TRYING to make sense of where our economy is at present is getting more confusing by the day.

The All Ordinaries index is now above 8000 points, the highest level I have seen in over 50 years.

So, are we in boom times?

Last Wednesday’s economic report says there is “no end to the property cyclone” as construction costs keep rising, while more builders head into insolvency.

It goes on to say that Australia wide, every month, more than 200 building and construction companies go under.

In fact, in the current financial year so far there have been 987 insolvencies (in the eight months), which is up from 1495 from last year and just 782 a year earlier.

The article goes on to say that many subcontractors and suppliers are still waiting to get paid and suggests that the game survives on a cash flow method where the next new home being built covers the cost of building the current one.

Next, we look at the price of gold, which is said to be the safe method for holding the value of money in insecure times.

This week gold has hit another all-time high of $A3,500 per ounce and even online sellers of one ounce of gold are seeking up to $A5,400.

The share market is saying that things have never been better economically for investors, delivering capital gains and dividend incomes to the extent of achieving record high prices as determined by an All Ordinaries index above 8000 points.

Meanwhile the asset class best understood by the average Aussie, that of home ownership, has reached the highest price anyone of us could imagine.

This also suggests that boom times have arrived.

So why are so many builders and materials suppliers going to the wall?

We could also say that investors in gold are covering their positions by buying and holding that commodity as they think an economic downgrade is a distinct possibility.

It also asks the question as to why professional investors are still buying equities on the share market when prices are at their highest ever.

The only answer here must be that they see further price increases for quality equities, just like house buyers must think that the present real estate price increases will continue.

All of this needs to be seen in the context of interest rates as cash deposits are the viable investment alternative to equities and real estate.

Last week two major international banks operating in Australia announced their first interest rate reduction on deposits, whilst my own Aussie Bank has just increased its deposit rate for existing and new accounts.

Interesting reactions to the same issues that everyday investors and mortgage holders are looking at.

The most understandable sign of how we think our world is going must be the delightful rain we are receiving, which is making us all feel so positive after a hot and humid summer.

Trying to understand where the real game is going is becoming harder with each report.

By John BLACKBOURN