The Sydney Morning Herald from Sydney, New South Wales, Australia • Page 39

38 WORLD BUSINESS tThe Svimtv Horning $fralb MONDAY, FEBRUARY 9, 1998 SIX-YEAR SURGE CONTINUES MAKING MONEY LOTS OF IT US companies lift Mr earnim gs oysP.apc on 30-year Treasury bonds ended the year below 6 per cent. "The economy is growing fast enough" to keep corporate profits rising this year, said Mr James Penner, chief investment officer of the Montana Board of Investment "It's a reasonably good scenario for the market" Analysts now expect a 6.2 per cent increase in first-quarter profits, compared with a 10.1 per cent forecast on January 9, Mr Hill said. The Asian economic crisis will affect 1998 earnings and stock values, analysts said. The DJIA sank 8.7 per cent October 27 amid the turmoil. The index lost 37.01 points in the quarter and has gained 3.7 per cent this year.

Asia's problems affect US profits partly because the dollar's rise lowers revenue from companies' overseas units. Bloomberg reporting earnings, said Mr Charles Hill, director of research at First Call Corp, which collects analyst estimates. On January 9, analysts expected fourth-quarter profits from continuing operations to rise 7.8 per cent, down from 13.2 per cent in early October, he said. Corporate cost-cutting and cash management helped offset the effect of the strong US dollar to push up profits. A strong dollar makes US exports more expensive and helps US sales of products from countries whose currencies have plunged, such as South Korea, Thailand and Indonesia.

The US economy grew at a 4.3 per cent annual rate in the quarter, capping the strongest annual growth in nine years. Inflation was less than 2 per cent, the lowest pace in more than three decades, and yields help manufacturers and other so-called cyclical companies by making it easier for consumers to borrow to buy houses, cars and other big-ticket items. "The global economy, excluding Asia, is strong and not overheated," said Mr Timothy Ghriskey, senior equity portfolio manager at Dreyfus A construction boom fuelled gains at building materials and construction-related companies, such as Masco Corp, Bethlehem Steel and Case. AMR Corp's American Airlines, Delta -Air Lines and other carriers, as well as oil companies with large refining units, such as Exxon and Chevron, benefited from oil's 19 per cent drop to $19.96 a barrel in the fourth quarter from a year earlier. Analysts cut their profit expectations in the two months before companies started New York: US companies' fourth-quarter earnings increased 9.3 per cent, extending a six-year surge amid rising consumer spending and low interest rates.

The gain from the year-earlier period exceeded analyst estimates, though growth slowed from the third quarter and a slide in Asian sales could trim profits this year. Of the 384 companies in the Standard Poor's 500 Index that have reported earnings so far, 45 per cent beat analyst estimates, a drop from 55 per cent in the previous three months. It was the first time in two years that fewer than half the 500 surpassed estimates. General Motors Corp, Caterpillar Inc, Cooper Industries, Dana Corp and other industrial companies logged some of the biggest gains. Low interest rates 1 Next, on ice director Julie Taymor at the opening of The Lion King musical on Broadway.

Wall Street back in love with films NEWS IN BRIEF CcnmoirarocUh Bank Interest Rates Directory Pricing probe London (AAP): Britain's Office of Fair Trading is considering holding an inquiry into predatory newspaper pricing, following complaints from competing newspaper groups about the price-cutting practices of Mr Rupert Murdoch's News International By DAVID HAY in Los Angeles Wall Street has fallen back in love with the Hollywood film studios. That is, except for Seven Network's 26 per cent owned Metro-Goldwyn-Mayer. Since October 1, Bloomberg's index of 25 entertainment industry stocks has surged 18 per cent. By contrast, the Dow Jones Industrial Average has just begun to climb back over October's 8,000 mark and Standard Poor's 500 index is up just 5 per cent. The star performers have been the Disney Company up 32.7 per cent since October 1 and Viacom, which owns Paramount Studios, which has seen the value The soundtrack, sold 11 million copies and then Disney ran the film on its struggling ABC TV network to help boost ratings.

Late last year, Disney opened the musical version of The Lion King on Broadway. Costing SUS14 million, the show was an instant hit with ticket sales alreadv reaching SUS20 million. "The worst part of this business is the movie business," one analyst said. "It's highly capital intensive and has low profit margins. The great companies have theme parks, record companies, basic or pay cable companies, all of which feed off that content company (the film studio) at its core." of its stock rise 3 1 .6 per cent in the same period.

Mr Rupert Murdoch's News Corp is back in favour with its share price rising nearly 20 per cent in the past four months. But the entertainment sector's return to grace has not helped the price of MGM shares. The stock closed Friday at SUS18.75, below the SUS20-a-share price for the studio's float last November. Wall Street has been impressed by Hollywood's recent successes. Paramount and News Corp's Fox subsidiary will benefit from Titanic's almost unstoppable performance.

In the US, analysts predict Titanic will become the highest grossing film in first release ever, topping the SUS400 million ($595 million) mark. Having grossed SUS600 million worldwide, Mr Murdoch told Wall Street last week that he expected News Corp to reap a SUS100 million profit from the film. Disney's rise has come as Wall Street has become a believer in the giant entertainment company's "synergy A classic example of this strategy is Disney's animated film, The Lion King, made at a cost of SUS55 million in 1994. The film grossed SUS767 million here and around the world. It sold SUS520 million of videos.

Fans bought SUS3 billion of Lion King merchandise. Banked up Standard Variable Rate (effective 22997) 6.80p.a. 1 Year Guaranteed Rate (New borrowings for housing purposes only eff 4897) 5.99p.a. Base Variable Rate (effective 22997) 6.15p.a. open its short-term financial markets to foreigners in stages this year as part of its efforts to ease its severe foreign currency crisis.

From February 16, short-term financial instruments, including commercial papers, trade bills and commercial bills, will be open to foreigners. Net losses New York (NYT): The long-falling stock of Netscape Communications Corp, once the highest flier of the Internet, jumped last week because of rumours that Sun Microsystems might buy it. Netscape recently said it expected to report a loss for 1997 of $US1 15.5m and lay off 400 of its 3,200 workers. Thai banks taken over Bangkok (NYT): The Thai Government has nationalised three leading private banks First Bangkok City Bank, Siam City Bank and Bangkok Bank of Commerce after failing to attract foreign investors to bail them out Officials from the central bank say they do not intend to keep the banks for long. FTSE going well London (Bloomberg): UK stock analysts are re-assessing forecasts after the FT-SE 100 index of top British stocks eclipsed targets set for the end of the year in just one month, as mergers and stable interest rates have sent stocks to record levels.

The index closed at a record 5629.7 on Friday, its sixth record in eight trading days. Major to be a $1.24 million man Fixed Rate 1 year (eff 25997) 2 years (eff 25997) 3 years (eff 10198) 4 years (eff 10198) 5 years (eff 10198) Tokyo (DJ): Japan's lower house of parliament at the weekend passed two bills permitting the use of up to Y30 trillion in public funds to shore up it banking system. No silver lining New York (Bloomberg): Silver fell from Friday's nine-year high as Eastman Kodak Co, the world's largest silver buyer, said it has already secured half the metal it needs this year at well below current prices. Silver for March delivery fell US22c, or 3pc, to $7.06 an ounce. Tools' rush in New York (Bloomberg): JP Morgan Co's shares rose 4.3pc amid speculation dismissed as "foolish" by analysts that Deutsche Bank AG may be talking to the bank about an acquisition.

6.25p.a. 6.55p.a. 6.49p.a 7.25p.a. 7.25p.a. former German central bank president, is an adviser.

Carlyle is one of the most profitable businesses per employee in the world. According to the Washington Post, its 110 employees generated profits of more than 600 million in 1997. It specialises in investing in privatised companies and then selling them for huge profits. It now intends to target the European market and has opened offices in London, Munich, Paris and Milan. It industry experts to pay as much as 500,000 ($1.24 million) a year.

is peanuts for them when they have raised almost 750 million to enter the European market," said one rival firm. The Carlyle Group is run by Mr Frank Carlucci, a former US defence secretary, who. held posts in every administration from Kennedy to Bush. Mr James Baker, the former US secretary of state, is also on board, and Mr Karl Otto Pohl, hired the former US ambassador to Germany to help set up the European operations and employed former President George Bush to give speeches at dinners throughout Europe in an attempt to woo investors. Since losing the election, Mr Major has sold the rights to his biography for more than 500,000 and has become a regular speaker on the international lecture circuit for fees of more than 25,000 a speech.

The Sunday Telegraph The former British Prime Minister Mr John Major is poised to land his first job since losing last year's general election. He is talking to a firm of secretive American financiers run by an ex-US defence secretary with a view to becoming an adviser. Mr Major, who worked in finance before entering politics, is set to join the Washington-based Carlyle Group which is hoping to exploit his contacts in its plans to expand in Europe. The part-time post is said by Opening up Standard Variable Rate (effective 22997) 6.80p.a. (may also apply to home loans, except those at the base variable rate, where the property is leased) 1 Year Guaranteed Rate (New borrowings only eff 4897) 5.99p.a., Base Variable Rate 1 (effective 22997) 6.15p.a.

(may also apply to base variable rate home loans where the property is leased) Seoul (DJ): South Korea's Ministry of Finance and Economy said it would fully Goldilocks is back, oh Lord Corrmonwealth Bank Interest Rates Directory MClBiQSiniall Australia Bank Tailoring banking to your needs I BetterBusiness Loan Variable rate (effective 18897) 7.15p. Iff Fixed Rate 1 year (eff 25997) 2 years (eff 25997) 3 years (eff 10198) 4 years (eff 10198) 5 years (eff 10198) 6.25p.a. 6.55p.a. 6.49p.a 7.25p.a. 7.25p.a.

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A year ago a set of numbers like that would have sent bond yields soaring and share prices plunging. This time around a quick sell-off was rapidly overtaken by a recovery that sank the benchmark long bond yield to 5.91 per cent from the 5.93 per cent it hit the previous day when rumours of immunity for Monica Lewinsky hoisted it from 5.86 per cent. All this in turn reinforces the kevlar vests of share market optimists as four records in five days on the 500 shows. They don't see interest rates rising any time soon; the quarterly corporate earnings reporting season didn't prove disastrous and, whatever anyone else might say, they do not see a lagged Asian impact hitting US corporate earnings in later quarters. Those who were negative while shares were falling are optimistic now they are (effective 18897) 7.90p.a.

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For more details about Home Loans and Investment Home Loans, call 13 2224 8am 10pm, 7 days TAILORED PERSONAL LOANS Variable Rate Fixed Rate (eff. 29997) (eff. 5296) 1 Fully Secured (owner occ 1st 8.25 PA 10.95PA residential mortgage or term deposit) 2 Fully Secured other security 11.25PA 12.25PA 3 Partly Secured 12.00PA 13.00PA 4 Unsecured 13.00PA 13.75 PA Residential Equity Rate (effective 6897) 6.80p.a. Capital Business Card Index Rate (effective 1997) 12.00p.a. crisis has been the size of gains and losses resulting from the meltdown.

But it's not just officialdom that was caught short by the shorts. The markets were too. Even on the day of the Thai devaluation, three-month forward pricing across Asia was grossly underestimating the contagious fall-out on to spot rates. Three reasons are offered by the IDEA analysts (who should know because they spend their lives talking to the world's major banks, 26 of its central banks and virtually all the major hedge funds). One, investors often act like a herd in bull markets as well as while panic selling.

Two, there were inefficiencies in information. And three, as with Mexico's crisis a few years ago and the European ERM attack in 1992-93, there was a strong incentive for money managers to ignore growing signs of vulnerability and wait for the first shoe to drop because their performance is measured against benchmark indices. Hong Kong in particular is said to have contained a collective will to ignore these risks and, despite the tumbles (or because of the bouncebacks), this "will" apparently still is alive and well amongst those with exposure to Hong Kong or large financial stakes in it. Although all this is interesting in its own right, last week's mood on Wall Street seems to reflect many of the same aspects. Perhaps they're universal truths for all markets, perhaps not.

But you have to wonder what's coming in the air tonight, oh Lord. The answer is nothing but more good times, according to bond market optimists who believe Alan Greenspan has given them a bullet-proof vest to wear until Asia recovers from the flu. Friday was a perfect example with the release of the January job numbers showing far, far greater than expected growth of 358,000 new jobs, an unemployment rate stuck at 4.7 per cent and an increase in average hourly earnings to an annu-alised 3.8 per cent YOU can almost forget about the Asian crisis, President's Clinton's problems, slowing US corporate earnings and the need for Wall Street's sharemarkets to reexamine valuations. Likewise the looming showdown over Iraq and a brace of other problems. It's the week after the week that America grew bored with all the quibbles and blew the 500 index (and almost the Dow Jones Industrial Average) to new record highs.

The week when it decided that the Goldilocks economy was back and the only thing to fear was not fear itself, three bears or a bunch of toothless tigers, but not getting set in Microsoft before its share price hit a pe of 55 times. Nothing really changed, of course, apart from the mood. Away from the mood things got worse. Fed chairman Alan Greenspan had warned those blithely insisting that the Asian meltdown wouldn't have much impact on the US that the Asian contagion could not really be expected to show up for a few months anyway. Pessimistic economists began warning that Asia would knock up to three-quarters of a per cent off US GDP growth this year and widen the US current account deficit and a few more companies warned of troubles ahead.

But few were in the mood to listen including President Clinton, who was busily putting his monicker on a much-trumpeted balanced Budget and talking about how to spend future surpluses, even though chairman Greenspan had already warned that there was no guarantee that the projected surpluses will actually materialise because Washington arithmetic isn't very good. Dr Greenspan wisely decided to say nothing but concentrate on trying to push through an extra SUS19 billion ($28 billion) in funding for the Like others, he seems to believe that it's going to need it and that, as the song puts it going up. FLEXIPLUS MORTGAGE (eff. 29997) 7.70 PA Shareholders' FlexiPIus Mortgage (eff. 29997) 6.70 PA For above accounts when in credit (eff.

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They've a lot of reasons for thinking that's on the cards and some even more interesting reasons for thinking that markets and the powers-that-be will once again be over-powered by events. 0ne simple and practical reason for the spread of the Asia crisis has been the size of gains and Not the least is IDEA'S assessment of what actually happened in Asia in the first go-round. Their scorecard shows the central banks as the big losers, beaten hands-down by hedge funds and the treasury departments of some investment banks. The central banks not only lost their shirts but, in the case of the Bank of Korea's Maginot Line defence of its chosen US dollar exchange rate, all their usable reserves. Those wicked hedge funds meanwhile simply doubled down and won again.

(No pun intended.) In short, they made enough money out of the initial stages of the crisis to put even larger bets on running short positions against other Asian and emerging market foreign exchange arrangements. According to the experts, one simple and practical reason for the spread of the Asian Commonwealth Bank Business Card Revolving Credit Option Index Rate (effective 1997) 12.00p.a. Charge Card Option (cash advances only) (effective 1997) 16.45p.a. Corporate Loan Overdraft Reference Rates Monthly charging cycle (effective 18897) 8.45p.a. Quarterly charging cycle (effective 18897) 8.55p.a.

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Commonwealth Bank of Australia ACN 123 123 124 W75374 They may be right. They also might be taking the Goldilocks scenario to very lofty heights, because if Asia is on the recovery road and there are no major lagged effects on US corporate earnings or offsets to inflation, Mr Greenspan is likely to return to his worries about tight labour markets generating inflation. Not that even the on the whole, are overly optimistic. Pru strategist Ralph Acampora, for example, has a target for the Dow only 300 points above current levels' and he's not sure when he'll go back to his call of a 10,000 point Dow. For now though we're back to "the trend's your friend" on Wall Street Those, who were negative while shares were falling are optimistic now they, are going up and they are likely to be so until a significant news event breaks the momentum.

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