Prime Minister Kevin Rudd's stimulus package is hard to fault in most respects. Its timing is economically brilliant while it is conservative enough to leave something in the can for what could undoubtedly be tough times ahead.
There are plenty of economists who believe the measures announced yesterday might stave off a recession in Australia, or at the very least mitigate the harshness of the landing we are facing fairly soon.
But as far as the sharemarket is concerned, the Rudd stimulus package is not going to make any significant difference - certainly in the short term.
In Australia we are captive to the lead from offshore sharemarkets, in particular the US. So if the Dow continues its decline, there is nothing that Kevin Rudd can spend - or even Glenn Stevens at the Reserve Bank can do on interest rates - that will provide immunity for the Australian sharemarket indices.
As part of the international economy, we are captive to what transpires in international markets and international economies - several of which are either experiencing slowing growth or already contracting.
Having said this, the moves made over the past week by governments and central banks around the world to unclog the arteries of the world credit markets seem to have injected some positive sentiment into financial markets, for the time being at least.
At best, this could be enough to curb the rampant fear that has overtaken financial markets and provide some hope that the credit markets will thaw - but it won't be enough to save some of our major trading partners in Europe and the US from recession. This is much bigger than anything the Rudd Government can solve.
But Rudd has deftly targeted some key areas with his $10.4 billion package. He has provided handouts in areas where the recipients will react in the most effective way - spending.
Pensioners and the working and middle classes that are
already feeling the pinch are more likely to inject the cash back into the economy than save it.
And the increase in the first home owners grant should provide some stimulus to the housing sector.
The UBS strategist David Cassidy notes that this could help retail and building materials stocks.
Retailers will be the most immediate beneficiaries and it might mean the difference between a woeful Christmas and one that's just a bit soft.
The boost to infrastructure projects that is also part of the Rudd package has the added benefit of potentially enhancing employment and ultimately increasing productivity. But it will be slower to work its way through the system.
It's hard to escape the view that Telstra will be a winner from fast-tracking the rollout of high-speed broadband. At this point it is near impossible to imagine there will be any other realistic contender for the bid to carpet 98 per cent of the country with it.
Given the current credit-challenged environment, Telstra is more likely to be the only viable contender to begin it in the short to medium term. And if the Government is serious about getting this done soon, it may also be more inclined to bend to Telstra's terms - the most important of which is to ditch any idea of separating the network infrastructure from the rest of the company.
While the measures will directly benefit some corporates, the stimulus that this could provide to the economy will ultimately be positive for corporate earnings overall if it can save the economy from a severe recession. This, in turn, would mean that corporate earnings may not slide too far into negative territory.
There are some analysts predicting corporate earnings will be flat at best in 2009. Others are saying earnings in the current year will fall.
At this stage the pessimists probably have it. Recent history has shown even the most negative pundits to have been conservative.
But, given we are now in financially uncharted territory, there is no telling what lies ahead.
The local sharemarket is priced for a world recession and for slowing growth in Australia. But stockmarket pricing has nothing to do with fundamentals in a world in financial turmoil.
