DOW 6.00% $7.60 downer edi limited

At last, Huntley gets the point!

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    Huntleys' Daily Stock Update

    You can use this link to get up-to-date market valuations for all stocks mentioned in this report.


    MARKETS

    Last night's Wall St was more of the same: a valuation bear market very much concentrating on issues where accounting practices were seen to have had the effect of boosting stated net profits. Treasurer of gas utility, El Paso, suicided and the stock fell 15 per cent. The Williams Company was down over 20 per cent on allegations it has denied regarding the Californian gas crisis Tyco Industries (down 26 per cent on resignation of CEO) and Microsoft all fell reflecting questions on accounting practices.

    The Enronitis/Andersenitis spreading through Corporate US is a significant reason for the US dollar weakness as it discourages capital inflows. A year or so back New Age technology investment was cited as a reason for a strong dollar. Now accounting mayhem and collapsing stock prices is causing a weak US dollar despite a recovering economy.

    Economic statistics were quite positive, and the US dollar again slipped against most currencies with gold edging up just over $1.20 to $US327.70.The Australian dollar went through US57 cents and is rapidly approaching an area of resistance which if broken would see 60cents in sight. At this morning's US57.3 cent level, the Australian dollar price of gold is $571. The movement of the Australian dollar is keeping the Australian dollar price gold quite stable at the $571 area in recent days.

    One side affect of the US shock market is that US bonds are falling in yield, rising in value, and as they are the bench market for bond prices, our bond prices are also rising, though maintaining a 1.3 per cent differential - a large part of the reason for Australian dollar strength.

    However anything that causes our bond market to behave better is a positive, and our market continues to outperform the US reflecting better incorporate integrity at this point ( we've forgotten about OneTel, HIH, FAI, and you name it), and definitely more realistic valuations. Anything would be more realistic than 40 times reported net profit when net profit is boosted gigantically by creative accounting of the first order.


    THIS NEXT BIT IS THE BIT I"M REFERING TO......!!!!!

    We believe that the US stock markets are now very probably entering a major bear market, which could see several thousand points lopped off the Dow, with relatively small damage to our own market. Over what period the market achieves its low point in the US is difficult, it could be rapid-fire action, or it could take several years.

    Local Interest rates. Many apologies yesterday's interest rate commentary was wrong. Basically RBA Governor, Ian MacFarlane, appeared to lift his rate target. Previously he had referred to market consensus expectations for a one per cent rise. On Friday he explained the rationale for a 1.5 per cent rise in the RBA's cash rate, which would take it to a "neutral " setting. IE inflation plus 3/3.5 per cent "real rate. It is quite possible that the RBA will go beyond a "neutral" setting and lift rates by 2 to 2.5 per cent. It depends on how long it takes for the housing price bubble/bubblette to roll over. Other economic indicators will also be critical, as will be left field offshore events.

    It is useful shorthand to regard the lift in short rates as indicating policy aimed at slowing economic activity particularly the housing price spiral. Bond rates tend to set valuations for income producing assets.


 
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