THE DISTILLERY: Dollar 'mights'

One jotter asks whether Australia can continue to assume a high dollar, while another weighs a Flinders Mines conspiracy theory.

The big drop in the value of the Australian dollar is doing more than rattling internet shoppers – it also calls into question major economic decisions being made right throughout the country based on the belief that the local currency will stay strong. This morning, one jotter argues the latest fall shows that only a fool would build an economy on such 'certainties', and that Australia's car industry is case in point. Meanwhile, there's an interesting conspiracy theory surrounding Flinders Mines stalled takeover, dragging in Fortescue, and new questions about QBE's commitment to Australia. Also, a warning for Treasurer Wayne Swan, who has been using Spain's unemployment queues as evidence of why he must deliver a surplus. One commentator reckons Spain's bust was more about bubbles than budgets, with a more ominous lesson for Australia.

But first, in The Herald Sun, Terry McCrann, worries that the sharp and sudden fall in the Australian dollar has exposed the folly of making economic assumptions based on our currency staying around parity with the US dollar long-term. The current debate surrounding Australia's struggling car industry is a particularly good example.

"If we could be certain that the China boom would continue indefinitely, and so the dollar remain at parity and perhaps even considerably higher, we could let the car industry go. All of it… But that's the point. We can't be certain of the future of the China boom; we can't be certain of the future value of the Aussie. If the car industry disappears today or in the near future with a US100c-plus dollar, it won't come back if the dollar drops to and stays at US60-70c. Once gone, it's gone forever. Spending $275 million on the Holden part – spread over 10 years, that's less than $30 million a year – is taking a very cheap option on keeping open options for our future."

Over at The Australian Financial Review, Matthew Stevens tackles Flinders Mines' surprise announcement that its takeover by Russia's Magnitogorsk Iron and Steel Works had been put on hold, due to an obscure Russian court challenge by one of the suitor's minority shareholders. Now there are market fears Magnitogorsk itself could be behind the injunction. But why would it bother?

"Well, one scenario painted in an analyst’s note doing the rounds yesterday was that Magnitogorsk might be having trouble financing the takeover, so it has created a legal imbroglio as a stalling tactic or as a means to step away from the transaction. This thematic is further informed by the idea that Magnitogorsk’s deal with Flinders comes with 'breach of contract' implications, as opposed to just the $2.2 million break fee it needs to pay if it walks. The issue there is that the company has about $800 million or so tied up in a 5 per cent stake in Fortescue. And those shares were frozen by an Australian court late last year as part of a dispute between Magnitogorsk and one of its iron ore suppliers. The idea is that the Fortescue wealth could again be targeted should this deal fall over without provable cause."

The Australian's Glenda Korporaal welcomes QBE's new chief, John Neal, presenting him as a safe pair of hands who will continue to pursue growth through acquisitions. But the fact that it now has 16,000 staff spread across more than 50 countries, and reports in US dollars, begs one big question:

"In fact, at some point one would have to wonder what might be the benefit of the company being based in Australia at all – particularly since Hutchinson also explained yesterday that Australian accounting rules now severely restricted the way the company could invest its cash. This has meant it has to keep a stack of money in near cash and cannot seek to offset traditionally volatile insurance losses by a more proactive investment policy such as investing in shares – or even Warren Buffett's strategy at Berkshire Hathaway of using cash from his insurance business to buy a stable of small private businesses throwing off regular cash."

The Australian Financial Review's Chanticleer columnist, Michael Smith, takes aim at Transfield, which had its share price smashed yesterday after it revealed concerns about the health of its Easternwell oil and gas operations and cut forecast earnings from the project for the second time this year. In particular, he wonders why the company didn't warn shareholders in their recently-released half-year results.

"Investors are getting increasingly touchy about disclosure and some analysts believe the latest downgrade highlights problems with the timing of yesterday’s announcement. There are also concerns about the quality of the company’s order book. … While unseasonably wet weather was partly to blame, Deutsche says it was surprising that a legacy project which management had never previously said it had issues with was part of the problem."

And in The Age, economics editor Tim Colebatch shoots down Wayne Swan's warning that a dreaded budget deficit could be the first step to Spain-style ruin.

"But hang on, treasurer, did no one tell you that before the GFC, Spain was running even bigger budget surpluses than Peter Costello: 2 per cent of GDP in 2006 and 1.9 per cent in 2007? Or that from 1996, Spanish governments more than halved their net debt/GDP ratio, from 60 per cent of GDP to 26.5 per cent? Spain's crash was not due to a lack of budget discipline. It was brought on mostly by the collapse of a real estate boom, which has turned into a savage bust. … What's the lesson in that? Avoid booms. They tend to bust, in very damaging ways. But in Australia, officials are cheering on a mining investment boom, which one day will also bust, spreading its fallout all over our economy."

However, The Australian's Robin Bromby reckons Australia's economy could still ride high on an emerging group of "briquette" nations – that is, the 11 likely successors to Brazil, Russia, India and China (the BRICs) that are expected to underpin extraordinary demand for minerals and energy for years to come.

In the same paper, Bryan Frith examines Aquila Resource's surprise sale of its 50 per cent stake in the Isaac Plains coal mine to Sumitomo Corporation, and wonders what it will mean for Vale, which owns the remainder of the project. And at Fairfax, Malcolm Maiden dissects a battle between Australia Post and a joint venture between Computershare, Salmat and a US digital mail technology start-up, Zumbox, over the Australia's emerging 'digital mailbox' sector.

Finally, The Australian Financial Review's Tony Boyd meets Jack Ma, the Chinese internet billionaire behind the hugely successful micro finance provider, Alibaba Finance. Boyd reckons Ma is part of a new breed of Chinese entrepreneur that will shape the nation's future as a consumption-driven society, without relying on government funding for support.