A major theme of any stock market boom is “this time it’s different”.

Indeed, canny oldsters regard the appearance of this sentiment as another sign that the inevitable correction is closer.

The recent advice along these lines is “stronger for longer” – used with respect of the China/BRIC boom and its effects in raising the prices of commodities sold by Australia Inc.

Overnight, Wall Street had a slightly sickening fall, and the Australian market is likely to follow today.

The Aussie dollar pre-empted this correction. “Australia’s dollar which was nearing 90 US cents a few days ago went into free fall overnight, trading as low as 86.8 cents as markets addressed risk aversion.

“RBC Capital Markets senior currency strategist Sue Trinh said the Australian dollar had come under a lot of pressure overnight as a theme of risk aversion filtered through the market”.

This is quite standard, and is part of the usual ebb and flow of market sentiment. There will be a flight to quality and, on the global stage, Australia and its wonderful resource sector is regarded as high risk.

There are also opportunities for the brave. Rio was trading at $105 a little while back, and can be scooped up for $90 today. Gadzooks!

Housing and Fiscal Federalism

Labor’s “Housing Summit” seems to have come and gone with little impact. There was a long list of potential (partial) remedies, some discussed recently by Henry.

“What can be done about gross inequalities of income and wealth is unclear. With respect to housing, a partial solution is to release more government land on the fringes of our major cities, the IPA solution.

“Others lobby for cuts in land tax, the reduction or abolition of land tax or (gasp!) the elimination of negative gearing or the taxation of capital gains (double gasp!) on a family’s principal place of residence.

“Henry bravely points out that the easy money globally in the early years of this century fuelled a massive asset boom that raised the prices of assets, including houses, while the emerging workers of the BRICs kept wage and goods and services inflation low.

“Clearly, however, a massive dose of asset deflation is not the solution to the housing problems of Australia’s poorer residents”.

The overall summary is that (a) the problem of housing affordability is no worse than it has been at many times in the past; and (b) there is no feasible solution or set of solutions.

Mal Brough’s plan for direct Federal help with public housing was announced yesterday and is probably the only convincing partial solution apart from advice to “work hard, save hard and stay close to your aging home owning relatives.”

Careful watchers have noticed a systematic Federal government attack on state government powers – eg Murray-Darling, Indigenous welfare and now public housing.

Interest rate hike

Lots of pushing and shoving by those who always line up against a rise in official rates of interest in the press today. Peter Brent of Mumble.com.au has an original thought: “Mortgage hike may drive voters to Libs”.

Read more at Henry Thornton