THE DISTILLERY: Telstra's apparatchiks

Banks are under the microscope today at Fairfax. First into a white coat is Malcolm Maiden of The Age with a solidly researched piece that places Australia's big four banks in context with American banks that exited the GFC with "more profit-making power than they had when they went in”. Maiden uses "net tangible assets per share” to illustrate that Australian bank share prices are still "below their pre-crisis level”. The argument is fair enough, but far from foolproof. The Goldman Sachs' report upon which it is based has copped some serious criticism at FT Alphaville and other blogs.

Stable-mate Elizabeth Knight of The Sydney Morning Herald also analyses the banks, taking the more traditional line of assessing their response to rate rises. Knight declares that, despite banks being "desperate to inch rates up beyond that set by the central bank”, they will "for now...toe the line and escape the community backlash.” This column is unsure this adds much to discussion. Aren't banks always desperate to increase margins?

Further commenting, Knight unquestioningly quotes Scott Manning at JP Morgan on his view "that the outlook for Australian housing volume remains extremely challenged...we see median loan growth stabilising between 6 and 7 per cent over the course of 2010 and 2011.'' Mortgage growth of this nature is only "challenged” if one sees the 10 per cent to 15 per cent growth rates of yesteryear as normal, rather than an extraordinary credit bubble based on massive and unprecedented offshore borrowing. This column for one will be most grateful if such growth rates do not return.

Two commentary heavy-weights today take opposing views over the brewing shareholder revolt at the treatment of Telstra. The Australian Financial Review's Chanticleer gives plenty of oxygen to leading institutional shareholders like Maple-Brown Abbott (MAP) and Bruce Teele and their complaints about the violation of "property rights”, as well as the threat this poses to Australia's sovereign credit rating. The basis of the MAP argument is that "a number of industries in Australia are dominated by a few large companies” and if "the government imposes severe measures on a major listed company in the telecommunications industry, other industries may also be seen to be at risk.” The piece makes fascinating reading, mostly because it reveals the deep attachment instos have to their monopoly safety net. It's ironic that Telstra's instos marshal what Peter Drucker once described as 'pension fund socialism' in their defence against government intervention.

John Durie of The Australian is more forthright. He defines the same shareholder utterances as a "looney tunes debate being drummed up by...the head-in-the-sand gang”. He continues: "The sovereign risk argument being peddled by AFIC's Bruce Teele and others is predictable. But it's surprising someone of his experience has obviously not taken a lot of notice of the prospectuses for each of the government sale documents...The T3 prospectus in 2006, for example, noted there was 'wide regulatory discretion'”.

Sticking with The Australian, Michael Stutchbury has two pieces today. The first is a reasonable piece summarising why China is playing a key role in Australian monetary policy because Asia is now, and will remain, the centre of global growth. No argument there. This column nonetheless remains of the view that emerging market "decoupling” won't be enough to hold commodities at current levels for long. The post-millennium growth and commodity boom was based on the entire world growing at its fastest rate in history. As Alan Kohler makes clear today in his discussion of currency instability, growth is going to be very patchy as far as the eye can see.

Stutchbury's second piece is a more nuanced defence of his position that federal stimulus is causing rate rises, perhaps in response (who knows?) to yesterday's criticism in this column. Stutchbury draws together quotes from Glenn Stevens indicating that he too believes the stimulus is driving rate rises. However, Stutchbury still falls down when he links remaining infrastructure spending (or stimulus if you want to call it that) with rate rises. He argues "...interest rates tend to increase when demand increases, whether it comes from government spending or export demand from China. That's part of keeping overall spending growth within the economy's overall productive capacity in order to keep inflation in check.” But the exception is infrastructure, which increases productive capacity and so, in time, lowers inflation.