It may well be the season to be jolly
While economists make it sound like it'll be pretty bleak, the sharemarket is well into the spirit, or spirits, as the case may be. In fact, retail stocks are almost looking hot.
Remember the two-speed economy when mining was forging ahead and manufacturing was being squeezed?
Well, we seem to have moved on to a different dual economy. In this one consumers are willing and able to spend - provided, that is, there's a sale or a bargain on offer - but business owners won't do their bit and invest.
This seems strangely back to front considering Treasury and the Reserve Bank are forecasting unemployment will be rising for another year, hardly a morale booster for would-be spenders.
At the same time, the dollar's drop should be good for corporate Australia, chuffed as it is by the change of government in Canberra to something more pro-business, or at least less anti-everybody.
Really, there's much to be encouraged by. Interest rates have never been lower. Those with mortgages are typically well ahead in their repayments. Better still, if you've paid the home off, or have an investment property, there's the prospect of a decent capital gain for the first time in yonks.
Self-funded retirees are feeling the pain of low rates but for some the rebound in property and shares is more than making up for it. That's certainly the case for most super funds.
Even though the sharemarket is due for a correction, especially the booming bank stocks, it's likely to be short lived.
That's because the central banks of the US and Japan are pumping out money like there's no tomorrow, which, come to think of it, is how they see things.
Whether all this liquidity pours into Wall Street or leaches out to other sharemarkets, one way or another it lifts all boats, including ours.
Naturally this also tends to devalue US dollars - and lift the prices of anything denominated in them such as iron ore - since a lot more of them are in circulation. The market has more or less come to accept the fact that money printing can't go on forever, especially when the signs are that the US economy is picking up steam, and so the US dollar is returning to favour.
The consequent downward pressure on our dollar, which will lift prices, is a downer for consumers but even that has its compensations. The lower the dollar falls, or to be more accurate the higher the US dollar goes because that's where the real action is, the less likely it is that jobs will be destroyed.
You'd think the fact that unemployment is rising would be sapping confidence, but so far so good.
Even though the full-time unemployment rate has climbed from 6.1 per cent this time last year to 6.6 per cent, that's represented a loss of only 59,000 out of 8 million jobs.
How can that be? Because as the population ages, fewer are seeking jobs in the first place. You can see this in the overall unemployment rate, which has only inched up from 5.5 to 5.6 per cent.
That's why Christmas will have more good cheer than economists are allowing.
Read David Potts in Weekend Money, with
The Sunday Age.
Twitter @money potts
Frequently Asked Questions about this Article…
Retail stocks are looking promising this Christmas season because consumers are willing to spend, especially when there are sales or bargains available. Despite economic concerns, the sharemarket is showing a positive spirit, which is reflected in the performance of retail stocks.
The current economic climate is affecting consumer spending by creating a dual economy where consumers are eager to spend if there are discounts, but business owners are hesitant to invest. This is happening despite forecasts of rising unemployment, which typically dampens consumer confidence.
The falling Australian dollar is beneficial for corporate Australia as it boosts competitiveness. However, it also leads to higher prices for consumers. Despite this, the lower dollar helps preserve jobs by making Australian goods more attractive internationally.
Low interest rates are encouraging for the property and share markets. Homeowners with mortgages are ahead in their repayments, and those with investment properties are seeing potential capital gains. Additionally, the rebound in property and shares is compensating for the pain of low rates for self-funded retirees.
The outlook for the sharemarket, especially bank stocks, suggests a potential correction. However, any downturn is expected to be short-lived due to the liquidity being pumped into the market by central banks in the US and Japan, which supports share prices globally.
Christmas might be more cheerful than economists predict because, despite rising unemployment, the overall unemployment rate has only slightly increased. Additionally, the aging population means fewer people are seeking jobs, which helps maintain consumer confidence and spending.
Global monetary policy, particularly the money printing by central banks in the US and Japan, affects the Australian sharemarket by increasing liquidity. This influx of money tends to lift share prices worldwide, including in Australia, as investors seek returns.
A rising US dollar can benefit Australia by putting downward pressure on the Australian dollar, which makes Australian exports more competitive. This can help preserve jobs and support economic growth, even though it may lead to higher consumer prices domestically.