Markets Weak/australia Strong?

Markets in the US fell, Asia was lower, and Europe was weak as doubts continued over the US treasury's $US700 billion bailout plan.

The Dow was down 161.52 points, or 1.47%, at 10,854.17. The Standard & Poor's 500 Index was off 18.87 points, or 1.56%, at 1188.22 while Nasdaq was down 25.64 points, or 1.18%, at 2153.34.

Worries about the economy saw the US dollar rise again most currencies, especially the euro and the Aussie which traded around 83.10 US cents, down around a cent in a day.

Gold fell $US11 an ounce to around $US897; oil dropped more than $US2.50 to just over $US106.70 a barrel and copper lost 11 US cents to end at $US3.14 a pound in New York.

Our market was off more than 1%, according to the overnight futures market and the ASX/200 could start around 70 points down this morning.

In new York BHP Billion and Rio Tinto shares were weak as analysts saidf iron ore exporters would get smaller than expected price rises next year.

Rio's American depositary receipts fell the most since at least 1990, losing 13% to $US289.14 and BHP's ADRs slipped 5.2% to $US61.77.

General Electric was the biggest drag on the S&P 500, falling more than 4%, after Goldman Sachs cut the company's profit outlook. GE's fall also hit the Dow. GE had itself added to the uS anti-shorting list.

Downgrades also hurt Bank of America shares, off 2.5%, while energy company shares fell as the price of oil retreated.

More details were made public with US Congressional hearings starting overnight in Washington, but Wall Street didn't like the debate and delays..

Treasury Secretary, Hank Paulson, President Bush and Fed chairman Ben Bernanke all urged Congress to swiftly approve the plan.

Chairman Bernanke warned that the US economy would contract if the plan was not adopted and adopted quickly.

But there are concerns the Democrats might try to ram through one off pork barrel deals or attempts to control banking salaries, while some Republicans have expressed doubts about the whole idea.

Comments from the head of the Senate banking Committee, Senator Dodd didn't help sentiment.

He said this morning government economic rescue plan was "not acceptable" in its current state.

"A lot of reservations have been expressed this morning by Democrats and Republicans on this matter," said Dodd, a Democrat, speaking after Paulson and Federal Reserve chief Ben Bernanke testified in Congress.

"What they have sent to us this is not acceptable," said Dodd. "This is not going to work."

Wall Street tumbled more than 160 points after hearing that, going from being slightly up, to well down on the day.

European stock-index futures dropped with Dow Jones Euro Stoxx 50 Index futures off 1.9%

National indexes decreased in all 18 western European markets. London's FTSE 100 lost 1.9%.

Asian markets ended the sharp two day rally on those doubts about the Paulson plan.

The MSCI Asia Pacific Index (excluding Japan) fell 1.9% with financial shares the big fallers.

stocks fell around the region, except in South Korea, Taiwan and Malaysia. Markets in Japan are shut for a holiday.

China's CSI 300 index dropped 3.8%. Hong Kong was off 3.9%.

The Australian share market lost 1.9%, ending the two-session rebound, as doubts grew about whether the $US700 billion ($A840 billion) US financial bailout package would work.

The ASX 200 index ended down 97 points, or 1.9% at 4923.5, after rising 4.5% on Monday.

Australian shares traded lower as regulators announced exemptions to the ban on short selling and detailed proposed legislation to better control it.

At the close the All Ordinaries was down 92.4 points, or 1.8%, to 4957.7.

BHP Billiton fell $1.80, or 4.5%, to $37.90, Rio Tinto dropped $2.76, or 2.5%, to $108.24 and Fortescue Metals shed 64 cents, or 9%, to $6.51.

Banking led the way down with the ANZ losing $1.11 to $18.04, the Commonwealth Bank 38 cents to $44.22, the National Australia Bank 44 cents to $23.86 and Westpac 20 cents to $24.50.

Retailers were mixed, with Harvey Norman adding one cent to $3.51, Woolworths dropping 52 cents to $27.01, Wesfarmers retreating 57 cents to $31.18 and David Jones falling one cent to $4.39 ahead of the release of its full year results later today.

Media was mixed, with Consolidated Media Holdings adding three cents to $2.75, Fairfax falling 13 cents to $2.85, News Corp shedding 71 cents to $15.78 and its non-voting shares losing 70 cents to $15.51.

Telecommunications provider SP Telemedia lost one cent to 14 cents after reporting a full year loss of $18.93 million following debt write-offs, and cut its earnings guidance for the new year.

It's part of the Washington Soul Patts group whose 61% owned subsidiary New Hope Corp losing six cents to $4.40 despite forecasting significant earnings growth this year and delivering a rise in annual profit to $90.68 million

Santos added 17 cents to $18.70; Woodside dropped a cent to $56.99 and Oil Search lost nine cents to $5.53.

The spot price of gold was higher was trading at $US891.30 an ounce by late yesterday, up $US20.15 on yesterday's local close of $US871.15 an ounce.

Gold miners were stronger, with Newcrest adding $1.34 to $26.84, Lihir 12 cents to $2.77 and Newmont 16 cents to $5.15.

Telstra was the most traded stock on the market, with 42.05 million shares changing hands, collectively worth $172 million. Its shares rose 16 cents to $3.98.

And in a report issued this morning, the International Monetary Fund says Australia is well placed to withstand the credit crunch.

In particular, the report notes that IMF "Directors welcomed the support that prudent fiscal policy is providing for monetary policy."

The IMF Executive Board considered that Australia's banking system remains resilient, with stable profits, high capitalisation and few non-performing loans.

This was evident in stress tests undertaken by the IMF and presented in their report, which showed that Australian banks are able to absorb 'extreme' shocks.

The IMF considers that the outlook for the economy is more uncertain than usual due to large countervailing forces impacting on the economy, with the commodity boom providing a substantial stimulus and the global downturn exerting a contractionary effect.

IMF staff forecast that real GDP growth will moderate as required to bring underlying inflation back within the RBA's target range.

On an annual basis the IMF consults with the Australian authorities, private sector economists and academia to provide an independent and comprehensive assessment of Australia's economic performance.

This forms part of its program of economic consultations with all IMF member countries.

IMPORTANT: AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decisions.

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Using Your Card: What Is Its Purpose?

There is a wonderful feeling to having a credit card when you need one, but that blanket term "credit card" can be misleading at times. Not all Credit Cards are the same, and this goes beyond the APR that most people are aware of. Before choosing a credit card, consider what it is that you plan to use it for. This can make a big difference in how you use it and what you will pay in charges and fees for using it.

There are some consumers who will pay off their bill each and every month, and rarely, if ever, carry the balance over into the next billing cycle. If you intend to follow this routine, then APR will not matter as much to you. Keep in mind that finance charges do not kick in unless you carry over a balance. If you pay in full, you do not incur finances charges which are based on the company APR.

For those who will be paying the full balance each month, consider a credit card that has a longer grace period and has no annual fees. This allows you to use the credit for little, if any, charge. Do keep in mind, however, that if you happen to lapse and carry a balance, you will have to pay the finance charges and then APR will matter to you.

Most people, however, do carry over a balance and for those individuals it is important to find the credit card that offers the lowest annual percentage rate (APR). The APR is the number that the credit card company will use to calculate your monthly finance charge so the lower this number the less money you will pay.

If you think that you may use your credit card to get cash advances, you will certainly want to look at the fees and charges for that service. It is important to remember that many, if not most, of the credit card companies charge a higher rate for cash advances than they do for purchases. Some companies will charge a substantial amount more and you would do well to avoid using these cards for cash advance purposes.

Many people are lured into poor credit card choices by the promotions that many companies offer. These might include such things as frequent flyer miles, phone minutes, rebates and other things. There is nothing wrong with opting into these programs if they are benefits that you are going to actually use. The old adage that nothing is free applies here as well. Many of the companies that offer these promotions will have a slightly higher APR to help offset the cost of the programs. Make sure you look for that before you sign up, as it may not be in your best interest to pay higher rates for benefits that you will not use.

In order to find out what the APR and other fees are for any particular company, you can visit their website or you can look at the information that comes to you through the mail. Federal law requires that all solicitations and applications for Credit Cards include key information on the rates and fees that they charge consumers. This information must be clearly printed and if you have to hunt for it, then you may want to avoid dealing with that company.

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How To Consolidate Credit Card Debt

It is so easy to get heavily into debt on Credit Cards that you within a few months or even weeks you could find yourself not being able to keep up with the repayments. If this is the case, then you should think about consolidating your credit card debt. Consolidating your debt can make it easier to manage your money problems as well as helping you to save money. Here are some useful hints about consolidating credit card debt.

What is consolidation?

Consolidation is where you take all of your debts and combine them into one debt. For example, if you have 2 or 3 Credit Cards with a balance on them, you could get one credit card to cover all of the debts and transfer each balance onto this card. This way all of your debts are covered in one place and you only have one bill to pay.

How to consolidate?

There are different ways you can consolidate your credit card debt. One way is to get out a loan in order to cover your credit card debts and then pay off your Credit Cards using this loan. Then you can pay back the loan over a longer period of time. Although this is good because the interest rate will be lower than the Credit Cards, it will most likely take you longer to pay off. Another way is to get a credit card that has a limit that can cover the debts you have, or at least most of them. This way you can put all your debts in one place and pay them off.

Cards for consolidation

In order to consolidate your credit card debt onto one credit card, you need to make sure that you get the right card in order to make it worthwhile. Getting a card with a higher or equal interest rate than you currently have will not make any difference. Instead, look for a card with a lower interest rate that will help you to save money and pay off debts quicker.

0% cards

The best cards to get for consolidation are cards that offer 0% interest on balance transfers. Some of these cards offer 0% for up to one year, which will mean that you will pay no interest on the balance you transfer to the card for a year. This can save you a lot of money as well putting all your debt into one convenient place. For example, if you have a balance of around ?3,000 to transfer from 15% cards, with 0% for a year you could save around ?200. These cards are especially good if you can pay off the debt within the promotional period.

Cancel your cards

Remember, when you consolidate your credit card debt, it is important to cancel all or some of the cards that you have transferred from. Although cancelling too many cards can hurt your Credit rating, it is better to cancel them, as this will stop you from being tempted to use them again and thereby further increasing your debt. If you have 2 or 3 cards with no balance, then get rid of all but one of them so that you have less chance of increasing your debt. If you consolidate your credit card debts correctly then you will make paying your bills easier and save yourself money on interest payments.

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Think about a Program to Consolidate Your Debt

In the current local weather of effortless credit score it is simple to get in in excess of your head with credit card debt. Numerous folks do not comprehend how a lot of Americans are living payday to payday obtaining deeper and deeper into the drowning pool of higher curiosity revolving debt. With recent laws mandating greater minimal monthly payments and stricter Bankruptcy laws there are these who may possibly really feel they have no options. A system tconsolidate debtmay be the reply for these people today. If you are one particular of these who is struggling with a staggering load of financial debt you could want to believe about a system these kinds of as this.Finance News
There are two methods which will get started you on the street to a financial debt consolidation plan. Very first, gather all of your expenses and make a list of the month to month payments you are generating and the interest prices you are being charged. Second, accessibility your credit score report on the internet. If you have not received a credit score report in the course of this calendar yr you are entitled by law to a absolutely free report from every single of the 3 credit score reporting companies. Your credit report will tell you how quite a few instances your payments have been late or missed. It will also give you get in touch with info for all of the organizations to whom you are creating payments if you do not currently have it. Mix the analysis from your charges and from your credit score report to ascertain exactly how significantly you spend month-to-month, how very much you owe and what your payment report is.
When you acquire your credit score report, you should also obtain your credit score (FICO) score which must be obtainable from the same sources for a nominal fee.
Armed with this info get in touch with several financial debt consolidation programs. Resources for these packages can be your banking institution, the yellow pages, the Web, the Much better Company Bureau and The Chamber of Commerce. If you know others who have had related complications you may possibly ask them for individual recommendations. Churches might also be a beneficial resource for debt consolidation applications. Some religious organizations even run such facilities.
Even though financial debt consolidation applications promote on their own as solutions they are also income generating considerations. Therefore, when determining upon the one to use you ought to be wary of them as you would be when making any economic commitment. The intent behind a debt consolidation system is to have the firm deal with your collectors. Negotiating a reduction in your credit score card interest charges, asking for lowered charges and lengthier repayment ideas and other debt restructuring is a tiresome approach. It frequently calls for a good deal of cross mailings and phone calls. The moment you are in a debt consolidation plan the organization will get care of these issues for you. In order for the program to be effective general you have to make certain you select a organization that will deal relatively and competently with the two you and your creditors.
Interview the possible debt consolidation programrepresentatives just as you would an applicant for a job. These men and women will, right after all, be operating on your behalf. Make confident the duties they will do for you and what they hope to achieve are clearly defined. It is also vital to have a written breakdown of the charges they charge. Ask them to give you a breakdown of how significantly of the payment you make to them will go to the credit card companies and how considerably they will hold as the cost of your participation in the plan. After they have negotiated the reconfiguration of your debts with the different credit card businesses the financial debt consolidation plan really should furnish you with a copy of the negotiation benefits. It really should stipulate how very long it will get for all of your debts to be compensated in complete.
Mastering to manage credit greater in the long run is an necessary part of any financial debt consolidation plan. Quiz the corporations you are considering about the credit score training programs they provide. At a minimum, programs on budgeting and sensible use of credit score really should be offered.
Several plans could involve that you relinquish most if not all of your charge cards. This step may possibly be hardest of all for you to full but it is a single of the most critical. When you have gotten out from underneath your credit score card debt and curbed your dependence on future charging your financial debt consolidation plan [] will be genuinely profitable.

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Introduction To Secured Personal Loans And The Way To Save Your Money On Them

A personal loan is borrowed money. It allows an individual to increase their present available finance. A loan is often utilised when making a high value purchase, such as property, university fees, and a holiday or debt consolidation. Both secured and unsecured loans are a popular consumer choice. All loans are subject to interest charges on re-payments.

A loan, plus this interest will need to be paid back. To get the best interest rate and terms, it is important to compare the deals offered by different lenders. This can be done efficiently via the internet. Once decided upon a lender, it is essential to prepare and adhere to a realistic repayment schedule. It is the responsibility of the borrower to ensure that they will be able to finance re-payments on the sum borrowed. Failure to make prompt and complete re-payments will incur a penalty and ultimately a build up of personal debt.

There are many types of loans available and it is wise to research all the different options before making a decision. Because sometimes different lenders may cause you to serve more money than you need to be. Different lenders may have different interest rates on their loan product. It is up to you for selecting one of the best loan and the lender for you. In that way, you can save a lot of money each year by just having lower interest rate on your loan amount.
In UK, there are many online financial websites available from where you can get advice on all loan types and lenders info. You can also apply online for any loan product and going this way can save your money and time. As applying online is an easy and quick way to get your best loan quote. Then you just need to make a better financial planning for repaying your loan amount to the lender.

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Securing A Credit Card When You Have Bad Credit

Having bad credit can make getting a credit card difficult, but the situation is not impossible. If you need or want a credit card but are worried that your poor credit history will stop you, then you perhaps you need some advice about how to get a credit card even with poor credit. If you follow these steps then you will have a much better chance of getting a credit card:

Retail store cards

If you have poor credit then the best place to start applying for Credit Cards is at small retail stores. These companies are more likely to give you a chance, although their rates are usually much higher and your credit limit will be low. If your application is approved, then buy something small each month and then pay off the bill. This will show other credit card companies that you are able to handle credit and pay your bills.

Go to your bank

After you have had a store card for some time, you can apply for a card at your bank. If you have been with your bank a long time and you have performed well with them, then they might be able to help you out.

Secured cards

If you are unable to get a bank or store card, then try and get a secured card. This involves putting down a deposit that is held by the lender whilst you use the card. This collateral takes away some of the risk for the lender and you are much more likely to be approved for this type of card. If you pay your bills then eventually you can upgrade to a regular unsecured card.

Co-signing

If you are still having problems, then get a friend or family member with good credit to co-sign for the card with you, as their credit will count towards the application. Remember that if you cannot pay the bill they will have to, so be sure you can pay back anything you spend or you will not only damage your credit but someone else's as well.

Avoid annual fees

Even if you are desperate for a card, avoid getting a credit card with an annual fee. There are plenty of cards that do not charge fees, and even if the interest rate is higher you will be better off. Also, stick to well known card types like Visa and MasterCard as they are widely accepted. This will help you to make the most of the credit you have.

Using your card

Once you have a card, remember that you can use it to your advantage rather than putting yourself into debt. Only spend what you can pay back easily, and if possible pay back the whole balance each month so that you avoid paying interest. If you pay off your bills well then your Credit rating will improve quickly and you can get better terms and a higher credit limit.

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What Is The Forex Market And How Does It Work?

Forex is one of the largest financial markets in the world. If we were to compare it with other markets, we would discover that Forex is unmatched in terms of potential profit and liquidity. Forex (Foreign exchange market) is a term used to describe the trading process of the world's many currencies. Among the currencies commonly traded are: the US dollar, the Euro, the Canadian Dollar, the British pound, the Yen, the Swiss Franc and the Australian dollar.

Forex trading is a difficult concept to grasp, but it has a lot of advantages. First of all, it is not conducted by a central exchange office. What many people are unaware of is that Forex trading is done everywhere at any time ? online, over the telephone, through electronic networks or through what is simply called the ?interbank?. Online Forex trading is one of the most popular trading options for investors. The major groups of investors in the Forex market are: banks, corporations, governments, investment funds and traders. These investors use what is called ?external controls?, a set of rules and guidelines that control the trade and which can be considered the basis for their work. Individual traders however can make an exception to this set of rules.

Forex can be quite profitable because there are always buyers and sellers willing to trade and the business is done with no commissions, but it can also be quite risky. Despite the risks, Forex trading is becoming a favorite of currency traders and soon it will take the place of stock exchange markets. Forex trading can be very catching, but also a sure way to lose money. Before you go into trading, you should accept the fact that risk and volatility cannot be separated from the Forex market. It is impossible to trade without taking calculated risks as well as accepting the possibility to lose. There are many reasons for losing money on the Forex market among which brokers include: the tendency to avoid risks, too little discipline and patience, impossible expectations and little understanding of the dynamics of Forex trading.

There are also a few musts in this trading industry: the proper equipment and a high-speed Internet connection (broadband is the best in terms of stability), the capital you can afford losing, a broker (inquiries must be made about the reliability of his trading platform), charts and technical analysis, good entry and exit signals and a golden rule - always check out the Forex trading news in order to be informed.

One of the latest Forex trading news is the possibility of using day-trading services, meaning that the trading is done on a daily or even hourly basis in the foreign currency markets. Before you start your trading day, it is imperative that you are aware when Forex trading news affecting the currency pair being traded is scheduled to be released. There are a lot of Forex trading news that can and will affect the trade of a currency. That is why you always need to be informed. You must know where you can fiind these Forex trading news, how to interpret them and what effect they are likely to have on the market. By getting to know the Forex trading news you avoid costly learning mistakes and develop a solid strategy based on the power of knowledge. That is one on the major drawbacks of Forex: the vast amount of information that has to be read and, more importantly, learned (that includes Forex trading news also).

It is vital to have a strategy and this doesn?t refer to making money. By studying the Forex trading news and also a couple of docs provided by professional brokers, you will be able to choose the approach you are going to take, which currencies you are going to trade and how you will manage your risks.

Remember that there is no better time to trade that when Forex trading news is released. This is the time when big players adjust their position and prices change resulting in a serious currency flow. Do not take rash - emotion-based decisions can be the worst you've ever made -, but be firm, conscious and trade in the direction the price is going. Confidence comes from successful trading.

Do not let yourself be fooled. A lot of Forex brokers are in this business only to make money from inexperience traders. So, in order to escape being tricked, stay informed. Check out Forex trading news, watch for the moments they are released and try to be detached in order to retain your clarity of mind. Learn to read the source documents of Forex trading news and events.

Trading on the Forex market involves staying current on currency exchange rates and this can be easily done with the help of Forex trading news. Keep in mind that it takes concentration and knowledge to succeed on the Forex market and you don?t need to invest a lot of money to make profits.

Pay attention to the guidance provided by the brokering companies about trading strategies and to the data charts that guide you when to buy or sell. They also teach you to interpret the fluctuations on the market and how to make the most of the moment when the latest Forex trading news is released. Proper training is the key. A trained trader will know the market like the back of his hand and will be able to meet the expectations.

When trading, the latest Forex trading news about the currency market can make a difference in the day's profit. So no matter if you go online or not, try to remember that the potential in the Forex market is in the volatility, not in its tranquility. Stick to your strategies and play the odds the market gives you. Who knows? You might be the next Donald Trump.

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It Will Get Worse Before It Gets Better

The depth and length of the global recession now underway will be the key determinant of how shares and other financial assets perform this year.

Compared to the 1930s, the global policy response this time around has been far more positive and far quicker, so a re-run of the Great Depression is very unlikely.

AMP Global Investors' chief economist, Dr Shane Oliver says its early days and the financial crisis is continuing but some key signposts to global economic recovery are showing tentative signs of improvement.

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It is obvious the global economic situation is bleak.

The key problem last year was the financial crisis. Given ongoing bank problems this is clearly still with us, but this year the key problem will be the economic fall out.

The US, Europe and Japan are now contracting in a synchronised fashion and this, along with a gathering slump in the emerging world, is likely to make it the worst global recession in the post war period.

The Australian economy is also being hard hit and looks destined for recession.

The OECD's leading indicator is plunging at its fastest rate ever.

Talk of not just recession but depression has become common place as evident in the next chart.

The key to when shares and other growth oriented financial assets get back on to a sustainable rising trend will be the depth and duration of the global recession and a big driver of this will be the global policy response.

The Policy Response

The financial crisis and the synchronised global economic slump that is still unfolding is unprecedented.

But so too has been the policy response by governments all around the world. This has focused on:

? A rapid reduction in interest rates with rates falling to near zero in the US and Japan, to record lows in the UK and falling sharply in other countries including Australia.

? Fiscal stimulus including spending increases and tax cuts with a massive mix of tax cuts and extra spending soon to be announced in the US.

? Unprecedented measures to stabilise the financial system. These vary by country but include providing loans to financial institutions, providing funds for credit markets and buying private sector securities such as mortgage backed securities, injecting capital into banks, insuring some banks against additional losses on their bad debts, the provision of guarantees over bank borrowing and, in some countries, bank lending.

More measures are on the way with the US now looking into a comprehensive way to remove toxic debt from banks? balance sheets.

The question is will it work? This raises several issues.

Very different to the 1930s

One criticism of the policy response to date has been that it has been too slow and inconsistent. Interest rates weren?t cut quickly enough and the US response has seemed haphazard at times.

However, these problems partly reflected a combination of uncertainty about the size of the problem and the Bush Administration's ideological bias against intervening in free markets.

The latter problem is likely to be removed by the more pragmatic Obama Administration.

But the policy response in the last year has been far more positive than was the case in the early 1930s as the Great Depression unfolded when:

? US interest rates were in fact initially raised and only started to fall aggressively in 1933 and never reached zero despite consumer price deflation.

This time around US interest rates have reached zero in just over 12 months after the share market peak.

? Fiscal policy was initially tightened in the early 1930s in the US reflecting an obsession with balancing the budget and there were no ?automatic stabilisers? such as unemployment insurance.

Even when the New Deal arrived after Franklin D. Roosevelt became president in 1933 fiscal stimulus was modest amounting to just 1% of annual GDP compared to what is now being proposed by President Obama with over $US800bn spread over two years equating to 2.7% of annual GDP.

? In the 1930s over 5000 US banks went bust taking their depositors? savings with them as there was no deposit insurance or government guarantees over bank borrowing.

This led to a massive collapse in the US money supply and was a major contributor to the severity of the Depression.

Now having learned the lessons of the Depression governments have been bending over backwards to prevent losses to depositors and to prevent an implosion in the financial system.

Won?t the monetary expansion just create inflation?

Some fear that by pumping cash into the financial system central banks will simply create inflation. This is unlikely.

Narrow money supply measures have increased largely reflecting increased bank reserves.
But to get inflation we need the banks to lend more, so that broader credit measures increase and we need people to start spending in excess of the economies? capacity to produce.

So far, while the increase in reserves has boosted narrow money measures, banks are leaving them on deposit at the Fed, broader money supply measures have picked up but not by much, credit growth is still negative, and spending in the economy is contracting such that excess capacity is rising.

Until demand picks up there is no reason to worry about inflation. In fact the big concern is more likely to be deflation.

When demand does pick up then the Fed and other central banks will need to reverse their policy stimulus, but they seem well aware of this.

Will the deficit financing just push up bond yields?

Every time there is a recession and public sector budgets shift into large deficits as is occurring now there is concern that it will boost inflation and that the increased supply of bonds will boost bond yields. Both fears are misplaced.

Expanding budget deficits don?t cause inflation or higher bond yields in economic downturns because they are offsetting an increase in private savings as private consumption and investment are slashed.

The Japanese experience in the 1990s was a classic example of this ? the budget deficit and public debt blew out but inflation turned into deflation and bond yields fell below 2%.

Why not let market forces just run their course?

A more fundamental criticism from free market ideologues is that market forces should be left to run their course so as to cleanse the system of past excesses.

In other words, after the good times of the boom we now all need to suffer!

This was the approach to economic management prior to World War Two and it resulted in regular wild swings in economic activity and unemployment.

The trouble with this approach is that it can cause massive economic pain.

Sure, the 1930s depression unwound the excesses of the 1920s but this came at a big cost to society and much of the pain was borne by innocent people ? ordinary workers who lost their livelihoods as unemployment rose above 20% and ordinary people who lost all their savings in bank failures.

It also runs the risk that the people on the receiving end of the pain will decide that capitalism is not for them possibly leading to more extremist fascist or socialist governments.

As such a 'do nothing? approach is not politically acceptable to most governments.

Are there any signs it is working?

Given the ongoing losses in global banks and the latest slide in bank shares it is clear that the financial crisis is still with us.
However, were it not for the capital injections into banks and guarantees over bank borrowing, the situation today would likely be far worse.

More fundamentally though there have been some signs of improvement. Focusing mainly on the US situation, which is the key in all this:

? The gap between interbank lending rates and government short term borrowing rates has fallen sharply from levels in October.

The gap between corporate borrowing rates and long term bond yields has also fallen, albeit only tentatively. See chart below.

Mortgage rates in the US have fallen over the last two months from around 6.5% to around 5%.

This in turn has seen a huge increase in US homeowners refinancing their mortgages to lower fixed rates, which is normally a precursor to stronger consumer spending.

? Consumer confidence measures are showing tentative signs of stabilising in the US and in Australia.

? Chinese money and credit growth have recently started to pick up again.

? There are some signs of stabilisation in global trade, as indicated by the Baltic Dry Freight index (a measure of shipping costs) which has stabilised after a 90% fall.

To be confident that economic recovery is definitely on the way a range of other signposts need to turn positive including: a slowing in the pace of US house price declines, an easing in bank lending standards and an improvement in credit growth.

However, the fact that some indicators have turned a bit more positive is a good sign and consistent with our expectations for a global economic recovery from later this year and/or through 2010.

Conclusion

The global policy response is absolutely necessary in providing a counterweight to the global financial crisis.
More action is needed in the way of fiscal stimulus and measures to get banks lending again and this looks to be on the way.

The economic news will likely get worse before it gets better and this will ensure a volatile ride for investors in the short term.

But there are signs that the policy response is helping. And this provides some confidence that growth will start to stabilise/improve later this year and through 2010, which would be consistent with shares getting back onto a sustainable recovery path this year.

IMPORTANT: AIR reports about financial markets and investment products in the widest sense possible. The AIR website and all its contents is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before making any investment decisions.

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Job Losses Tell Us It?s Going To Get Worse

There is one overriding message from the jobs bloodbath of this week.

That is: this slowdown is going to be long, hard and tough and things are going to worsen.

Indeed US brokers Merrill Lynch now says it thinks estimates for 2009 profits for US companies are still too generous, that earnings are going to be lower.

Brokers already believe that December 2008 quarter earnings will be down 28%, so Merrill Lynch's warning should be seen as a pointer to the future.

Anyone thinking it's going to be a quick exit/rebound later this year, or even in 2010, had better think again.

The 100,000 job cuts that echoed around the world on Monday came from retailing, cars, heavy manufacturing, light manufacturing, technology, finance, insurance, technology and more.

On top of the cuts from the likes of BHP Billiton the week before, Intel and Microsoft, the trail of losses is mounting rapidly, day by day as employers, who have tried to keep staff on for as long as possible, are forced by plunging profits, to chop and chop deeply.

Companies reported badly damaged 4th quarter earnings in the US and Europe and used these profit slumps as the basis for the jobs cuts: Texas Instruments, Caterpillar and ING for example (it was bailed out by the Dutch government for a second time with a deal to takeover dodgy real estate assets and keep lending to the economy).

The IMF saw the US economy contracting 1.6% this year, with the euro zone shrinking 2% and Japan 2.6%. Media reports said the Fund, later this week, would reveal world growth for this year 0.5% at best. Next year an optimistic 3%.

Overnight the Japanese economy okayed a modest stimulus package of about $US75 billion and the German Cabinet signed off on a 50 billion euro package. The UK Government revealed a $US4 billion-plus assistance package for its car industry.

The aim of these packages is to try and slow the downturn and keep as many people as possible in jobs.

Companies in the US and Europe chopped more than 90,000 jobs Monday that also saw the Iceland government collapse, General Motors chop more factories as sales slump, and America's second biggest cardboard processor collapse with $US5.6 billion in debts.

Around 80 000 jobs were cut in the US, the rest in Europe.

A survey of private sector economists in the US had bad news: they see the slump as worsening. (Source)

The survey found that companies will lay off more workers and hoard more cash in the next 12 months. A large majority of the 105 economists polled believe the country's gross domestic product will continue to sink in 2009.

Respondents to the survey were getting more pessimistic about the macroeconomic outlook. "78% of respondents expect U.S. real GDP to be lower in 2009 than in 2008."

"NABE's January 2009 Industry Survey depicts the worst business conditions since the survey began in 1982, confirming that the U.S. recession deepened in the fourth quarter of 2008," said Sara Johnson, a NABE economist.

Nearly half (47%) of surveyed economists said overall industry demand was falling, compared with 35% who said so in the October survey.

"Just 10% of respondents said profit margins were rising, compared with 52% who believe they are falling. And 38% of economists said capital expenses are falling, up from just 15% in October.

"Over half expect real GDP to fall by more than one percent this year, and only three percent project growth of over one percent.

"Falling profit margins outnumbered rising margins five-to-one among respondents? firms?the worst reading since 1982.

"Job losses accelerated in the fourth quarter, and the employment outlook for the next six months has weakened further.

"With market prospects deteriorating, firms slammed the brakes on capital spending in the fourth quarter of 2008; the percentage of firms reducing capital expenditures (38%) was the highest in the history of the survey."

The survey found that a majority of those replying said credit conditions hurt businesses, as customers had less leverage to buy discretionary products. 78% of respondents said tightening credit conditions affected customers, and 52% said the credit crunch directly hurt businesses in their industries.

Rapidly deteriorating global market conditions are hammering business profits.

"For the fourth consecutive quarter, reports of falling profit margins (52% of respondents) outnumbered reports of rising margins (10%). This was the worst result since the spring of 1982.

Job losses accelerated in the fourth quarter, producing the worst survey result in 17 years. Some 44% of firms cut payrolls, while only 14% added workers.
"Looking ahead, 39% of companies plan to reduce payrolls over the next six months, while 17% plan to increase employment. Only the services sector continues to create jobs."

If anything, that explains why so many big and small companies are now cutting jobs, more than a year after the US economy officially slipped into this recession. Business conditions have become so fraught, thanks to the credit crunch and drought, that they have no alternative.

With US first time jobless claims running at more than half a million a week for the past two months, there's no let up in the flow of bad news for US workers, and increasingly employees in Europe and Japan.

US unemployment looks certain to surge from the December level of 7.2%, even as thousands of workers stop actively searching for the few jobs that are there.

But there was some rare good news from the battered US housing sector with the National Association of Realtors reporting a 6.5% rise in the number of pre-owned houses sold in December: 4.74 million unit annual rate. Economists had expected a 4.40 million unit pace.

The US Conference Board said its index of leading economic indicators rose 0.3%: economists had expected a fall of the same size.

However, the realtors' report also had the now familiar bad news with the median national home price in the US down 15.3% in December from the same month of 2007, the largest fall on record.

The financial crisis claimed Iceland's Prime Minister Geir Haarde who announced the resignation of his government after months of protests over economic policies that brought the country close to Bankruptcy.

A coalition of Green and leftwing parties is expected to win the election later this year, which could provoke tensions between the country, the banks and the IMF. The Social Democrats will form a new Government in the meantime.

But Canada will spend $US5.7 billion on infrastructure over the next two years and officials said Canada will run budget deficits totalling $US53 billion over the next two years.

And the Norwegian government presented a $US2.87 billion fiscal stimulus package to prevent a surge in unemployment. It is dipping into its state-owned wealth fund to help bolster spending, as is Singapore.

But it was the toll of job losses that staggered observers: construction equipment giant Caterpillar axed 20,000 places worldwide to cope with plunging sales. Its big Japanese rival, Komatsu warned of a 15% drop in sales and a 42% plunge in profit in the year to March 31.

New York-based drug maker Pfizer announced it would acquire its rival Wyeth for $US68 billion ($A104 billion), and then announced it would chop the combined workforces of the two companies by 19,000, or 15%, and its own global workforce by 10%, or 8,000 jobs. It's halving dividend to help finance this big deal. Investment banks will carve up $US207 million from this mega-merger.

Texas Instruments reported a big fall in 4th quarter profits, and plans to shed up to 3,400 jobs. And still in technology, an American union reckons IBM, which last week reported better than expected 4th quarter profits, is readying itself to chop at least 2500 jobs soon. .

General Motors dropped an extra 2000 jobs at two US plants as it continues restructuring. US telecom operator Sprint Nextel said it would cut 8000 jobs, or 14% of its staff, and top US home improvement retailer Home Depot is culling 7000 employees across America.

The big Dutch financial services group, ING, has obtained more help from its government to stay alive and is sacking thousands of people, as is the huge Philips lighting and technology group.

All up, ING and Philips are shedding around 13,000 people from their businesses worldwide to try and cut costs as sales and demand slump faster than expected.

And Corus, the big Anglo-Dutch steelmaker is cutting 3,500 jobs around the world, some 2,000 of them in Britain, due to a sharp fall in demand for steel.

The company is Europe's second-largest steelmaker now owned by the Indian company, Tata which is struggling to keep Jaguar Landrover alive in Britain..

Another major US company has collapsed: the Smufit-Stone Container Corp, a cardboard packaging giant and one of the world?s largest paper recyclers, has gone bust in the US with $US5.6 billion in debt. It was unable to service amid a slumping economy and demand for its products.

The company, which is based in the US but was founded in Ireland, filed for Chapter 11 protection in the US: besides the $US5.6 billion in debt the company had $US7.5 billion in assets. 24 subsidiaries or affiliates also sought protection. It had net sales of $US7.4 billion in 2007.(Source)

Smurfit-Stone, based in Chicago is North America?s second- largest maker of corrugated packaging, and has 22,000 employees in the US, Canada, Mexico and Asia.

In Britain two retail chains selling shoes went bust overnight and their listed owner, Stylo, was suspended from trading.

Barratts Shoes and PriceLess became the latest British chains to go into administration, putting the jobs of around 5,00 people at risk. The 400 stores in the two chains will remain open for now.

They join fashion chains, Dolcis, Stead & Simpson and Faith which have all gone into administration. Woolworths has closed, at a loss of 30,000 jobs and the home improvement group, MFI has failed. The UK children's retailer, Adams has shut, while furniture retailer, Land of Leather is a failure.

And a sure sign of the damage the credit crunch is doing to business can be seen from the 72% plunge in 4th quarter operating earnings for American Express.

The credit card giant said quarterly profit from continuing operations hit $US238 million, down from $US858 million in the same quarter of 2007 (Source).

American Express received a $US3.4 billion from the US Treasury's bank bailout fund earlier this month as surging consumer defaults forced it to set aside more reserves and the market for bonds backed by credit-card debt froze.

The company has chopped 7,000 jobs, frozen management salaries and cut other costs to try and save $US1.8 billion a year. For the year earnings fell 32% to $US2.8 billion.

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