massiv correction

The pre shocks are but a warning of the big shake out to come. I would be reluctant to use the word Crash because with the new world of more than an additional 3 billion people after the last crash on October 19th 1987 there are certain characteristics about the market that will have to be re written today.

The Snowy Hydro back off by government was on the advice of the major underwriters to the scheme and their advisors. Whats worse is that government economists have agreed. And the bill for this failure is not as reported as a mere $20 million, it is a staggering $57 million plus in lieu of damages there will be a certain figure on top of that payable to all underwriters who committed. The total bill will exceed $100 million!!!

Whats happening here is that the economists have predicted a massive fall in themarket within the next few months (read imminent). The underwriters do not wish to be caught holding unsaleable stock at their book prices so they have all availed themselves of the 'out clause' drafted by three of the most prominent legal firms which allow the parties to collectively back out if market conditions are such that the float will be unsustainable. Telestra will not go ahead either but no announcement is forthcomming.

The 'out clause' allows all underwriters to be paid for and to claim damages and compensation for funds earmarked for the purpose (which includes not yet raised but certain to be raised if conditions were met, a defined clause) which were not used and which now have to be redeployed to earn a reasonable income by the standards not of the market, but of the average the funds manager would have earned for their clients.And what would that have been to Macquarie??

There are a number of other sweet heart clauses which the government could not possibly disclose because comming from the government that its economy is fragile will make a bad situation worse. Confidence will fall. We are in for a very very rough ride and yes John Howard will resign as will Costello but not as immediate.