THE DISTILLERY: Rates punt

The Murdochs tap danced in London, Cadel Evans rose a place in France and markets surged on suggestions there could be a deal on the US debt ceiling (which still has to get through the Tea Party intransigents in the US House of Representatives). Back home, Tabcorp backed itself and won and the Reserve Bank poured realism on that rate cut talk. But that still hasn't stopped some in the jottery pining for one. But the harder heads were confidently asserting that our old favourite, Rate Rise Looms, will be in the spelling paddock a while longer yet.

News Ltd's Terry McCrann wrote this morning: "Absent an inflation shock next week, interest rates are certainly not going to be raised at the next Reserve Bank meeting the following week – and almost as certainly not at the next two in September and October. But absent a global debt shock, the RBA is just as certainly not going to cut rates at the August meeting and, only slightly less certainly, not in September or October either. This will focus huge attention, and a lot of punting, on the traditional Melbourne Cup meet on that first Tuesday in November. Then, will the RBA hike? Or cut? Or do nothing?"

Fairfax's Elizabeth Knight said: "The chief economist of Westpac, Bill Evans, became a national hero last Friday. He was virtually unknown until then outside business and finance. But thanks to his call that the next movement in interest rates would be down rather than up, he has rebooted the national conversation on the issue. Until he made this rather bold prediction, the view of most economists was divided between those who thought interest rates would stay on hold for the rest of the year and those who believed they would rise towards the end of this period. Evans may have lost this Robinson Crusoe status yesterday. The Reserve Bank released the minutes from its board meeting on July 5 which showed there was no clarity on which way inflation could go."

The Australian Financial Review's economics editor, Alan Mitchell wrote this morning: "The chances of the Reserve Bank of Australia moving interest rates in any direction after next month's board meeting are remote." And the paper said in an editorial that: "The minutes of the Reserve Bank's July meeting weren't bleak enough to prompt more predictions that the next move in interest rates will be down."

The Australian's John Durie wrote this morning: "Discretionary retail stocks hit 27-month lows yesterday, and Myer a new low of $2.37, which means that the focus of today's Woolies fourth-quarter sales numbers will be firmly on Big W and Dick Smith. The gloom spread through the sector, with a 40 per cent downgrade in Merrill Lynch forecast numbers for Pacific Brands to $95 million in 2012 from a forecast $145m for the 2011 year, helping to push its stock price to a 27-month low of just 63.5 cents. If discretionary goods is not the place to be, then Woolies' reported tactic of boosting margins on branded discretionary groceries must be a short-term strategy."

Michael Pascoe wrote on smh.com.au: "The view is different from the top of the Reserve Bank headquarters in Sydney's Martin Place. While most of us can't see past the thicket of headlines trumpeting the latest possible disaster or hear ourselves above the political screaming match and the squeaky wheels making the most noise, the RBA focuses on a longer perspective available above the heads of tabloid media and shock jocks. And with that view, the RBA doesn't see anything that looks like an interest rate cut. The dampening effect of our exchange rate, the flattening out of employment growth, the longer time required for some Queensland coal mines to get back into production, the supply chain delays caused by Japan's disasters, the caution of consumers all add up to creating time for the RBA to consider the eventual inflationary impacts of the commodities and capex booms – not a reason to consider cutting rates."

The Australian's John Durie also wrote this morning: "Finally Australian companies are taking advantage of the historically high dollar to diversify the risk and earnings potential of their operations. BT's Emilio Gonzalez joined the party yesterday. The $314 million J O Hambro deal, on paper, comes at a cyclical low in the European investment market and a cyclical high for the dollar against the pound." Yesterday Durie wrote on the same deal on The Australian's website: "BT's UK acquisition is timed superbly from a currency perspective, but the issue is whether its target has peaked as the currency has bottomed. BT boss Emilio Gonzalez was at Perpetual when it made its ill-fated offshore move, so hopefully today's Hambro acquisition performs better. The sharemarket reaction was negative, with BT down more than 4 per cent at $2.35 a share in the face of a $113 million capital raising at $2.15 a share, or a 12.5 per cent discount to yesterday's closing price of $2.45 a share. Hambro has $10.7 billion under management after receiving net inflows of $3.9 billion in the last year, which suggests the management team is running hot."

The AFR reports that: "Australia's bank regulator has asked the big four lenders to draw up plans setting out how they would break up and sell off their businesses if caught in another crisis." That's what's called a "living will", and it's part of an international move by regulators.

On the Tabcorp deal, The Australian's Tim Boreham wrote yesterday: "In fewer words than the maximum allowed tweet, Tatt's this morning conceded defeat in the two-way tussle to procure exclusive rights to the Victorian retail wagering (tote) licence for the next 12 years. "Tatt's Group today has been advised that the Minister for Gaming has determined not to award it the Victorian wagering and betting licence," the company intoned. The spoils of victory go to the incumbent – Tabcorp – which will pay the state $410 million for the ongoing privilege of linking its brand to spring racing horseplay. In deference to the times, the licence also allows Tabcorp to conduct a betting exchange (move over, Betfair) and conduct "simulated racing events" (real nags are too much trouble, after all)."

Terry McCrann also made a couple of good points on the Tabcorp deal in another column this morning: "The deal leaves unanswered big questions about the future and the structure of the gambling industry. Although obviously they were not intended to be answered by this deal and never really could have been. They parallel exactly those facing retail – and indeed newspapers. Broadly, how much of the future is going to be online? The peculiar twist for Tabcorp, its store-front advantage, is its still-dominant betting pools. Tabcorp is a Myer or David Jones. Its business is essentially in the physical world of 626 outlets and the equipment on 87 racecourses. That's just Victoria – there's another 1976 outlets in NSW plus its racecourses."

And The Australian's Bryan Frith wrote: "Tabcorp was always placed best to win the new 12-year wagering and betting licence from the Victorian government. It had the power of incumbency and that should never be underestimated. Tabcorp was bidding for a business which it already owns. In fact, it has been operating the off-course totalisator betting in Victoria for the past 50 years. So in framing its tender, Tabcorp was in the best position to understand the performance of the business, the opportunities for growth and the risks. Tabcorp initially had two competitors: Dick McIlwain's Tatts Group and the British betting group Ladbrokes, which pulled out late in the process."

Business Spectator's Stephen Bartholomeusz explained why Tabcorp's form was solid enough to win: "The only surprise in the announcement that Tabcorp has retained its Victorian wagering licence was that it wasn't made a year earlier, which is when the former Labor government originally planned to make the decision. In fact, the delay made an already probable decision in Tabcorp's favour more certain, particularly once Ladbrokes pulled out, apparently in frustration with the prolonged process, leaving Tabcorp and Tatts Group to fight it out. Tabcorp was in the box seat because it has been operating the Victorian totalisator for 50 years. It has the intellectual property, the retail distribution network, the systems and the staff."

And Fairfax's Elizabeth Knight also wrote yesterday: "It was particularly interesting amid all this doom in consumer discretionary spending, that Tabcorp Holdings announced yesterday it had paid $410 million to the Victorian government to secure a 12-year licensing agreement to operate the state's wagering business. The company, which was under intense pressure to put in a winning bid for the wagering licence, takes the view it can still make a solid return and earn $120 million before interest, tax, depreciation and amortisation under this new deal. But Tabcorp will be under pressure. If the softness in discretionary spending spreads to bets on the horses or dogs, these earnings projections may fall short of reality."

The AFR's Chanticleer claims that: "Tabcorp Holdings won the two-horse race for the Victorian wagering licence with a $410 million bid that benefited from information not available to Tatts Group."

The Australian's Matt Chambers says yesterday's second quarter report from Woodside had good news on production and revenue, and a touch of conservatism on expanding a controversial project: "Woodside Petroleum's chances of this year approving a $10 billion expansion of the beleaguered Pluto liquefied natural gas project in the nation's northwest are slipping, after new chief executive Peter Coleman delayed major equipment orders on the project. In its second-quarter report, released yesterday, Perth-based Woodside said it still had not ordered equipment that would take a long time to supply – known as long lead items – for a second LNG train at Pluto." That might explain the solid price rise yesterday.

And finally, Fairfax's Insider, Ian McIlwraith wrote this morning: "Former Computershare employee Justin O'Brien's guilty plea yesterday on four insider-trading charges that could earn him up to 10 years in jail has come barely six months after he committed the offences. Whether the speed is a result of the ''Under New Management'' shingle hanging outside the Australian Securities and Investments Commission, or just O'Brien realising that the odds were stacked against him, Insider does not know - but either way it sends the right signals about surveillance and vigilance."