THE DISTILLERY: Dark clouds

More gloom overnight, although by the time the selling wave had reached the US for a second day, it had lost much of its force and the losses eased, with some late gains in the last hour to end a long losing streak. Back home and the reaction from the jottery was predictable, ranging from questions for the Reserve Bank, to splashing on the weak retail figures, and ignoring the strong trade figures. Car sales were down, but the jotters missed the fact that there was a rise in the daily car sales rate in July compared with a year ago, a small bullish point.

The Australian Financial Review reported on its website: "Growth in much of the world's service sector was anaemic in July as firms around the world worried about the debt crisis in Europe and the US as a well as slowing consumer demand." And the paper also noted: "The Australian sharemarket plunged to close to a one-year low, following weaker than expect domestic retail sales data and as investors around the globe panic over signs the world's largest economy is stalling."

And the Financial Times reported this morning in its Asian edition: "Stocks are slumping and gold has hit another record of more than $1,670 an ounce as investors seek perceived havens on fears that the US economy is facing a double-dip recession and as worries about the eurozone's fiscal difficulties linger. Global stocks have fallen for six consecutive days, with the FTSE All-World index losing 6.7 per cent over that period to its lowest level since the turmoil following the Japanese earthquake in March."

The Australian's economics editor, Michael Stutchbury wrote this morning under a headline 'Reserve Band and Stephens need to provide some answers': "Some say the economy is so weak that interest rates should be cut. Some say interest rates must rise to snuff out inflation. What if both are right? What if the economy is weak but inflation is still bubbling up above the Reserve Bank's 2-3 per cent inflation target? What if the trade-off between economic growth and inflation has worsened? Glenn Stevens didn't have to answer this question after Tuesday's board meeting." Well, guess what, the RBA's third Statement of Monetary Policy for the year is out tomorrow morning, so be patient.

News Ltd jotter, Terry McCrann wrote this morning: "If leaving interest rates unchanged can knock $28 billion off shares' values, imagine what increasing them might have done. In truth of course, it wasn't so much the actual rate decision, but rather what both drove it and which in a sense the decision then formally recognised, that was reflected in the falling share market. First, note, that our market – broadly – just followed the overnight lead from Wall Street. Almost to the percentage point. Self-evidently the Wall Street drop had nothing to do with Australia. It was a form of buyer's remorse."

The Australian went mega gloomy today, reporting: "The worst retail growth in half a century and fears of a double-dip recession in the US have fuelled concerns of an economic slowdown and stripped billions from the value of Australian shares. Figures released yesterday revealed consumers have embarked on one of their biggest spending strikes in decades, boycotting the shops again in June and forcing economists to predict cuts to growth forecasts. Retail sales fell for the second month in a row in June, down 0.1 per cent after May's 0.6 per cent slump. The annual growth rate of 2.6 per cent was the lowest since 1962 – worse than the recession years of the early 1990s and the global financial crisis of 2008-09." That's the same tune as in the Fairfax broadsheets.

Fairfax reported: "NSW has fallen victim to the two-speed economy, suffering a collapse in retail sales in a year in which the rest of Australia inched ahead. Retail figures published yesterday show Australian sales rose a meagre 2.6 per cent during 2010-11 – the worst result for half a century, since the 1961-62 recession. And a push by struggling retailers to have the GST applied to more foreign goods bought over the internet is not expected to be endorsed today when the Productivity Commission releases its draft report into the retail sector."

Fairfax's Malcolm Maiden wrote yesterday on smh.com.au: "The Australian sharemarket lost another $30 billion in value before paring some of the losses as investors took flight from gathering gloom at home and abroad. Potentially brighter news for borrowers, though, is that markets are now expecting an interest rate cut – assessing such a move a better-than-even chance – when the RBA board next meets on September 6. So gloomy has the outlook become, however, investors are now betting the RBA will cut rates twice by Christmas and three times over the next 12 months."

And Fairfax's Michael West opined this morning: "All up we have a situation where Main Street has spent trillions bailing out Wall Street and propping up the economy. Yet at a time when economists had all predicted the world would be in robust recovery, America is sliding towards recession again. Meanwhile, the debt-ceiling debacle has coincided with the end of the Fed's stimulus. Until June, America had been merrily buying its own bonds, printing money and funding its own debt via "quantitative easing" programs. This had been propping up Wall Street. Going cold turkey on stimulus at a time when the economic statistics have just turned south … it's not going to last. QE, in some form, will start again soon - even as Washington has just gone to the brink of defaulting on its gargantuan debt."

And the AFR reported today in its capacity as the retailers' mouthpiece: "Retailers hope the Productivity Commission will recommend scrapping or lowering the $1000 GST-free threshold for imported goods today." Funny how other stories think nothing much will change.

But in the pie in the sky department, the AFR and other papers report: "The prospect of high-speed rail travel between Australia's eastern cities at cheaper rates than airfares will be unveiled today.” The Fairfax broadsheets reported: "The federal transport minister, Anthony Albanese, will today honour an election commitment and release the first stage of a $20 million study into building an east coast high speed rail network. As previously reported in the Herald, the costs of the entire project could run to as much as $100 billion, and the government is not about to commit to build a fast rail system any time soon." Fast trains are up there with Nullabor Nymphs, Yowies and mysterious panthers at Penrith as staples of Australian business media and political reports. Why not spend the money fixing roads and existing rail?

And the story also got coverage on news.com.au: "The long-held dream of a high-speed rail link from Melbourne to Brisbane would cost as much as $108 billion to build and the clearing of a corridor 200m wide and 1600km long. The daunting costs and land requirements are contained in the federal government's first report on an implementation study promised at the election, to be released today. But the potential of a very fast train service also were covered."

The Australian's Tim Boreham noted yesterday that a leading retailer had acquired a new big friend: "Myer hit another record low in today's abysmal market, but there's a new deep-pocketed friend lurking in the cut-price aisles. Chicago-based Harris Associates today revealed itself as a 5.08 per cent shareholder, having been actively buying between July 7 and August 1. Harris describes itself as a value investor, which strays outside of Wall Street for opportunities priced at a discount to assets."

And The Australian's lead commentator, John Durie, explained: "Chicago-based fund manager David Herro has made a career making big bets on dogs which eventually find support in the market when their value is understood. For this reason, Myer's Bernie Brookes should be pleased Herro has acquired 5.1 per cent of the retailer for about $65.7 million. This compares to the $119.1m he would have paid if he accepted the price charged when Myer was floated 18 months ago, but of course doesn't mean he has backed a winner quite yet. Over the years, Herro's $US5.4 billion Oakmark International fund, part of Harris Associates, has dabbled in a few Australian stocks such as Fairfax Media, Foster's and Goodman Fielder, with mixed success."

The Sydney Morning Herald's CBD column reported this morning: "The former Liberal leader John Hewson may have to prepare for another court appearance to explain his role at Elderslie Finance Corporation, after creditors passed a resolution yesterday to engage a litigation funder willing to subsidise various claims against the failed company's former directors. Three years since Elderslie collapsed owing $140 million to 4000 noteholders, creditors have agreed to separate claims of up to $32 million to be made against Hewson and other directors of the company."

The AFR's Chanticleer wrote this morning: "John Brogden steps up his campaign today to close the gaping lump sum loophole in Australia's retirement incomes policy." Didn't Brogden also lead the campaign against parts of the government's superannuation reforms?

Fairfax's Elizabeth Knight wrote this morning: "Next week's release of the Commonwealth Bank's 2011 full-year results will serve to direct some of the economic discussion away from the beleaguered retail sector and, instead, point the spotlight on how the lack of consumer confidence is playing out in the banking sector. Two issues that will be placed under the microscope are the subdued level of credit growth and the level of bad and doubtful debts. For banks, this loss of broad consumer confidence will place pressure on earnings growth – and in the case of CBA, its market share slippage in mortgage lending is one area that investors will be keen to have it address."

The Australian's John Durie wrote on the paper's website yesterday: "Now Charter Hall chair Roger Davis has sold his US portfolio for about $US1.7 billion ($A1.58bn), the question is just how much will be returned to unitholders, with some expecting around $600 million, or $1.20 per unit. The buyer was REIT-based Beacon Capital. Davis and his advisers at Merrill Lynch have moved quickly and, in the scheme of things, done very well to get close to book in a market best described as difficult."

And finally, The Australian's Bryan Frith writes this morning: "It's easy to disagree with the assertion of Macarthur Coal chief executive Nicole Hollows that the $4.7 billion joint bid by Peabody Energy and ArcelorMittal is not hostile. Hollows claims the bid concerns the strategic value of the company and, in that context, is welcome. She also said that talks with the joint bidders had been positive and professional, and Macarthur would continue to talk to them and other interested parties. No doubt that's correct, but Peabody and ArcelorMittal have been forced to go to Macarthur shareholders after failing to obtain agreement with the Macarthur board on a recommended bid, and that constitutes a hostile bid."