The Market Giveth and the Market Taketh Away

The market giveth and the market taketh away.  Or rather over the last two days it has taketh away before giving almost everything back.  After falling by nearly 1.5% on Monday, the All Ordinaries scrounged back roughly the same amount yesterday.

Our old favourites of BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) led the advance after starting the day lower.  BHP was up by 3.5% while Rio Tinto put on 3.1%.  AMP's Shane Oliver told Bloomberg News, "China's development has years to run and this will create big opportunities for investors via commodity shares."

We don't dispute Oliver's rationale, in fact not only do we not dispute it, we agree with it.  But where was this sentiment yesterday?  Isn't this all rather obvious?  The China story has been front and centre for at least the last four years, during which time BHP Billiton and Rio Tinto share prices have risen by about two and a half times.

Surely with the growth opportunities everyone is expecting, these stocks have further to run.

Speaking of good value, the management of Alinta (ASX: AAN) clearly think their company represents good value at the moment, given their intention to take the company private... with the help of who else, but Macquarie Bank (ASX: MBL).  Can we expect at least a reasonable portion of the company ending up in one of their infrastructure funds?  Ah well, good luck to them.

Angus Gluskie at White Funds Management told Bloomberg, "There's reasonable upside in Alinta's earnings and valuation over the next year or so and clearly that's also seen by management and Macquarie.  It's one of those classic deals where Macquarie can go in as a financier, as an adviser and as a participant."  He may have finished by saying 'And take a whacking great fee at every turn,' but he didn't, so we've said it for him.

Influential shareholder in Alinta, Babcock & Brown (ASX: BNB), the wannabe Macquarie Bank, holds 5% of Alinta and probably wishes that it had the clout and the connections to be mounting a bid itself.  Instead it will probably have to sit on the sidelines and hope they get a healthy premium for their stake.  Goldman Sachs JBWere analyst Kynwynn Strong said, "It appears the board is seeking to create bidding tension in the process which we view as positive for shareholders"

But it is good to see that the new year has pretty much started off where the old year finished.  A feisty market and nary a day going by without a sniff or mergers and acquisition activity from somewhere.

The only real dampener on things yesterday was the Retail Sales figures.  Although it probably depends which side of the fence you're on as to whether it was really bad news or whether it is good news.

The monthly retail sales figures for November was only up 0.2% compared with a 0.9% rise in October.  Initial thoughts would be that the interest rate rises and higher fuel charges at that time were having an impact on spending.

However we shall have to wait until next month to see whether this sentiment has flowed through to December and the pre and post Christmas sales figures.  Anecdotal evidence, especially for the Boxing Day sales was that shopping centres were seeing their highest traffic in years.

A one-off spend up over Christmas isn't likely to have a major influence on the Reserve Bank of Australia and it's interest rate decisions especially given the lower November number and what could be a lower January number if the spending brakes were applied in the new year.

Adam Carr, senior economist at UBS in Sydney told Bloomberg News, "It's [November retail sales] a soft outcome and shows the Reserve Bank has done more than enough on interest rates."

With all this excitement going on we hardly dare guess what will happen next.

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