Reporting season kicks off with a few surprises

Reporting season is underway now, with more than 50 of Australia's nearly 2,000 listed companies revealing warts and all to the market. The results have been mixed so far, some preferring to confess all as soon as possible, so they can look forwards and move on. Some companies have surprised even the most optimistic analysts.

One of my favourite companies, JB Hifi, revealed this week that net profit had increased a recession-defying 45% since last year. JB's shares are currently close to an all-time high of $18. The share price has risen 132% since its November low, and the final dividend has been increased from 16 to 29 cents. Certainly the 'Rudd-money' would have helped these juicy results, but fundamentally JB is an efficient business in its growth phase.

Commonwealth Bank of Australia's results were not quite so appealing. Over the year, net profit fell by 9%. The second half

What about BHP? Its lucky seven-year run of record profits has stopped. Maybe it's a good omen; eight would have been lucky for the Chinese, not Australia. due to lower prices and lower demand. The dividend was left at US$0.41. I'm sure BHP would have preferred to reduce it and conserve the cash for the slush-fund or future acquisitions, but shareholders take offence to that sort of thing.

As with an insurance policy, it is painful but necessary to read the small print with financial results. There can be hidden surprises, which improve the figures a touch. Modern accounting can be used for http://www.dailyreckoning.com.au/it-wouldnt-be-a-real-bear-market-rally-if-it-didnt-test-your-confidence-in-your-position/2009/04/14/">the income statement is fantasy science fiction."

The coming weeks will be very exciting as companies gradually release their results. Which companies will emerge from the abyss smelling of roses? Whose balance sheets will stink?

"Saudi-sized structures, they are that big."

That's GNS Science's David Darby's take on the oil reserves contained deep off the coast of New Zealand's Taranaki Basin.

He estimates up to 10 billion barrels of oil could be recovered.

That's more oil than Norway, Oman, India, Indonesia and the United Kingdom.

Of course, this oil has to be found first.

China comes resource shopping

With two trillion dollars burning a hole in their wallets, and the spectre of inflation looming over their eight hundred billion dollar investment in US Treasury bonds and notes, China is looking for hard assets to invest in instead.

Three of the Felix directors own nearly half of the shares between them, and stand to make over half a million dollars each. Will China have paid too much if the deal goes through? Not really, considering it is a foreign buyer. China has long-term energy needs. This deal would provide a secure source of coal from outside its shores, from a politically stable trade partner.

As for the relationship between Australia and China, it is promising that the authorities have downgraded Stern Hu's charge from 'stealing state secrets', to the less serious 'receiving bribes'. The Chinese authorities also recently made their presence felt in Australia by repeatedly crashing the Melbourne International Film Festival website in reaction to the showing of a political film that they had a problem with. As Glenn Stevens mentioned in his speech a few weeks ago, our relationship with China delivers many benefits, as well as some 'challenges'. Media censorship, for example.

Credit Unions take on the Big Four

Since Lehman Brothers collapsed, >lending to less credit-worthy and, ahem, 'sub-prime' characters?

Haven't we read this book before?

US' hidden debt time-bomb

It's no secret that the US has a spot of debt to deal with.

At the current rate that consumer debts are being payed off, it would take another >US spending is $530 billion MORE than this time last year. Half of this is going to Freddie and Fannie, the evil twins propping up the U.S. mortgage market.

In fact, some of the rise will be due to >US' Social Security and Medicare liabilities. The Medicare trustees have declared that the credit crunch has brought forwards the shelf life of the fund used to pay beneficiaries, from 2019 to 2017. It is only good for another Eight years! Medicare would need to deposit $13.4 trillion to be able meet the scheme's scheduled benefits. The program faces the prospect of insolvency.

Social security benefits are about 4.4% of the economy last year, and are expected to rise to 6.2% in the next thirty years. This program also faces the possibility of becoming insolvent. Interestingly though, something often missed is that the cost of nursing homes will be even higher than social security.

These increases are driven by increases in standards of health care offered, but more heavily by demographic changes. Retirees are living longer. Due to the demographic bulge of the baby boomer generation, the ratio of retirees to workers is going to increase steadily. This could cause resentment between generations in the future.

All these long-term liabilities obviously have to payed for. It seems inevitable that politicians will have no choice but to raise taxes. The working generation could easily come to resent the retirees, when their taxes are repeatedly increased to pay for years of expensive healthcare.

Is it wise to start chasing the bulls right now?

Global stock markets continue their phoenix-like recovery from the embers of the global financial crisis. But Dan Amoss has spotted

Bear in mind the bubble in China as well. The loan base has expanded by over a third in the last year. It is inevitable that asset speculation will ensue. When will the bubble burst? No one knows, but the world will feel it when it does.

Take a few minutes this weekend to look at this article as well from Nouriel Roubini's analyst team at RGE monitor, which points out

About the author: Dr. Alex Cowie holds a Graduate Degree in Finance and Investment from the Financial Services Institute of Australia.