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(generated from captions) ADVANCE AUSTRALIA FAIR PLAYS

Is that yours too? Yeah,

I'll grab that one, something

for the misses. 10 days from

now, date night. You heard it

here first. That's all fiction of

course. Coming back to fact and

Bob Katter. His Australian

party merged with the QLD party

this week. Bob Katter's new partner, apparently, wants you

to look at the maverick QLDer

with fresh eyes or what is it,

fresh words? I don't know.

Have a look and make up your own mind. Thanks for

watching. We're here, ladies

and gentlemen, to announce the

merging of the two political parties and I have very great

pleasure in handing over to our

State parliamentary leader

aiden and welcome him aboard.

Congratulations. Thanks

Bob. I'm immensely proud to

stand next to Bob here today

and I want to deliver this

message to the public. It is

time to stop listening to Bob

Katter with your eyes and it is

time to start listening with

your ears.

G'day there. Welcome to the

program. It has been another

week of wild, often hair rising

gyrations on global markets. A

compelling contest between hope

and dispair. This week we'll

have a detailed look at the

political and economic dynamics

of the mayhem and get the views

of some serious thinks from

around the globe, Europe, the

US and China about what's

happening and how things might

pan out. From a local

perspective we'll catch up with

the outgoing boss of

Australia's biggest bank, the

Commonwealth's Ralph Norris. This Program is Captioned


After a week of violent

fluctuations global markets had

something of a breather on

Friday. That doesn't mean the dangers have suddenly

disappeared. First up we'll

take stock of how things panned

out. It is over to Jane

Edwards. Rarely have investors

been more grateful to see a

weekend. The US share market

closed the week with a

comforting 1% gain on the Dow

and half a per cent on the

Nasdaq. It gives us a brighter

lead in for the markets

tomorrow. Investors chose to

focus on the positives in

retail sales in the US coupled

with a ban on the financial

stocks in Europe. It browse

welcome stability to Eurozone

banking shares. US consumer

sentiments has slumped to its

lowest level in 30 years amid

the turmoil of the past few

weeks. A clutch of retailers

report next week, which along

with US housing figures and

high level Eurozone meetings

should set the tone of investor

sentiment. Looking at how the

dust settled, the US finished

low, the UK up slightly. Europe

and Japan slumped further while

Australia somehow managed a 2%

rise. Here's Marcus

Padley. The stock market is

officially a casino. We moved

in a 12% range from bottom to

top this week and on Tuesday

alone a 7.4 range which a bit

of a record. At one point this

week we were down 25% from our

yee high, 15% just this month

alone and we're just 20% of the

GFC low. There is talk of a GFC

2, in my opinion we're still in

GF C1. Some companies did shine

through with good news, they

included the Commonwealth Bank

who announced a record profit,

up 12%. They have made $2.8

billion out of us. We also had

the NAB with a trading update

in line with expectations and

Telstra had a better than

expected set of results, still

down 17% but they told us to

expect profit growth next year.

Not a lot but profit growth is

good. They confirm the 28 cent

dividend for the full year. It

is 14 cents on 22 August. Apart

from that a host of results on

earnings guide this week. Good

results from News Corp. A great

performance this week. It looks

like the phone hacking scandal

is nothing but a buying

opportunity. A good set of

results from Webjet, Domino's

pizza and JP hief told us to

look for a solid outlook. The

bad news came from David Jones.

It looks like it has put their first half guidance under

threat. They have had a profits

warnings. BlueScope steel was

right down. QBE got clobbered.

Share price likes like it is

discounting a downgrade in

detective dent cut and there

were flat performances after

results from Stockland,

Singapore, Telecom, Bradken and

lum ya.

- a lum nah

About the only certainty in

these most uncertain times is

Europe's debt crisis poses the

biggest immediate threat to the

global economy and there's not

a solution to the problem

readily at hand. This was

highlighted by the kneejerk ban

on short selling financial

stocks in France, Italy, Spain

and Belgium. Austria has been

ouftd as the next domino that

could fall. I spoke to city's

interest rate strategist Steve

Mansell from London as the week

wound up. Do you think that the

ban on short selling banks shares announced on Thursday

will calm things down? I think

it is extremely unlikely to be

effective. Short selling bands

in the past have rarely worked

if at all. We have seen them

before in the bond and money

markets. As it happens, equity

markets are stabilised today

but it is more due to the fact

we have had sharp falls over

recent days. It is interesting

to note that the pressure has

shifted into the credit default

swap market rather than equity

prices per se. Where there is a

problem the markets will find a

way of expressing this. The

short selling ban is nothing

more than the politicians

trying to shoot the messenger

again. How are the financial

markets behaving as we speak?

The markets are pricing in a

much higher risk in the banking

sector in Europe because of

clearly the extent of cross

border ties between French

banks and banks in the

peripheral markets. French

sovereign CDS as sharpened and

it is reflective that there may

be a downgrade in France

following what we had in the

US. I think that is extremely

unlikely. We had the Austrian

market widening sharply and the

Austrian banks have significant

exposure to eastern Europe.

That's more of a

concern. Switzerland has been

flooded with save haven money

which is driving the currency

up. There's some talk of a peg.

It is really reflective of the

broader ma lace in Europe. It

is a break-up trade where the

money has been flooded into the

front end of the Swiss market.

This week we see negative

short-term interest rates in

the market in Switzerland T is

clearly a big problem for the

Swiss economy but I don't think

much will be done about this

either. Does it remind you of

2008? In some ways, yes but in

many ways no. I think the

policy response we have had

over recent years has been

quite substantial. Particularly

in the UK and in the US. I

think in Europe we now have a

broad measure of the extent of

the risk. Politicians are

always a bit slow off the mark.

I think in this sense, this is

why the markets have tried to

sell Italy and Spain, why

they're trying to reprice

credit default risks in France

but I do sense that we're not

about to fall down the abyss.

We're looking at a period of

slow growth but not recession.

In many ways there is a difference between what we went

through in 2008 and today. A lot of people are talking about

the break-up of the Euro as

being a Armageddon scenario.

What do you think about that.

Do you think the European

monetary union will survive? I

think we have to remember that

the single currency is a

political animal. The economics

have always been somewhat

questionable behind the whole

idea of a common economic area.

We don't have labour mobility.

We don't have a home genius

group of economic countries at

play here. But I think the

solution will be political as

well. The stakes are just too

high to allow fragmentation. It

is in nobody's interest to

leave the Euro area, not even

for Greece for example. We will

potentially have a realignment.

We might have a move towards

surrendering of fiscal

sovereignty in the weaker

areas. Maybe common European

bonds might make an appearance.

The Euro as a currency entity

will remain in place. There is

too much to lose by breaking

this up. Some people are

talking about France and

Germany leaving the Euro rather

than Greece. Imagine that. If

we had Germany leaving the Euro

we would have a deep recession

overnight in Germany. The

Deutschmark would appreciate

through the ceiling and it

would be suicide for the economy. You mentioned before

you don't see a recession in

Europe. We have seen industrial production figures for July

this week, they're down

heavily. That didn't change

your mind? No. It is

absolutely true to say that the

economic surprises globally

have been on the downside in

terms of real economic

indicators for most advanced

developed economies. It is not

good news. I think we're

entering a period of much lower

growth. This is more than an

inconvenience for those

countries trying to consolidate

their fiscal positions. Germany

is in a relatively speaking

strong fiscal position compared

to other countries in Europe.

It is not good news but it is

not likely to push central

banks to change their tack in

terms of policy initiatives.

Slower growth is not helpful.

It makes the solution more

difficult to achieve but

recession-type scenarios are

some way out in the future and

very much a tail risk rather

than a central scenario. Do you

think the calm we're seeing on

the markets today will persist

into next week? That is a

difficult question. We're in

the eye of a storm I think. The

EYB's initial Salvo into the

secondary bond markets, buying

Spanish and I tall-in bonds is

a response to the markets

disappointment that they didn't

do the same in the previous

week when they just attempted

to buy some of the weaker debt

markets, Italy, fort gall and

Ireland when the problem was

with the larger tier 2

countries in Europe which are

suffering flat or negative

growth and are much larger. So

far we have had a small drop in

the ocean. The solution to the

problem is actually to but

fiscal policy on a more

sustainable footing in both of

these economies. Initially that

might have a negative impact on

growth but, as we have seen

over the latest weeks, we now

actually have much lower debt

financing costs in all of the

markets in Europe. Thanks very

much Steve Mansell. You're welcome. Across the Atlantic

the US is still coming to terms

with the humiliation of being

kicked out of the top tier of

credit worthy nations. The

growth is a neemic and the

policies as Standard & Poors

put it, dysfunctional. I spoke

to economist and critic of the

Obama administration, professor

Morici from the Maryland

university. Is this 2008 all

over again? It is not 2008 all

over again. It could be as bad

but it is not likely. The

problem is better defined and

understood and the European

central bank as the tools at

its disposal. It is easy to say

Greece was the next bear sterns

and Italy will be the next

Lehmann brothers but in reality

this is a different crisis and

the debt is concentrated on the

books of the European banks and

the European central bank and

they'll buy that debt up. In

the US the 10-year bond deal

has collapsed since Standard &

Poors reduced the credit rating

a week ago. What is going on

there? Standard & Poors

evaluates all countries by the

same standards. The United

States was evaluated by the

same metrics as Uruguay. In the

past we have had down grades of

Australia, can adde and Japan

and their bond rates didn't

move either. The United States,

just as those countries, is

different from others. In the

case of the United States there

is really no good alternative

to US securities. In Europe the

bonds are issued by the member

states. There is no central

European authority and the

largist issuer of European debt

is Italy, of Euro bond debt is

Italy. Would you swap US

treasuries for I tall-in bonds

right now? You have pointed

out that corporate America has

$1.1 trillion dollars or

something on their balance

sheets. This is locked up

because of their uncertainty

about the future. What is

required to unlock that? There

is a huge trade deficit and a

situation it doesn't share with

auft or Canada. As a

consequence the only thing that

is really going to get the

economy going is doing

something about the deficit

which means doing something

about the exchange rate with

China which this administration

is not inclined to do. There is

very little confidence in the

business community in this

administration's ability or

inclination to do the right

thing. This week the Federal

Reserve but a down beat money

industry and saying it is

locking in the 0.5% interest

rates for two years. What do

you make of that? The Federal

Reserve is pessimistic about

the economic outlook for the

US. It seems there is very slow

growth which is what I see. It

doesn't necessarily see a

recession but the risks have

been enhanced. It is locking in

long rates to try and assure

people it is there and it may

well take additional actions.

We might see a QE 3 which would

driver the value of the dollar

down perhaps against some currency, the Australian dollar

being one. But it will not have

a salutary effect on the

economy. The fact is that the

Federal Reserve is out of

bullets, or I should say it has

lots of bullets left but

they're rubber and they're not

really going to get the job

done. Fiscal policy has gone

the limit, a $1.6 trillion

deficit, 10% of GDP, you can't

be more still you lative than

that. The third level of the

policy, hardly ever used by the

developed countries, is the

exchange rate T is not we

should use it, it is China has

taken it away from us by peck r

pegging its economy. The Obama administration has done a good

job, because it can't get China

to change through diplomacy and

hasn't got the courage to do

what is necessary it is saying

it doesn't matter because China

has large inflation. It is

three percentage points above

ours. Their currency is 40%

undervalued and that otion to

productivity and that goes up.

The argument doesn't carry

water. What should they do

about the currency? The tax

dollar conversion would

simulate in its price effect on

the US, a revaluation. We

should set that tax equal to

the Chinese currency market and

then divided by its exports. If

the currency intervention goes

away, the tax goes away. It is

very provocative I would point

out. Free trade makes sense. If

you get to do what you do

better and I get to do what I

do better and we maintain full

employment. But the way trade

works with China is they get to

do what they do better and they

get to do what we do better.

That makes no sense at all. It

can't be one way. The whole

Atlantic community is in

trouble for it. I would include

Australia in the west, they do

well. Everybody else is doing

lousy. That is one of the

reasons we have some of the

budget problems we have. US

budget issues need to be

addressed with less spending

but they'd be more manageable

if we're growing at 4% in the

year like we should and the

same applies to the southern

countries in Europe. It sounds

like you say China is

bankrupting the west It

is. Neither Washington nor

Brussels has a stomach to do something about it. The

economic outlook is not good.

The President understands the

problem of China but he doesn't

have the courage to act. He

never wants to do discomforting

things. Even on the budget he

leaves it to the congress. The

Republicans had a plan in

congress and the Democrats had

a plan. The President offered a

blank sheet of paper. He always wants someone else to deliver

the bad news. He wants the

Republicans to tell Americans

that the retirement age has to

be raised. The man doesn't show

the character of a leader. This

is not Bill Clinton to be sure.

It is just not. Is another

recession inevitable? I don't

think it is inevitable. This

administration has done a lot

of damage to the economy. By

electing a Republican congress

it has essentially made it very difficult for the President to

do much more damage. I don't

think we're going to - if I

have to Betty don't think we'll

go into a recession but, as I

said, it is 50/50-plus that we

won't go in a recession. I'd

hate to bet my house or pension

on us not going into a

recession. The risks are

there. While professor Morici

has fingered China has central

to the US's woes. China must be

alarmed by recent events not

the least because it holds a

trillion dollars or so of

downgraded US debt. I spoke to

Jing Ulrich about the impact of

a global turmoil. The US economy is clearly slowing

down. What are the implications

for China of that. The US

economy is slowing down, so the

European economy. China is the

single largest exporter in the

world. Europe accounts for 22%

of China's exports and the US

accounts for 18%. The two

markets are important to China's exports. Importantly on

the positive side, emerging markets have become more

important in the last five to

six years. Emerging markets now

account for over 20% of total

of China's exports. Going

forward as the European economy

and the US economy slow down

China has to increasingly look

to the emerging markets to

export its good to and secondly

China needs to focus on

domestic consumption. In the

coming few months we'd expect

more pro- domestic con shump

son policies to be announced by

the China Government to offset

the slow down of the economy in the Europe and the

US. Inflation this week was

shown to be 6.5%. Do you think

that will be more of a problem

in the future or inflation has

peaked? Because of the rising

wages there is the pressure,

because of the monetary

extension we saw in the last

two years. In the near term we

should begin to see the

inflation figures moderate.

That has given the government

in China leeway in terms of the

possibility of easing the

monetary policy if the

environment remains

challenging. What do you think

is the outlook to Australian

resource exports to China? The

demand growth will remain

strong for the time being

however in the medium term we

expect the growth rate of

China's dhand to slow down. We

need to keep in mind, in the

five years between 2011 and

2015, China still has a lot of

infrastructure programs under

way as part of the five-year

plan, even though growth rates

of China's demands were slow,

the quantity of demand from

China will remain strong. It

will help support the

Australian economy. How do you

think China will respond to the

downgrading of America's credit

rating? China has $3.2 trill

yn in reserve. It is the single

largest foreign holder of US

dollar treasuries. In addition, China

China holds a lot of corporate

bonds and agency bonds in

America. The recent downgrade

is a concern for China's

governments. Going forward, we

think China's government will gradually diversify its

holdings of the foreign

exchange reserves. They may

include more imports. There are

very few bond markets in the

world that can absorb the sheer

demand from China. I think they

will still purchase US

treasuries because every year

China accumulates several

billions of the reserve. We

don't think they will sell down

US treasuries, at least not for

the near future. Thanks for

joining us Jing Ulrich. Thank


The relative health of the

Australian economy was

highlighted this week with its

largest bank, the Commonwealth

posting a record profit of

almost $7 billion. The result

also draw the line under the

six-year tren yur of Ralph

Norris running the bank. It is

in the top 10 by capitalisation

as the global peers had their

value sledded. I spoke to Ralph

after the release of the

results. You have been cutting

your fixed mortgage rates this

week. Do you think you might

cut the variable rates by the

end of the year? That depends

on the Reserve Bank. What do

you think? At the moment if

you look at the inflation and

it is still sitting outside the

top of the band. If the Reserve

Bank cons its focus which is

the object of monetary policy

on inflation, it is hard to see

there will be substantial cuts. Do you think the next

move will be up or down? There

is debate about that. I think

we'll go through a period of

time as to the Reserve Bank

making a decision as to which

way the economy will go. We

have seen a lot of dislocation

around markets over the past

week or so and once the dust

settles we'll get an idea as to

where rates will go from here,

whether they will go down or

up. Have your views about the

economy changed at all in the

past couple of weeks? I think

the underlying Australian economy is in pretty sound

shape. When you look at the

unemployment situation, you

look at the strong wages growth

we have had right through the

last decade and you look at the

savings rate, you look at terms

of trade, all of those factors

which suggest that the economy

should be a bit stronger than

it is. It can't be said that

the economy's in fine shape, it

can't be said of the rest of the developed world, Europe and

America in particular. What are

you most worried about, US

sovereign debt or US recession?

I think the US recession has

the potential to have an impact

on China and when the US is the

largest consumer of product out

of China, so that obviously has

an impact potentially back on

Australia because of the tight

linkage we have into China

these days. That would be my

biggest concern. I think as far

as Europe is concerned, the

Europeans at some stage have to

undertake some form of

structural reform in the way

that they structure their

sovereign debt and certainly it

is going to happen at some

stage, it is just when they

decide to bite the

bullet. There is concern about

a potential re-run of the

credit crisis of 2008 which had

the potential to impact

Australia's banks because of

your reliance on wholesale

funding from global markets. Do

you have a disaster strategy if

that does happen, if Italy does

default it all goes pear-shaped

and the markets close up again?

What we have endeavoured to do

is to make sure we have a

bullet-proof balance sheet so

that's meant we have looked

carefully at our exposures and

we have had no appetite for

European sovereign debt.

Likewise we have looked closely

at our counter party risk to

make sure the organisations

that we have relationships with

are going to be banks that will

be solid and robust in times of

uncertainty. Likewise, we're

carrying a very significant

level of liquidity and we have

prefunded in order to make sure

we don't need to go into

markets for periods of up to

three to six months in order to

make sure we don't end up

getting caught if things were

to go really pear -shaped How

long gf you have to go to the

markets? If markets closed up

how long would you be OK for?

It would be a matter of

several months. Leaving aside

the gyrations seen lately there

is a movement around the world which includes Australia

towards more saving, less

borrowing, households,

governments and corporates to

some extent looking at

repairing their balance sheets.

Do you think your successor is

going to have to be running a

different bank in a different

environment to the run you have

been running? It is fair to

say that over the last five or

six years we have seen a range

of different viernments which

have led to lesser or greater

issues for the business and I

think that's just part and

parcel that goes with running a

large organisation and I

remember being asked when I

took on this role in the first

press conference how was I

going to get double digit

income growth or net profit

growth over the period of my

time and I said "It was

aspirational". It turned out to

be easy. It turned out to be a

little easier than people would

have thought back in 2005. I

think markets change, they

evolve and we have a business

that is quite diverse in the

range of activities we

undertake and you always have a

situation where some of your

businesses are performing

really well and others are

performing less and that is one

of the advantages of having a

diverse financial services

business and one that operates

in 11 countries but obviously,

primarily in this part of the

world at the moment. Over time

we're increasing our exposure

to other markets. In what way?

Do you have particular markets

in mind you think you'll

target? 54% of our business

comes from offshore. We're

seeing a progressive increase

in the earnings, a portion of

the earnings with coming from

markets such as Indonesia,

China and the like. Any thought

of making ak wis ytionz in any

of those markets? We have made

ak wis ytionz over the past

four or five years and we will

make them into the future but

they have to be ones that make

sense and tend to probably be

more opportunistic than going

out and paying a large price

for something. It is all too

easy to go and make

acquisitions that end up not

covering the cost of capital

and being shareholder negative

in regard to accretion. Back to

the local banking market. CBA

has been losing market share

slightly in mortgages and

deposits. It would seem to have

been going to NAB. They have

been aggressive with their

strategy. That seems to have

come off. Their growth has been double system growth. Is that

going to lead to a need to

change strategy here? You can

look at these things in a

roughly short-term basis. If

you go back to '08, '09 and

'010 we were growing at the

rate as double and if you go

back and look at the market

shares and all of our

businesses as to where they

were back in 2005 when we had

18% market share in the

mortgage business in 2005,

today we have 25% shares. You

have to look at these things

over a period of time not on a

basis of - You're only as good

as your last 12 months. The

issue is over the last two or

three months we have been

improving our performance in

that regard and certainly you

can take on profitless growth.

There's a lot of have done that

in the past. Do you think

that's what NAB is doing? You

look at some of the figures and

have a look at the growth in the retail bank and the growth

in the bottom line. Thanks for

joining us. My pleasure. That's

it from us in

A big upset overnight

with the Wallabies mixing their

form. A blow-out in the AFL and

in rugby league, manly came

from behind to topple