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Betty Bullock burns big tobacco

AMERICANS, the most self-confident of all people, have sunk into a morass of despondency. The investing public, in the popular vernacular, has lost its ticker. Fund managers have been emasculated from masters of the universe to wimps cowering for cover in the bond markets. Last week the yield on US 10-year treasuries fell to 3.67 per cent – the lowest since Marilyn Monroe made the movie Bus Stop in the 1950s.

The 76-year-old Federal Reserve chairman, Alan Greenspan, has bent on his dicky knee to accept a knighthood from the Queen. There are many on Wall Street who would prefer that he was tarred and feathered, which just goes to show that 15 years is too long in any job. Mr Greenspan warned in 1996 that the stock market was suffering from “irrational exuberance”, but he twiddled his thumbs as the bubble expanded for the next five years. The eventual bursting was a direct result of the excesses of that period, including investment bank corruption and accountancy swindles. There is now a resounding clang of stable doors closing.

The Dow Jones index has lost 30 per cent from its peak. The S&P 500 has merely halved, but the tech-heavy Nasdaq has plummeted nearly 80 per cent. Some $US8 trillion has been wiped off the value of corporate America. Whether or not all this wealth has simply evaporated is a matter for metaphysical debate. Certainly gigantic sums of money have been transferred to the bond markets, where returns are now derisory. President George Bush and his missile rattling have done to the stock market what Osama Bin Laden failed to do. Mildly positive unemployment figures recently were blown away by war worries.

More evidence that sanity is not a requirement to sit on a California jury came with news that 64-year-old chain smoker Betty Bullock had been awarded $US28 billion in damages for contracting lung cancer. Tobacco shares tumbled, with defendants Philip Morris down 7 per cent at $36.50. The market tottered again, and the ongoing west coast dock strike has put the tin hat on it.

With economic growth just wheezing along there is ample room for Sir Alan to shave still more off US interest rates. To wait much longer would risk the nightmare of Japanese-style deflation.



Bricks and mortar coming back to earth

A QUICK trip east last week convinced me that property prices will soon return from orbit. A taxi driver in his 40s who picked me up on Sydney’s George Street began to talk real estate before he turned the clock on. He told me he had a house in the Blue Mountains and two others rented out closer to the CBD, all of them carrying mortgages. Their valuations have climbed by more than one third in two years. The plan is to sell one next year and look at early retirement. Newspaper headlines that morning trumpeted the 8 per cent jump in building approvals in August as further evidence of a booming housing market. It is not. Unless certain basic economic laws have been repealed, the more the supply of any commodity that comes onto the market, the less people will need to pay for it. About half of new mortgage financing is now going into rental properties such as units and so-called townhouses. This end of the market is vulnerable to a trifecta of higher vacancies, declining rents and a rise in domestic interest rates. I did not like to spoil my cabby’s day, but he might be battling heavy traffic for some years to come.

Next stop was Canberra, which I have not visited for some years. Large birds flying over Parliament House still attain stupendous altitudes, thanks to the thermals of hot air rising from below. Here are some random brainwaves from the pollies. Defence Minister Robert Hill thinks the Indonesian army might be relied on to help protect Australia from terrorists. Another bright spark believes a tourist tax would be just the job to pay for any extra curricular military adventures. Meanwhile, the Government is still struggling to get changes in our antiquated cross-media laws through the senate as evidence of “reform”. The assertion that foreign press barons are queuing up to buy our newspapers and broadcasters during the worst advertising climate in a decade is perplexing. The best bet is that the whole mess will ultimately be flicked on to the ACCC.

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