THE DISTILLERY: Earnings test

Since November 16, the benchmark ASX200 index has risen 12.4 per cent. That's unqualified bull territory. This morning a handful of Australian business commentators give their thoughts on how much weight should be given to this pre-earnings season rally.

Fairfax's Adele Ferguson explains Citigroup is expecting the market to rise after reporting season if all goes well, while Macquarie Equities believes there's a real risk that share prices that have rallied in anticipation of results could come off hard.

"Whatever the case, the most likely trend is companies relying on cost cutting and productivity gains to bolster margins and lift underlying growth. In the past few months a list of companies have flagged cost cutting as a way to improve profits. Rio Tinto, Boral, QBE, Bluescope Steel, Fortescue Metals and numerous others have joined the chorus of cost cutters. But at the end of the day punting on the direction of the stockmarket is fraught with risk. With a federal election looming and a mixed bag of economic data pouring out both locally and globally, there will no doubt continue to be some hiccups along the way.”

Fairfax's Elizabeth Knight argues that there's a disconnect between the extent to which the market has rallied in the lead up to reporting season and the degree to which investors expect this will be a good reporting season. A quick glance at the latest National Australia Bank business confidence survey sheds some light on the subject, writes Knight.

"While it posted a sharp increase in December, it was all about those external indicators, like aversion of the European debt crisis and the US fiscal cliff. A more thorough read reveals that businesses are still concerned about forward orders and future capital expenditure. There is nothing in any official or unofficial data to suggest that companies are prepared to invest. The mining industry spending spree that has been sustaining the economy for the past couple of years will peak this year. The improvement in commodity prices – in particular iron ore – has resulted in an overdue rerating of large resources companies, which has helped to push up the equities market.”

In a similar spirit, Fairfax's Ross Gittins points out that Australia's economists are almost as in unison as they ever have been on the notion that the Australian economy will slow this year, with unemployment expected to rise towards 6 per cent.

The Australian Financial Review's Chanticleer columnist Tony Boyd says the record highs that Commonwealth Bank of Australia is skipping along at forces investors to ask whether another tilt at the banks is worthwhile.

"Chanticleer reckons the answer is yes. The arguments in favour of that point of view can also be used to defend a shift into non-financial equities by those sitting on cash. Buying three of the big four banks and the regional bancassurance group, Suncorp, was one of the best trades of 2012. The blanket approach did not work because of the poor sharemarket performance of National Australia Bank, Bank of Queensland and Bendigo and Adelaide Bank. But those who picked ANZ Banking Group, CBA and Westpac Banking Corp on January 1 last year ended the year with very strong capital gains and enjoyed a juicy dividend yield in excess of 6 per cent.”

While we're on the big four, Fairfax's banking writer Eric Johnston very cleverly points out the significance of the ratings downgrade to most of Canada's banks to his Australian readers. Remember, Canada's lenders are closely compared to our own big four banks and the reasons for their downgrade – heavily indebted consumers and an inflated housing market – would be familiar to us all.

Meanwhile, The Australian Financial Review's economics editor Alan Mitchell asks the rather pointed question of whether the Minerals Resource Rent Tax is actually a failure.

"The slump in expected tax revenue in 2012-13 seems to be pretty much in line with what the architects of the resource rent tax were trying to achieve. The intention of the resource rent tax is to tax the miners' ‘super profits' – the earnings in excess of the rate of return needed to justify the miners' investment and production.”

Speaking of mining, The Australian Financial Review's Matthew Stevens says fear that US shale gas exports could one day seriously compromise Australia's LNG boom has to be weighed against three realities.

Firstly, it will take some time for the US to develop a meaningful footprint for gas exports.

Secondly, even if it can pull that off, it's far likelier to come from the east coast, where exports would logically go to Europe. West coast infrastructure, where the gas could end up going to Australia's existing customers in Asia, would take more time and dollars to develop

And thirdly, Australia has supply contracts. Sorted!

In company news, The Australian's Bryan Frith concludes that Sundance Resources might be left with little choice but to partner with suitor Hanlong Mining, rather than accept cash for shares, in the wake of the latest delay to the deal.

The Australian's John Durie describes the potential collapse of the Australian arm of Israeli electric car company Better Place as "heartbreaking,” claiming that the failure to attract local funds has been its biggest problem.

The Herald Sun's Terry McCrann says attention in the free-to-air broadcasting sector can now shift to Seven Network and Ten Network, with the restructure of Nine Entertainment now finally solved, officially, for good.

Meanwhile, The Australian's Glenda Korporaal conducts a general discussion about superannuation policy as the two parties head ever closer to the next election.

And finally, Fairfax's Michael Pascoe quotes the growing chorus of people, who know what they're singing about, who are urging Treasurer Wayne Swan and shadow counterpart Joe Hockey to abandon this ridiculous obsession with a budget surplus and start taking advantage of the never to be repeated low cost of borrowing to invest in an economy that's still operating in a low-growth global economy.

Right you are, Mr Pascoe. Mr Swan, Mr Hockey, shape up!