THE DISTILLERY: Bear attack

Get out the hankies, line up the sipping syrup, the media's gone long on the market's woes this morning, with a dash of economic gloom thrown in. Tough stuff for an early morning read if you are a market believer. But amid the gloom, some sparks of the positive. The IMF says while the world economy has hit a rough spot, China's growth forecasts are unchanged from April (with the US estimate cut sharply). But that won't have an impact on our investment thinking, with the big market movers slave to every jerk and jitter from the sharks and shufflers on Wall Street or the gyrations in Europe where Greeks are the ones sceptical about the various 'gifts' on offer.

This morning Fairfax's Stuart Washington wrote: "Say you had $1 in November 2007 and you decided to invest in the Australian sharemarket. You – and all the other investors in the major Australian index – would have watched with appalled fascination as that $1 transformed into less than 50 cents when the market fell to its lowest point in March 2009. Markets being what they are, the sharemarket came roaring back. So much so that your less-than-50 cents would have turned into a relatively handsome 74 cents at the most recent peak. Then your 74 cents – three-quarters of your original dollar – would have basically stayed around that mark for the best part of two years. On Friday your imaginary dollar closed at 66 cents."

On Saturday, The Sydney Morning Herald's Michael West got out his plank and started walking: "The bulls are lying low these days. Until only a few weeks ago, they were saying the bull market had begun at the nadir of the financial crisis in early 2009. The bears said the rebound was merely an uptick in the great bear market which had begun in 2008. Now the bears are back mooting a haunting resemblance to the Great Crash of 1929, when Wall Street recovered in 1930 only to tank again, plumbing its depths in 1932 and not touching its 1929 peak until 1954. Not to worry. Things should improve before the 2030s! We have Asian industrialisation, far deeper global capital markets and more sophisticated regulation. But there is no quick fix. The encroaching despair is born of the realisation that spraying cash at Wall Street hasn't worked. Keynesianism, once again, is in crisis. Forget Greece. If the US were hunky dory, Greece would be a mere speed bump in the recovery."

The Australian reported on what some call The Big Squeeze in the market: "A deep-seated fear of equities, still evident after the global financial crisis, was combining with the irresistible forces of regulatory change and industry consolidation to produce an exceptional set of challenges for the industry, according to Thomas, head of retail funds management at Perennial. The Australian sharemarket this week recorded its seventh weekly fall out of nine, not only depressing investors but prompting talk about fund manager redemptions and loss of mandates as investors seek to maximise returns on their investment funds."

The Australian's Andrew Main wrote today that: "If we can all stop looking down the gloomy end of the sharemarket telescope for a moment, ladies and gentlemen, it's worth pointing out that the average dividend yield of Australian shares has risen to 4.3 per cent, only 0.7 per cent below the 5 per cent annualised yield on a 90-day bill. Meaning? Meaning that if you're brave enough to go out there and buy even a slightly above average yielding stock in this gloomy market, you'll beat fixed interest and get a chance of capital gain."

The Australian Financial Review said this morning: "The strong Australian dollar may have broken the local sharemarket's tight link to Wall Street, but recent shocks have shown ties are tighter than many expect."

Michael Pascoe pointed out on smh.com.au yesterday that, if anyone cared, the world economy is still doing well. "You might have noticed the odd headline about the Greek debt crisis, with a bit of Ireland and Portugal on the side, plus miserable US economic figures, various disasters tipping Japan into recession, concern about China's rate of growth slowing, a steady diet of bloodshed and upheaval in Syria, a civil war in Libya that's going nowhere and the International Monetary Fund downgrading its growth forecast. But despite all that, the IMF still predicts the global economy this year will expand by about a third more than the average rate of the past three decades. This is one of the more amazing examples of how we lose perspective. The world averaged 3.2 per cent growth from 1980 to 2010, but the IMF reckons it will grow by 4.3 per cent this year and 4.5 per cent in 2012." And in good news for Australia, the IMF didn't change its April forecasts for China, which it sees growing by 9.6 per cent this year and 9.5 per cent in 2012.

But strangely, David Uren in The Weekend Australian must have not noticed the IMF's optimism about China: "The International Monetary Fund has warned that a lack of political resolve to tackle problems left by the global financial crisis risks pitching the world into a new downturn. The fund is particularly worried about Europe, where it says governments have not done enough to strengthen the banking system, leaving it highly vulnerable to any sovereign debt default. However, it is also worried about the failure of the US and Japanese governments to develop plans for reducing government debts and about the danger that emerging countries, led by China, may face a sudden fall in economic growth."

The AFR said this morning: "If the major developed nations cannot tame their public debt monsters, the world could be heading towards a devastating financial crisis, central banks warn."

The Australian's John Durie pointed out on Saturday that the NBN is going to be very important, something the rest of the paper has been busy decrying: "Slowly but surely the realisation is sinking in that Australia is not dealing with a resources boom but a prolonged cycle, which the country's policymakers have been slow to adapt to. Boom implies a short-term event, whereas it is by now clear the structural changes are more widespread and long term. Interest rate increases, the appreciating Australian dollar and declining manufacturing industry in the much talked about two-speed economy are symptoms of the structural adjustment that is occurring. Federal cabinet approval of the NBN deal with Telstra next week arguably marks the most fundamental economic reform in Australia since the Howard government's workplace relations and GST reforms." The Reserve Bank has been aware of the changes for two years now and telling us they are coming. It's just many are hard of hearing. The AFR said this morning: "Australia's largest infrastructure project is also the biggest fee bonanza for bankers, lawyers, consultants and accountants since the T3 Telstra privatisation."

The AFR also said: "As Fairfax Media's potential sale of its radio division rolls on, industry types are chattering about the identity of the potential trade buyers sniffing around the assets."

This morning Adele Ferguson wrote in the Sydney Morning Herald: "In the next 10 days the Gillard government will receive a report from a consulting panel recommending the establishment of an independent advisory body to monitor the most powerful body in the land - the Australian Taxation Office. It follows years of lobbying by the business community on the need for an independent statutory board to oversee the country's chief revenue collector. The problem with each of the three models - an issue not lost in the submissions - is they include the appointment of the Tax Commissioner as chairman, which makes a mockery of the term ''independent'' and will ultimately defeat the purpose of an independent oversight committee for the Tax Office."

The Australian's Nabila Ahmed wrote today: "Mark Selway has made no secret of his ambitious plans to extend Boral's footprint overseas. Armed with a war chest of $800 million, the Boral chief, who in April unveiled the $173m purchase of Queensland's largest independent construction materials business, Wagners Group, has been eyeing Asia and the US. Now it appears Europe may also be on his possibilities list."

The AFR reported today: "BHP Billiton has last-ditch negotiations at major export coal mines, and Qantas faces a crunch vote on industrial action in two of the crucial bargaining rounds this week."

In The Weekend Australian, Terry McCrann was all gloomy about the chances of media rival Fairfax surviving: "Winston Churchill once famously said that he had "not become the King's First Minister in order to preside over the liquidation of the British Empire". But liquidated it would be, albeit mostly outside his watch. It is a quote and an outcome that the new chief executive of Fairfax Media, Greg Hywood, would do well to ponder. Arguably, we are just as inexorably in the end days of Fairfax. Less certainly, but in our now much faster moving world, he could be forced to do the presiding. It might only be his choice to determine its timing and method. He should particularly ponder whether what he specifically initiates will end up hastening the end by making it unavoidable."

On Saturday. The SMH's economics editor, Ross Gittins, used last week's speech by Reserve Bank Governor, Glenn Stevens, to point out to readers that far many more people are benefitting from the mining boom than they think: "If you haven't said it yourself, I bet you've heard others saying it: ''Resources boom? What resources boom? Whoever's benefiting from it, I'm not. None of it's come my way.'' Is that what you think? Well, don't kid yourself. Whether or not you realise it, you almost certainly have benefited from the boom. Now, if you say our non-mining export and import-competing industries have been harmed by the boom-caused rise in the dollar, that's true. In economics, nothing that has benefits comes without costs. So it's fair enough for those people in the adversely affected industries to argue that, for them, the costs of the resources boom have outweighed the benefits. But they're a minority. For the great majority of us, the benefits have far outweighed the costs."

And The Australian's David Uren wrote today: "The economy isn't soft, it is just undergoing a burst of structural change, according to Reserve Bank governor Glenn Stevens. Falling house prices, the erosion of retail sales to the internet, the decline of manufacturing and the plight of the tourist industry are all signs of the forces of structural adjustment at work. The unemployment rate, which the RBA has long seen as the best proxy for how fully employed the economy is, is well below its average level for the past 15 years of 6 per cent and, at 4.9 per cent, is in the rising-inflation zone. Stevens used a speech to the Economics Society in Brisbane last week to outline the structural forces at work." Strange how it takes five days for analysis of Stevens' speech to appear.

Finally, what would Shakespeare think: The Financial Times international economics editor Alan Beattie wonders about the future for economists: "Got an economy that needs fixing? Hire a lawyer. That, disgruntled economists darkly mutter, is an emerging trend. Another grim week for the dismal science began with the International Monetary Fund's executive board blocking Stanley Fischer, governor of the Bank of Israel, from applying to become its managing director. Fischer is a legend within the economics profession but his pleas to appoint an economist to the job failed. He was two years over the age limit and that was that. Instead, a lawyer – Christine Lagarde, the French finance minister – is clear favourite. Agustin Carstens, the only other candidate, seems to have spent more time defending the fact that his economics PhD was awarded by the University of Chicago – a known incubator of the neoliberal virus – than has Lagarde for not having one at all. What with Robert Zoellick being president of the World Bank and Gene Sperling the chief economic adviser to Barack Obama, if Lagarde is chosen, three of the top economics policy jobs in the world will be occupied by lawyers."