THE DISTILLERY: Back to business

Back to business this morning, with the bulk of the commentary deployed analysing what was an interesting flow of stories yesterday: Coles' OK sales figures, the stunning profit downgrade from one of Australia's global giants, insurer QBE, and discontent with Boral's 1-for-5 rights issue being followed by an earnings downgrade.

Fairfax's Adele Ferguson took aim at the difference between yesterday's downgrade and one in June: "It's no surprise that QBE Insurance's share price tanked after its boss, Frank O'Halloran, issued a chilling 52 per cent profit downgrade and admitted that its insurance margin would continue to collapse. The downgrade was all the more disappointing so soon after QBE's investor update on June 16, which said margins would be between 16 per cent and 18 per cent. Yesterday O'Halloran downgraded them to 15.7 per cent and blamed the volatility of discount rate movements. Still, the explanation will do little for the company's credibility."

The Australian's John Durie wondered about credibility: "QBE chief Frank O'Halloran's consistently good performance has had the negative effect of raising expectations to such an extent that the mere whiff of failure was bound to turn into the stench that now surrounds the stock. The 5.6 per cent share price fall was an overreaction, but an explainable one, which O'Halloran can only deal with through greater clarity and believable positive surprises."

What's interesting to note about the QBE update is that the company suffered from the sharp fall in bond yields, especially in the US, and the record low official cash rates in America and Europe. QBE was a victim of the flight to quality in April-June as doubts surged about Greece and the rest of Europe. Adele Ferguson pointed that out. John Durie said that as these "market-related" issues are beyond the company's control most analysts ignore them, and yesterday we saw the cost of that ignorance – a nasty surprise. Those yields and share prices could come back later in the year, but Durie says QBE's standing has been undermined.

Terry McCrann looked at the Coles 2009-10 sales figures produced by owners Wesfarmers, and liked what he saw: "For the first time in at least 20 years Coles, not Woolies, is driving what shoppers are being offered and tempted with. The one clear, utterly unambiguous message is that shoppers are getting cheaper groceries right across the supermarket, every supermarket, in a sustained way that we have never really seen before in Australia. For what (Coles CEO Ian) McLeod has done very simply is to cut prices in the old-fashioned way to sell more product. And he has forced Woolies to reluctantly respond."

And Business Spectator's Stephen Bartholomeusz was another to like the numbers: "The Coles sales performance compares more than favourably with its main competitor, Woolworths, but the direct comparisons are still less significant during what is still a rebuilding phase than the fact that since Ian McLeod and his new team established themselves the business has demonstrated consistent and solid improvement."

And the AFR's Chanticleer also liked the Coles figures, saying they mean Wesfarmers is finally getting value from its $20 billion takeover of the retailer, while the column also looked at QBE's surprise downgrade and commented that there are now cracks starting to appear "in the once shiny outer surface of a company that could be relied upon to consistently grow earnings and regularly surprise on the upside".

Elsewhere in corporate we had a few grunts from Boral about another earnings downgrade from UBS, which were picked up by Fairfax's Insider, David Symons: "Nothing irks investors more than an earnings downgrade that follows hard on the heels of a capital raising. So the murmurings of discontent emerging from institutional investors asked to support Boral's 1-for-5 rights issue earlier in the month are no surprise. UBS, the underwriter of the $490 million raising, has downgraded earnings twice in less than four weeks. It seems that the broker's building materials analyst, David Leitch, whose research was used to sell the capital raising, has turned bearish on the outlook for US housing starts." US new housing sales for June bounced back to an annual rate of 330,000 overnight, which is where they were in May because a revision cut the May figure to the lowest ever, 267,000. Watch for June's figure to be cut next month.

Bryan Frith in The Australian is still wondering why Photon, the media agglomerator, is still suspended. "Despite yet another update from the cash-strapped Photon, the company's shares remain suspended from trading. There is no obvious reason why the ASX should allow that to continue. It's arguable that the ASX should have reinstated trading four weeks ago when Photon gave its previous update. In fact, a case could be made that the ASX should never have agreed to the suspension in the first place."

In the political debate, Fairfax online's Michael Pascoe took the long handle to both Jules and Tone on population: "Between Julia Gillard's weasel words about not believing in a Big Australia and Tony Abbott's wilful misleading on migration numbers – including the use of out-dated statistics - the population question has been the least edifying aspect of the mongooses' dance. (Or should that be mongeese?)... So cutting through the miserable dog whistle and mongoose politics, it turns out that population and immigration is another area where there's actually little difference between the two parties and no real change to current policies. We're still firmly on track for the intergenerational report's 36 million or so residents in 40 years."

And Fairfax's Ian Verrender points out that the Federal Opposition has a strange tax policy: "In a novel twist, the Coalition's opposition to the resources rent tax appears to have split the resources industry. It is stirring up support from the junior and mid-tier miners while the industry giants - BHP Billiton, Rio Tinto and Xstrata - appear rather pleased with the deal they cut with the Prime Minister, Julia Gillard. By default, however, the Coalition is also opposed to the cut in corporate tax from 30 per cent to 29 per cent."

And the AFR and The Australian went over the election budget update yesterday from Federal Treasury with The Oz's George Megalogenis pointing out that there has been an important change in Treasury's view of the economy in the past 13 days: "The private sector isn't ready to grow the economy on its own, according to Treasury's election update of the budget. The message jars with the understanding that both sides took into the campaign that the worst of the global recession was behind us. And it is subtly different from what Treasury said in the cheeky fiscal statement Wayne Swan issued on July 14, three days before the election was called. The economy doesn't change that quickly, so it must be assumed that Treasury had second thoughts once Julia Gillard set her date with destiny."

But it is an election campaign after all, where up can be down, in can be out and high taxes can be good for us all. We just have to stand up for real action and keep moving forward. (Isn't that what happens in old age? All that moving forward catches up with us when we can no longer stand up?).