Bears under the beds!

Advertisement

It’s all very entertaining. Last week it was Chris Joye at the AFR condemning some bearish menace looming over housing. Sadly too, the Governor of the Reserve Bank of Australia has recently taken to bear bashing, reckoning that Australians are more worried about the economy than the Greeks. Yesterday in his weekly drivel, Wayne Swan accused those questioning the durability of the mining boom of irresponsibility. And today it’s the Pascometer that’s back attacking another supposed roaring grizzly, only this time it’s stocks:

Remember the most popular prognostications for the current reporting season? We’d all be rooned by the strong Australian dollar, weak consumer confidence, dismal credit growth, the carbon tax, the Wallaby backs’ mindless chip-kicking and the price of tea in China, among other things.

With the exception of the dumb and dumber kicking, the assembled Hanrahans have been more wrong than right as we enter the last week of the August reporting season.

Short of the late reporters all falling in holes, corporate Australia on average is doing better than expected and certainly better than the previous year.

Discount the impact of more rational commodity prices on the miners and a fella might even be so rash as to say the big end of town is doing all right.

An oddity of this reporting season is that the performance has improved as the game went on. On the scorecard kept by AMP’s Shane Oliver, with 80 per cent of the season complete as of Friday’s close, 33 per cent of results have come in better than expected and only 16 per cent below expectations. Two weeks ago the respective figures were 22 and 35 per cent.

Honestly, what’s the big deal?

Advertisement

Anybody with a brain can see there are risks around housing right now. It’s historically very expensive and households are very indebted in a debt-hostile world. Observing these simple facts doesn’t make you some spectre of pure evil. It makes you sane.

It is, therefore, quite reasonable to conclude that there are risks too to the economy, and the singular dependence upon China that mitigates those risks is clearly a risk in itself as its economy slows more than most imagined. To deny this pretty clearly makes you insane.

The mining boom is quite obviously diminishing before our eyes. Observing that fact means you don’t need glasses.

As for the stock market, the recent history of consensus earnings forecasts is one of excessive optimism, not pessimism. Here is the chart for the year ahead. Notice how the estimates are falling, not rising. Folks have been too bullish for 2012:

Advertisement

Now look further out. The growth implied here is very bullish, even if again falling.

Advertisement

This is all too weird. It’s almost as if Australia is suffering from some dunderheaded form economic Macarthyism that reflexively condemns anyone that isn’t outright bullish all of the time. Or is it just protesting too much?

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.