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Looking for the upside

AS the US corporate markets go up in flames, it is worth speculating how we can benefit from this and where we need to protect ourselves.

Firstly, from a global perspective, this apparent catastrophe actually brings some good news.

As investors desert the US, Australia is set to benefit as a safe haven. Our markets are very transparent, we have gone through our own period of corporate collapses largely unscathed, and our economy has shown significant resilience.

In addition, a growing torrent of superannuation and private money, which was flowing across the Pacific, will be slowed and largely invested at home.

Let us not forget, too, that the experts have long predicted that the US market was overvalued and the bubble had to burst. Events of the past few months are proving that correct and underlining the fact that the markets can’t be fooled for long.

Historically, you can be sure that much of this front-page news will soon be forgotten and 2002 will be just another trough on the chart.

At home, few investors have been burned by these collapses, other than some small losses in super funds that would be difficult to note among the flat returns for the year.

However, the ‘I told you so case’ also has its negative side.

The US was driving the world economy and its slowdown will affect us, either directly or through its impact on our trading partners.

A falling US currency will make our exports more expensive and imports cheaper, hammering our balance of trade.

In the short-term this may be positive, making some much needed capital outlays more affordable. For instance, an airline wanting to buy planes would appreciate the US dollar’s slide.

But farmers, fishermen and miners may not be so happy.

Not only will a weaker dollar make their life difficult on a commodity price level, but tougher economic conditions in America will make it harder to crack open their markets.

Back to earth

ONE of the interesting things about the US corporate problems is how this might impact on regulatory and social issues.

The US corporate model is one we have increasingly followed. It is a model that aims at rewarding the successful, through a system that is relatively free of regulatory and social constraints.

Relative, that is, to other OECD countries.

It has been difficult not to follow this line.

That is why our companies have been forced to pay ridiculous salaries to some imported chief executives.

But, it seems, much of that model is built on false assumptions. And as some flaws are exposed, others must be questioned.

The overpaid US CEO has not just had accountants as his friend. He or she has more flexible work practices, half the holiday costs (for instance) of his Australian counterparts and a government willing to intervene on any occasion to win concessions or block geographic rivals.

It would have been hard, for instance, for our government to support the cost of paid maternity leave when the world’s most successful economy had not embraced such a concept and was indeed in competition with us.

Dare I say it … as the US comes back to earth and its markets are revalued to more realistic levels, it might make a more interesting comparison between the impact of different types of regulatory and social welfare regimes on their corporate sectors.

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