(THURSDAY 22ND SEPTEMBER- 07:32 - JAMES GERRISH)....It seemed the majority of Wall Street were looking for a bit more activity from the Fed overnight and operation 'twist' as its been dubbed, just didn't cut the mustard. The idea of the 'Twist' is to force down longer-term interest rates and stimulate economic activity - without actually having to cough up any additional funds.
We also had Fed Secretary Ben Benanke say that the outlook for US growth was significantly weaker and I think that was probably the main reason we saw the late sell off in equities.
The fact that Benanke talked down the US economy when he was announcing further stimulus shouldn't really be a surprise. He's justifying his actions in the face of a greater number of opponents. We saw this when he announced QE2 sighting concerns that growth had slowed when in fact underlying growth indicators were ticking higher. In his latest speech he sighted the fact that inflation has moderated when in fact the last inflation print came in above expectations. Think of it as Benanke justifying his actions just as we all do after we buy/sell a stock!
At the close, the DOW JONES lost -283pts while the S&P 500 fell -2.94%. Locally, we're pricing a sharply lower open with the FUTURES suggesting we'll come on around 3973 - down 99pts from yesterdays close.
RBA Speaking in New York overnight....
It was interesting overnight that we also had our own Reserve Bank deputy governor Ric Battellino giving a speech in New York titled "Will Australia catch a US cold?"
His conclusion is broadly that the US and Australian economies have been diverging for some time, with China's rapid growth being overwhelmingly positive for Australia but "more mixed" for the US.
And while Battellino stresses that the numbers are not in to get any definitive read on how Australia is responding to the extreme European and US volatility, his comments about the need to ramp up immigration and productivity so that Australia's non-mining economy can resume a stronger growth path suggests he is much less worried about Australia importing financial weakness than the market.
"Financial markets seem to have concluded that the risks are weighted towards the Australian economy weakening sharply and, taken literally, seem to be pricing in a reduction in official interest rates towards the unusually low levels reached after the global financial crisis,"
"Markets do seem to have reached a pessimistic assessment and this appears to be based mainly on the assumption that weakness in the US and Europe will flow through to Australia."
Battellino's conclusion is that while it is too early to say whether Australia will catch a cold, the fact that we have become less vulnerable to severe US symptoms leaves "reasonable grounds for optimism"....
Worth a look....FLEETWOOD (FWD)
As far as mining services companies go, Fleetwood seems to be a pretty good one. Its actually got two main parts to its business and it isn't purely exposed to mining.
1.The manufacturing of portable accommodation facilities used in the mining sector - obviously a growth area with the large capex expansion particularly in Iron Ore and LNG
2. The manufacture of recreational vehicles (RVs) relevant to another growth theme in Australia - the aging population and large uptick in baby boomers retiring and wanting to travel around the country in caravans. There's actually even a term for it these days - "The Grey Nomads".
Firstly, management is experienced and conservative. Cash flow generation is strong, with minimal capital expenditure requirements and the company has a strong track record of growing earnings and dividends.
The stocks currently yields 6.5% FF, trades on a P/E of 12.7 times and has debt to equity of 10%.
Earnings growth is strong and looks sustainable while the company is getting a high level of return on the capital invested (24%). This means over time dividends should grow in line with profits so buying now and holding, you;re likely to get 7%+ next year on the your money and higher in the years to come. This is an important concept particularly for retirees looking to increase income potential over time.
The stock also looks quite attractive from a technical standpoint.
MODEL PORTFOLIO STOCKS
Qube Logistics Holdings (QUB)
-------------------------------------------------------------------
Strong FY11, positive momentum into FY12 21-Sep-11 14:24
FY11 proportionate revenue was $535.1m, EBITDA was $77.0m and operating cash flow was $26.3m. QUB's share of Auto, Bulk and General Stevedoring revenue grew 38% to $198.8m and EBITDA grew 37% to $37.3m. Landside Logistics performed strongly with QUB's share of revenue growing 43% to $336.3m and EBITDA growing 48% to $39.7m. A fully franked final dividend of 1.9cps will be paid 31 October. Full year dividends increased 9% to 3.8cps.
AUSTRALIAN STOCK PRICES OVERNIGHT
In New York, News Corp fell by US$0.68 to US$16.22, equivalent to A$16.14, A$0.22 below its last close on the ASX.
ResMed fell by US$0.37 to US$28.62, equivalent to A$2.85, the same as its last close on the ASX.
In London, Rio Tinto fell 148.5 pence to £33.89, A$2.29 lower in Australian currency terms.
BHP-Billiton fell 76.5 pence to £18.89, A$1.18 lower in Australian currency terms.
Henderson Group Plc fell 4.3 pence to £1.18, A$0.07 lower in Australian currency terms.
