good news from China, and the

US helped global equity

markets, let's go to London and

see if the good news continues,

I'm joined by Nick Parsons,

head of Market Strategy, at head of Market Strategy, at the

National Australia Bank. Nick

Parsons, thanks for Parsons, thanks for joining

Lateline Business. Good

evening. You are welcome, my pleasure. Investment pleasure. Investment bank

Goldman Sachs delivered a

tremendous quarterly result, JP

Morgan reported, what is the

outcome, how did it square with

expectations? The analysts were

looking for earnings for JP

Morgan of 5 cent per share, in Morgan of 5 cent per share,

the event they delivered 28

cent, almost 6 times better

than consensus forecasts, and

they say that if they hadn't

repaid the TARP money, if they

kept it, it would have been 55

cent a share. Massively in

excess of analysts

expectations. So I guess the

question is: can this

performance be maintained? JP

Morgan does have an exposure to

mortgages and the credit card

business. It's a good question.

What we have to bear in mind is

that the reports that we have

seen thus far from the banking

sector, are from the two

largest, probably the two most

respected and arguably the two

that you expect to benefit most

from the turmoil seen in global

capital markets in the banking

sector more generally. Tomorrow

we'll have results from city

and from Bank of America, and

it's possible that, you know,

when those results are out, we

get a different picture for the

whole sector, there are

certainly winners and losers in

this, it's fair to say that the

two reports we have had today

are from the ones you might

have thought would, in fact, be

the two most obvious winners,

differentiation across the

sector. What is your assessment

of health of America's banking

fabulous as far as those two sector, the cash flows look

banks we have seen, and - but

some are saying that the sector

itself is insolvent. Well, I

think what we have to look at

here is the banking conditions

that we have seen during the

second quarter. Generally we

saw widening of spreads, competitors leaving the

markets, client volumes

concentrated amongst those

banks that had the biggest

credit rating or effective

state guarantee behind them.

Really the second quarter of

2009 was always likely to be

the very best one that we saw.

Let's not forget we had trend

in markets, you know, we had a

decent run in equities, moves

in fixed income and foreign

exchange, so trend followers

were able to make profits that

way. I think we'll probably

find looking back that Q2, 2009

might be as good as it gets. We

got another pleasant surprise

from China. The growth numbers

were pretty good there. Has it

made much of a difference there

in Europe? Not particularly.

The 7.9% GDP growth was

certainly stunning. We also

liked the break down of it. It

was driven mostly by public

spending and investment, but

let's not forget in the 12

months to June we a industrial

production up 17%, Chinese

retail sales up 15% year over

year. There are signs that that

is broadening out. The problem

is though, that Chinese retail

sales in total, consumption, is

but a fraction of that that we

see in the United States. So

the 5% decline we see in US

consumption were that to be

replaced by China, would need

to see domestic consumption

going up somewhere in the order

of 35-40%, it's completely

unrealistic to pin all our

hopes for the global economy on

a Chinese recovery, it's helpful, let's acknowledge

that. Can we believe the numbers? Well, I think we'll

have to. Nobody is going to

produce better ones. The

problem that we have is when

you look at the Chinese

statistics bureau, it said they

have eight people working on

the GDP numbers, which is not

many out of a population on many out of a population on the

thick end of a billion, eight

people working on the GDP. We

have numbers coming from have numbers coming from all

over the place over the next

few days, do these bank

results, and the good news results, and the good news that

we are getting from China, and

the US, indeed, auger well for

the US reporting season, do you

think? Is $good news built into

the market? - is there good

news built into the

market? It's looking that way,

we had the best mart part of a

8-9% rally, not only has it

driven the stock market higher,

but depressed the US dollar, boosting the Australian boosting the Australian dollar.

In fact, if you look at the

Aussie dollar, it's trading

tick for tick with the S&P 500

futures, you can plot it over

the last five days, there's

almost no diverge, if you want

to trade the Aussie dollar, you

take a view on the S&P. take a view on the S&P. And

vice versa, it augers well. My

fear - a little too much

optimism shh built in because

it's the best - is built in

because it's the best two that

have reported. There may be

more nerves further down the

credit curve. Does that suggest

global markets have gone too

far? They may have gone too far

in too short a time period. I

think over the summer months in

the Northern Hemisphere, it's

more realistic to expect

sideways movement. We have gone

up eight, wouldn't be surprised

to see it giving back a few

percentage points, we'll see

mixed results, I caution against extrapolating the good

news we see out of the two of

the best of the names in the

banking sector. I think perhaps

more of a cautious attitude

could be warranted over the

next few weeks. Finally, what

are the Dow futures doing at

the moment, and we have had some jobless claims figures some jobless claims figures out

as well. Has that had much of

an impact. The jobless claims

figures looked good at first

sight. 20,000 decline in weekly

jobless, behind there was a 10%

decline, 620,000 drop in the

number of continuing claims,

treat that with a bit of cautious, what happened cautious, what happened is

there was an extended benefits

program introduced in February

due to last 20 weeks, that - we

are in week 20 of that period,

it's dropped out. The continued

claims figure not as good as it

looks, we saw on the Dow future

was that we opened up quite

strongly this afternoon, but

it's gip back the gains, we are

looking for - given back the

gains, we are looking for an

opening around flat. If flat is

the way we trade through the

afternoon, most of the traders

eyes will be on the cricket

screens at the other end of the

room where you spent an hour

Sunday not being able to get

the hour not getting out the

first pair, and three hours

today not getting out the first

pair, that'll be the focus of

our attention. You may be one

up on us there, many

Australians will be doing the

same thing with their eyes

glued to the TV screens. Nick

Parsons, thanks for your

time. You are welcome. time. You are welcome. 70

billion has been added to the Australian share market so far

this week, for a closer look at

today's action, I spoke today's action, I spoke to

Fabiola Gibson, private client

advisor of Morgan Stanley Smith Barney. Fabiola Gibson, thanks

for joining us. Thanks, good

evening. Encouraging data out

of China and the US Federal

Reserve are a touch down beat.

What's the reaction on the

local share market. It was

strong today, finishing 70

points up. It was green across

the whole board. It was a good

day, indeed, led stronger by

the positive data coming

through China, GDP up 7.9%, and

also as a result of the strong

lead from Wall Street

overnight. With S&P and Dow up

3%. Were the volumes strong? Volumes were reasonable

strong across the board. They

are still not as good as they

could be, institutions are

short, the Australian equities

- there's 35 billion worth of

money not currently invested in

the market due to be invest

theed offed. Still a bit of

cars, - due to be cars, - due to be invested The

Australian Tax Office lost

acase, how do you explain

that. The tax case has rulings

for Australian banks, for Australian banks, Westpac,

for example, it impacts more

serious than serious than the National

Australia Bank, the impact for

NAB is a write-down of $530

million, for Westpac about $730

million, NAB is the second bank

that has the second largest

exposure of the domestic exposure of the domestic banks,

it is something that impacts

all of them. Macquarie

infrastructure cut valuations

on its portfolio by 28%, but it

managed a gain. What's going managed a gain. What's going on

there. I think this was well

flagged by the markets. MIG has

assets underperforming for some

time, it's consistent with what

we have seen for infrastructure

assets across the market,

seeing write-downs across the

sector, we saw MIG downgrade

for net asset value from for net asset value from $3.30

to $2.54. That was generally in

line with what the market

expected, it doesn't impact any

of its debt covenants or anything, hence the market

reacted mutely to the

news. Those forgiving investors

were willing to overlook a

small loss signalled by

steelmaker Bluescope Steel,

shares jumping 7%, were you

surprised by the size of that gain. The increase in the share

price was surprising, it was on

good volume, trading twice the

regular daily volume, and I think what's very important

about the news, rather than

people not focussing on the

announcement of a small loss,

but Bluescope Steel was opening

the number 5 blast furn a the

reasons behind that were we are

seeing - faurn as, and the

reasons we are seeing higher

rock coil prices, destock,,

interest in forward volumes,

people are upbeat potentially

about what that means for the

economy in general. Fabiola

Gibson, thanks for your time.

Thanks, Phil.

The billionaires battle for

control of Consolidated Media

continues. Kerry Stokes Seven

Network owns under 20% of James

Packer's firm, the maximum

level allowed before launching

an official takeover. Seven

paid $29 million for an extra

1.5% stake in ConsMedia, in

response Mr Packer raised his

holding to 41%, the corporate

tug of war pushing Consolidated

Media 2% higher to $2.69, while

7 shares dropped 5 cent to

$5.67. To the other major

movers on the market. Rio Tinto

jumping 4.5%, miners leading

the gains. A solid quarterly

production helped Sino Gold

gain a similar amount. Energy

stocks tracking the rise in the

price of crude oil, Santos

adding 2.5%, defensive stocks

losing, Telstra dropping half a

percent. The Australian dollar

struggled to hold early gains,

rising against the Kiwi, after

ratings agency Fitch cut New Zealand's Zealand's long-term sovereign ratings.

Timbercorp growers have

been given renewed hope, a

court has heard that seven of

the failed companies olive

projects could become

profitable. Counsel for the

liquidators have doubts about

the proposed rescue plans and

argue for the schemes to be

wound up. Neal Woolrich

reports. Timbercorp's liquid

aiders Korda men they are

seeking to wiped up 13 of the

projects because of bleak

prospects. Others don't share that, Robert Garton Smith is that, Robert Garton Smith

manager of Primary Securities,

agreeing to act as a

responsible ek equity for seven

projects. Robert Garton Smith

told the Victorian Supreme Court:

His firm conducted its own

analysis, and doesn't believe

the tap tall & penned tour

needed by the - capital

expenditure needed is anything

like Korda says: counsel for

the growers Gary Bigmore says:

Growers believe their

opinions haven't been

adequately tested by the

liquidators. Ian Waller, SC

says says the Australian Securities

and Investment Commission has

surveyed Timbercorp growers,

among findings, three-quarters

wanted a temporary responsible

entity to be appointed. 7%

preferred to wind-up the

schemes, almost two-thirds were

prepared to make additional

contributions to keep their

schemes run, while 9% were

opposed. But Ian Waller says

the survey did not spell out

the consequences of wipeding

out the schemes or appointing a

temporary responsible entity,

less than 10% of investors less than 10% of

completed the survey. Counsel

for the liquidators, Philip

Crutchfield told the court the

answers obtained depend on the

questions suggesting ASIC

should have sketed:

Justice Ross Robson told the

court he's concerned a

winding-up may reduce the

property rights of schemes or

growers, and wants members

consulted saying, "I'm trying

to avoid the consequence of

their major asset being harmed". The court heard harmed". The court heard from

David Dunn, a director of Otway

Partners, it's looking to

underwrite the $3 million

required to pollinate this

year's crop. Mr Dunn believes

the 2011 Harr will generate a

significant cash surplus, and

once Timbercorp's costs are once Timbercorp's costs are out

of the equation, growers will

be left with a viable

alternative. Mr Dunn said there

was another company verbally

agreeing to support its proposal, but under

cross-examination Mr Dunn

conceded the proposal was

unacceptable to ANZ, and until

the bank approved, there was

nothing to put to members. The

hearing continues. Over the

past year Gold has been a

courtesy of popular purchase for investors,

courtesy of the global

financial crisis, it's poor

cousin silver has undergone a

boom of its ob, China has been

taking a keen interest as an

investment and raw material. Di

Bain reports. When the lights

dimmed on film photography half

a decade ago demand for silver

a key ingredient in film

production tumbled. Over the

past six months the silver

price has been catching

investors eyes. Gold is a

measure of how confident people

are in currency, whether paper

currencies will last. Silver

has a role in that, it's a poor

man's gold and has industrial

youse, Gold has noun and is

useless. Silver has industrial

uses, when the economy is going

well silver tends to do better

than gold. Since markets

crashed in October Gold has

been snapped up by Central

Banks around the world, its

cheaper cousin silver, riding

on the coat-tails of goed has

been doing better, - gold has

been doing better driven up by

risk taking investors. If you

go back to the 1980s, you had

silver at $45 US. Today it's

around about $13 US. Few look

at the same sort of thing for

Gold, gold is higher priced

than it was back in these days,

so it's a relatively easy thing

comparative basis saying, for people to look on a

"Look, it's a third of the

price it was 30 years ago, it

must go up from here", Since

the start of the year gold has

risen by 11%, while silver has

gone up nearly 20%. In May,

silver hit a peak of $15 an

ounce, double its value at the

start of the year. Analysts say

the industrial and investment

potential of silver is now

attracting the attention of the world's biggest commodity

buyer, China. Silver is a

commodity China is interested

in. Silver - it is used

extensively used by industrial

producers of electricity,

electricity generation, China

industrialises and urbanises,

this is an essential price of the industrialisation process,

and they'll demand increasing

levels of silver over the next

5-10 years. For miners the

booming silver price is a

bonus, most silver retrieved

with other minerals like zinc

and copper, some predict

silver's rapid rise may come to

an end. We haven't seen much inflation, but Gold is

considered a good hedge against

inflation, and with all the

money pumped into world economies over the last year or

so, we could be looking in due

course at a pird of serious

inflation. And I think at that

point in time you may find gold

going up to record levels.

Analysts say silver is a

notoriously volatile metal and

its recent boom in price

happens almost as rarely as a

subprime crisis. Now looking

at tomorrow's business diary:

Before we go at look at what

is making news in the business

segzs of tomorrow's newspapers

- the'Herald Sun' leading on

the equity market rally, the

Australian does the same. 70

billion added to Australian

shares over the last three

days. The Financial Review

looking at China's stronger

than expected growth figures,

that's all for tonight as Aleve

you the Dow futures are up 20,

the Dow hasn't opened and the

FTSE up 17 points. If you want

to review any part of tonight's

program you can visit the web

site at

abc.net.au/latelinebusiness. I'm Philip Lasker, I'm Philip Lasker, have a good night.

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