Different ways the US pain hurts

The US can sneeze and China will stop us from catching cold? Look at Boral's profit and the $13bn sliced off the value of the Big Five banks.

Different ways the US pain hurts

The US can sneeze and China will stop us from catching cold? Take a look at Boral's profit and the $13 billion sliced off the value of the Big Five banks.

The linked but very different problems in the US drilled right into Australia via these companies and stocks.

On the one hand the - in the words of Boral CEO Rod Pearse - "deep contraction'' in US house building. I'd say he's gilding the lily with those words. Try instead depression.

On the other, the subprime financial meltdown which has forced up the cost of finance for our banks. Some of which they've passed on to borrowers, some of which they've passed on to shareholders.

In the case of the Commonwealth, shareholders copped $100 million in the half. That became $13 billion wiped off the value of CBA and its peers. Even though the CBA is relatively least exposed to the US cost flow-on.

You would have to say that Boral's share price performance yesterday came close to being the "market event'' of the week if not of this month so far.

Earlier in the week JB Hi-Fi reported a 60 per cent leap in its profit and its share were whacked 8 per cent.

Yesterday Boral reported a 10 per cent profit fall and its shares were hit? Actually, they rose 7 per cent.

Now, no, investors weren't being - entirely - irrational.

JB has been a stock priced not just for perfection but continuing tomorrow perfection. That's to say that the consumer-spending electronics boom will not just continue but continue to accelerate.

Now the message is beginning to percolate that the better a company like JB does today, the "worse'' it's going to do tomorrow. Because it will mean the Reserve Bank will have to come down even harder with interest rate hikes.

You might actually say JB has become an - unwitting -  early warning proxy for the "success'' of the RBA policy. When its numbers go (relatively) sour, the policy will have worked and the RBA will ease off.

In the case of Boral, its profit fell but it greatly outperformed expectations.

That though might prove short-lived. The US ain't going to get better any time soon. In the half US operating earnings were off 68 per cent or $61 million. Australian operations were up $42 million or 15 per cent weren't enough of an offset.

You wanna bet building materials and products in Oz continue to go up, along with interest rates?
Interesting to see Boral bracket NSW with the US in its recent comments.

Now the performance of a Boral due to the downturn in its US operations only affects Australia in terms of corporate and share market performance. There's no direct impact on ordinary Australians, whether incomes or jobs.

The banks though are very different. There are a number of direct impacts.

The obvious one is those "extra-curricular'' rate rises. CBA CEO Ralph Norris indicated there might be more.

Then there's the very real likelihood that, more expensive or not, actual flows of US funding could slow.

The CBA numbers are also the first to show signs of borrower-stress in Australia. No we don't have a subprime problem but we are starting to see rising consumer and business bad debts.