THE DISTILLERY: Calm in a storm

Once again Japan dominates the news flow and commentaries this morning, although there were some interesting nuggets scattered through the rest of the jottings, especially on the Future Fund, Tabcorp and the strange takeover bid for BC Iron. The stockmarket rally faded in Europe and Asia after a senior EU official claimed the situation at Fukushima was out of control. He later said his comment wasn't based on new information (so it was inaccurate?). Half a trillion US dollars worth of stockmarket value vanished in Europe and the US in the space of an hour. America was also hit by a shock slump in new housing starts and permits. But that was after the local blats went to bed. 
 
The Australian Financial Review reported this morning: "Japan's emperor gave a rare address to a jittery nation on Wednesday as a nuclear emergency deepened and millions struggled in desperate conditions after last week's quake and tsunami disaster. Official death toll tops 12,000. Economic cost forecast between $US125 billion to $US200 billion." 
 
News Ltd's Terry McCrann was upbeat this morning: "The most obvious example was the Tokyo Exchange itself. As radiation supposedly "seeped into the very capital city itself", the market in that city bounded up over 5 per cent, recovering half of Tuesday's swingeing double-digit loss. That should be telling us something important and useful to put in context any shocking news in the days ahead. Yes, there is a disaster in Japan. Yes, it is both environmental and economic. Although the environmental disaster is more hyperbolic than real. But both are clearly manageable and will have virtually no impact beyond Japan. That's to say, no negative impact. Japan is about to embark on the mother-of-all accelerated infrastructure rebuilds. We in particular will be major beneficiaries. We are about to get another huge stimulus package – but one we don't have to pay for." Boom Boom? Terry ought to have a word with his paper's front page writers... "Lethal rain" this morning?
 
The Financial Times' Martin Wolf had easily the best commentary on the impact of the financial cost of the disaster: "Some outsiders do wonder whether Japan's government can afford additional spending. They need not do so: Japan can and unquestionably will pay these relatively modest sums. The Japanese private sector runs a financial surplus large enough to cover the government's deficit and export substantial capital abroad. Japan as a whole is the world's largest creditor, with net external assets equal to 60 per cent of GDP. In short, the assets of Japan's private sector vastly exceed the liabilities of its public sector. The government's debt is a way for the Japanese to owe money to themselves. At some point, no doubt, that debt will turn into taxation, either overt or covert (the latter via inflation and reductions in the value of Japanese government debt). Since total government receipts are still only 33 per cent of GDP, raising taxes should really not be so hard. The idea that the government confronts an imminent fiscal crisis strikes me as quite bizarre."

Malcolm Maiden wrote in the Fairfax broadsheets: "As troubling as the Japanese crisis is, if it does not get worse it will not threaten the markets in the same way as a European debt crisis, and its attendant risks of a global recession and a debt market shutdown that would once again starve the system and the Australian banks of funding. The quake will send Japan into recession this year. But it should be growing again next year as reconstruction gathers pace, and this year's downturn isn't likely to produce a sea change in the outlook for a slowly accelerating global economic recovery, led by China and the United States. The Japanese investment bank Nomura also observed yesterday that while Japan is Australia's second-largest export market, taking about 19.5 per cent of our total exports, Australia's post-quake trade exposure is not all negative. Demand for LNG and coal for power generation could rise in the short term." 

Fairfax's Insider, Ian McIlwraith, said this morning: "Investors in the uranium duo Paladin Energy and Energy Resources of Australia celebrating yesterday's modest bounces in the groups' share prices might want to check whether the gains were accompanied by a faint and painful ''miaow''. Paladin, whose shares dropped like a stone from $5 to $3.25 this week, clawed back 44 cents yesterday to a $3.70 close. ERA, the closely held and somewhat opaque Rio Tinto satellite, was crunched from $10 to $7 before yesterday's 73 cent uptick to $7.80. According to the Goldman Sachs analysts Neil Goodwill and Roscoe Widdup, though, the two had been overpriced for a long time, as had the price of uranium, and the seesawing fortunes of the nuclear reactors near Fukushima may well have introduced a dose of reality to trading."

And Fairfax's Ian Verrender wondered about the restrained movement in the value of the Australian dollar since the Japanese crisis started: "Curiously, it is the Australian dollar, traditionally one of the world's most volatile currencies, that has maintained most of its ground in recent days. It is probably drawing too long a bow to suggest Australia suddenly may have found itself a currency safe haven right now. But it clearly is better than the alternatives." The dollar fell under 98 US cents this morning, but the US dollar hit a 16 year low against the yen of under 80 yen.

The Australian's Tim Boreham agreed: "Every out-of-favour share has its price, with brave investors this morning tentatively weighing into the uranium sector, despite confusing reports about what's really going on at Fukushima. The latest we hear is that a fire has broken out in the stricken complex's number four reactor, which was closed for maintenance, but contained spent fuel rods. We also hear reports of easing radioactivity levels from leaking material in the other reactors. The disclosure and communication standards have been abysmal: Could Queenslanders spare Anna Bligh for a couple of weeks? After being hammered over two days, Australian uranium producers Energy Resources Australia and Paladin Energy led the sharemarket's recovery this morning, both up about 14 per cent. But the gains look fragile."

A day after John Durie on The Australian gave Future Fund chief David Murray both barrels, the AFR's Chanticleer columnist was in print this morning with a tutt tutt or two: "There are a number of disturbing aspects to the boardroom appointment debacle at the Future Fund and accompanying furore over chairman David Murray." "Outspoken Murray on the right track" declared the headline on the AFR website. Bizarre.

That comment was after the paper reported elsewhere: "For David Murray to remain chairman of the Future Fund, he has not only to convince the federal government to reappoint him, but also to see off competition from an unexpected corner – his own board." That confirmed the comment in Durie's article the day before that some of the Future Fund board opposed Mr Murray.

This morning, Durie was looking at dairying: "National Foods yesterday continued rationalising its dairy production with cheese factory closures, none of which had anything to do with those voracious supermarket behemoths Coles and Woolies. The harsh reality is Australian farming and manufacturing are doing it tough, and National Foods is doing what it has to do to stay in business a while longer. Its moves to shut two Victorian plants and cut 133 jobs also puts into context the bleating about how Coles and Woolies are killing the dairy sector – they are not." 

And Durie wrote on the paper's website yesterday: The People's Bank has done some house cleaning, with two key players in its recovery bidding farewell, and in the process freed about $10 million from NAB's wages bill. Deputy CEO Michael Ullmer is now free to take more non-executive roles when he leaves in August, after a seven-year stint with the bank. Stewart's long time deputy in the UK, Lynne Peacock, will also quit this year, a couple of years after her expected departure given she was expected to follow long time comrade Stewart out the door. Both Ullmer and Peacock are highly regarded and helped provide a stabilising force for the bank and later its then new 41-year-old boss Cameron Clyne when he took over in 2009."
 
According to The Australian's Matthew Stevens, Tabcorp will be making a statement, possibly today, on its ownership of Sky Channel: "Telstra has emerged as a cornerstone financier of a $400 million-plus bid for Tabcorp's television racing network, Sky Channel, by the thoroughbred industry's own broadcaster, TVN. The non-binding offer from the TVN-Telstra alliance, which is being advised by Macquarie and Melbourne boutique Canterbury Partners, was delivered to Tabcorp on Monday, March 7. The Tabcorp board rejected the offer by letter the following Friday, identifying price as a key failing of the approach, but also observing that neither TVN nor Telstra would seem to be the natural owner of an asset that has emerged as a key driver of growth of the Australian wagering market. It is understood that Tabcorp will today confirm to the markets both the approach for Sky Channel and that the demerging gambling company has not and will not seriously consider selling the business."
 
And the curious bid for BC Iron has gone, leading The Australian's Bryan Frith to write this morning: "Iron ore hopeful BC Iron (BCI) should consider taking Regent Pacific Group to the Takeovers Panel over the Hong-Kong group's purported termination of its proposed acquisition of BCI via a scheme of arrangement." And The Sydney Morning Herald's Liz Knight to write: "The usual rules of the game would see the various parties enter into some kind of real discussion. It is all well to engage in some media-based pressure tactics as long as it serves a purpose. Regent Pacific should be forced to proceed with the offer despite the fact that it might be voted down. If it wants a positive outcome, it could think about offering a price that recognises the potential of BC Iron to deliver some earnings over the next few years."