Half dollar not all bad news

THE word “correction” has now been officially expunged from stockbrokers lexicons. The Dow Jones Index has lost 18 per cent from its peak in the middle of last year.

The Nasdaq has tumbled three times as much, and is now a candidate for euthanasia.

Both indices shed almost 8 per cent last week.

If that had happened in one day, newspapers could have thrown up the headline they are itching to run … CRASH. As it was, a little matter of US$800 billion in wealth got puffed away in five trading sessions.

That is rather more than a correction, and there may be more to come.

To the irritation of some commentators, the Australian stock market continues to be remarkably resilient. After all, the economy is in recession, jobless queues are lengthening, and there is a currency crisis.

Actually, although it is now heresy to say so, we are not in recession. As the sober chief economist of HSBC John Edwards points out, we have seen three consecutive months in which employment has increased, and two successive modest increases in retail sales. Both housing, finance, and building approvals have unquestionably turned around in trend terms.

There is a good chance that the GDP number for the March quarter will reflect a modest expansion. It would take a further external shock to create a broadly based recession. But we could easily talk ourselves into one.

The latest Westpac-Melbourne Institute consumer sentiment index imploded 15.4 per cent, to what is apparently the lowest level since the dawn of man.

The same survey evidently found respondents now favour real estate as an investment over local shares. It is curious why someone agonising over whether to purchase a pair of shoes would rush out and buy an apartment.

As for the bedraggled dollar, we are presently seeing all of the benefits, with few of the costs.

Imports are falling in real terms and the inflation impact has so far been minimal. Australia is a cheaper and cleaner destination for tourists than a Europe increasingly swept with pestilence.

Minerals exports were worth $14.7 billion in the December quarter, up a crackerjack 42 per cent on the same period last year.

Yes, a slowing world economy will crimp the pace. But would you rather be trying to sell your goods and services at a fair value US65¢ or under US50¢? John Edwards says the current level of the dollar is “ridiculous.” More ridiculous is the reported suggestion from ASX chairman Maurice Newman that we should follow the example of Ecuador, abandon our currency altogether, and replace it with the US dollar.

You could bet that, from the minute we switched to the grossly overvalued greenback, it would drop like a rock. Monetary policy would be entirely set by the Fed in Washington. So we might have to shut the Reserve Bank of Australia and sack half the Treasury. Come to think of it, it’s not such a bad idea.

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