About a month ago, just ahead of the Reserve Bank of Australia’s (RBA) last regularly scheduled meeting, the Australian Bureau of Statistics reported that second-quarter gross domestic product (GDP) in the Land Down Under grew 1.2 percent quarter over quarter.

At a 4.8 percent annualized pace, growth for the three months ended Jun. 30 was the fastest since the first quarter of 2007, driven primarily by recovery from natural disasters in Australia’s northeast. And growth was 1.4 percent from Ju1. 1, 2010, to Jun. 30, 2011, double a consensus year-over-year estimate of 0.7 percent.

Flooding and cyclones hampered the first quarter, when Australia shrank by 0.9 percent, a figure that was revised upward from a previous estimate of 1.1 percent negative growth and an original estimate of minus 1.2 percent. Exports fell 8.7 percent, the largest quarterly decline in 37 years, as coal, iron ore and agriculture production was hampered by Mother Nature.

The second-quarter rebound was broad based, as consumer spending grew 1 percent, adding 0.5 percentage points GDP growth; investment in machinery and equipment grew 4.9 percent, adding 0.3 points; and exports rose 2.6 percent, adding 0.6 points.

In addition to an inflation rate well within its 2 to 3 percent target, the RBA had plenty to consider–Australia continues to enjoy record-high terms of trade, an unemployment rate near 5 percent, a relatively stable financial system and an enviable sovereign debt position–when it met Tuesday (Sydney time) to once again consider interest-rate policy.

The RBA’s Dilemma

A lot has happened over the past four weeks. But not much has changed. The basic situation the RBA faced a month ago is a lot like the one it takes up this week.

As of this writing a solution to the Greek debt crisis is still agonizingly elusive, with new budget-target failures putting the whole effort to question and drawing fresh scrutiny to the next dominoes, theoretically Ireland and Portugal, perhaps Spain and Italy, too.

Alongside this threat stands the equally ugly specter of US economic stagnation. A poisonous Washington, DC, political environment, where monetary policy is nearly exhausted and any attempt at fiscal stimulus is likely DOA until after the November 2012 presidential election, won’t help matters.

Volatile markets reflect fears of another 2008-style systemic meltdown, a collapse of economy and finance alike. But there are crucial differences, however, between then and now.

First, we know where the landmines are buried. Markets are well aware of the risks involved with the various sovereign credits. Exposure of institutions to suspect debt is well known, quite unlike the situation that led to the unraveling of the global financial system, namely an unregulated, unlisted market of credit default swaps that dwarfed in nominal value the assets upon which they were based.

Second the private sector is well capitalized, prepared to privately stimulate domestic economies. In the still-critical US, for example, company balance sheets are in very good shape: According to Capital Economics internal funds available to non-financial corporate business stand at a 30-year high of 9.9 percent of GDP. Liquid assets are at 7.3 percent of GDP, the highest level in more than 50 years.

Companies have cash ready to deploy largely because they’ve been able to refinance existing debt and/or lock in new capital at record-low costs over the last several years. There can be no “crisis” for companies that don’t have the need to immediately access credit markets.

Third, we have the benefit of hindsight. Policymakers in key jurisdictions have seen the consequences of market-shaking developments such as surrounded the Lehman Brothers implosion.

Where bad policy choices all result in pain for taxpayers, either through new levies or lost jobs, the tendency toward conserving the euro, organizing a centralized revenue authority, thrusting upon Germany an unfair burden, as opposed to letting the whole system come apart, is likely to win out. Hopefully in the US the weight of the private capital situation cited above will overcome DC inertia.

Finally, economic data–in Australia, the US, China and around the world–continue to be lumpy and inconsistent but far from definitive on the question of recession, double-dip or otherwise.

For example, the US Purchasing Managers Index (PMI) crept up to 51.6 in September from 50.6 in August, beating the consensus forecast of 50.5. Readings above 50 on the PMI generally indicate “expansion,” while readings below 50 indicate “contraction.” The production component, which measured a contracting 48.6 in August, reversed to an expanding 51.2 in September, the primary driver of the upside surprise.

In China the official PMI reading released by the National Bureau of Statistics appears to have stabilized, rising for the second consecutive month, to 51.2 in September from 50.9 in August. New orders, a proxy for global demand for Chinese goods, registered a 50.9 reading, reversing a 48.3 for August.

That’s still below the historical average of 55.7, suggesting global demand remains fragile. So do PMI data from Taiwan (to 44.5 in September from 45.2 in August), India (50.4 from 52.6) and Japan (49.3 from 51.9).

The Resource Difference

The RBA, facing different economic terrain than most of the developed world, was the first to tighten borrowing rates in the aftermath of the global recession. But Australia never sank into recession from 2007 to 2009, one of the few economies defined by the International Monetary Fund (IMF) as “advanced” not to do so.

From October 2009 to November 2010 the RBA increased its target “cash rate”–what it calls its interest rate on overnight funds–by 175 basis points in an effort to cool rising domestic consumption. The cash rate now stands at 4.75 percent, the highest such rate in the developed world. The US Federal Reserve’s fed funds rate is currently “zero to 1/4 percent,” as low as it can go, while the Bank of Canada’s (BoC) benchmark stands at 1.25 percent.

The Fed, at the same time it announced a new plan to keep long-term interest rates suppressed, “Operation Twise,” reiterated on Sept. 21 that it will keep the fed funds rate near the lower bound until 2013. The BoC’s policy stance softened in its last statement; it held its rate steady during its last meeting Sept. 7 but suggested its next round of tightening is now much further in the future.

It’s important to note that that the RBA has significant room to employ traditional monetary policy tools–i.e., interest-rate cuts–to stimulate the domestic economy should conditions in the US and Europe deteriorate. And with a debt-to-GDP ratio in single digits the Australian government has ample capacity to fund fiscal stimuli, as it did in 2008 and 2009. The question remains whether the RBA or the Australian government will find it necessary to exercise these relative strengths anytime soon.

The Australian Bureau of Statistics provided another appropriate frame for an RBA meeting, as it reported Tuesday morning (Sydney time) that demand from Asia for metal ores and minerals pushed Australia’s seasonally adjusted trade surplus to AUD3.1 billion in August, it highest level since June 2010 and up from AUD1.8 billion in July. Imports also grew 3 percent, suggesting rumors of the Australian consumer’s demise may have been greatly exaggerated.

The Roundup

The Standard & Poor’s/Australian Securities Exchange 200 Index, widely considered Australia’s preeminent equity benchmark, has shed about 2.7 percent in local terms since we launched our preview issue of Australian Edge on Tuesday, Sept. 27 through the close of US trade on Monday, Oct. 3. In US dollar terms–the relevant metric for our base–the decline is more like 5.9 percent, owing to a sharp weakening in the Australian dollar. The aussie is down to about USD0.95 from a peak above USD1.10 in mid-summer 2011, as “de-risking” has hit all manner of assets remotely related to economic activity, magnifying equity market losses. During AE’s one week of existence it’s down from AUD0.9914 to AUD0.9469.

But during the same time frame the S&P 500 is off 6.4 percent in US dollar terms. Our Conservative Holdings have held up well, as AGL Energy Ltd (ASX: AGK, OTC: AGLNF) is off just 3.7 percent. APA Group (ASX: APA, OTC: APAJF) is down a little more than 5 percent, as is Envestra Ltd (ASX: ENV, OTC: EVSRF). Telstra Corp Ltd (ASX: TLS, OTC: TTRAF, ADR: TLSYY), is down 4.4 percent in US dollar terms.

Gas and electricity distributor AGL Energy is a buy under USD15.30. Related pipeline companies APA Group (under USD4.20) and Envestra (under USD0.75) are also buys.

Telstra investors will have to vote on a plan that would structurally separate the company’s retail and wholesale businesses and transfer 10 million fixed-line customers to Australia’s National Broadband Network Company’s (NBN) new fiber network in exchange for approximately AUD11 billion in cash before a key regulatory approval is granted.

CEO David Thodey had expressed confidence that the Australian Competition and Consumer Commission (ACCC) would accept Telstra’s Structural Separation Undertaking (SSU) and approve its Migration Plan ahead of a scheduled Oct. 18 annual general meeting of shareholders. But in early October the company notified the Australian Securities Exchange (ASX) that such would not be the case. Mr. Thodey noted early in the process that the ACCC “has raised a number of concerns but they do not really come as a surprise to us at all.” His position then was that these issues would be resolved “consistent with our principle of protecting shareholder value.”

In a Sept. 30 statement to the ASX Telstra noted that thee ACCC’s assessment process remains ongoing, as the public comment period for submissions in response to the ACCC’s discussion paper ended on Sept. 27. The statement noted that Telstra “continue[s] to work closely with the ACCC on the SSU and Draft Migration Plan and at this point we consider that the changes that may be required to address the issues raised by the ACCC are unlikely to have a material impact.” If anything management deems “material” in terms of costs or to the degree it alters the regulatory framework contemplated by the present plan comes out of its continuing discussions with the ACCC a new plan will be put to shareholders for a new vote.

The SSU and Migration Plan commit Telstra to structural separation by Jul. 1, 2018, a period that covers the duration of the NBN rollout. The separation will occur through the progressive disconnection of fixed-voice and broadband services on Telstra’s copper and HFC networks and subsequent migration of these services onto the NBN. Telstra will also put in place various “measures” to provide for transparency and equivalence in the supply of regulated services to its wholesale customers during the transition to the NBN.

Meanwhile, Telstra became the first Australian telecom to start 4G, or long-term evolution (LTE), service to customers. Telstra’s new mobile broadband network is only available within five-kilometer radii in city centers and major airports and some regional areas. The company is selling 4G-capable modems and will begin selling 4G capable smartphones in 2012.

Telstra sponsors a Level III American Depositary Receipt (ADR) that trades on the US over-the-counter (OTC). Level III sponsorship means basically that it files with the US Securities and Exchange Commission (SEC) all information and documents as would a US publicly listed company. The symbol for Telstra’s ADR is TLSYY. The ADR represents five ordinary shares, which are listed on the ASX under the symbol TLS. Telstra’s ADR, which is currently yielding 9.6 percent, is a buy under USD16.

Australia & New Zealand Banking Group Ltd (ASX: ANZ, OTC: ANEWF, ADR: ANZBY) has suffered more than the broader market, shedding 7.2 percent. Funding-cost pressures, slowing loan growth and general economic concerns afflicting all banks as well as an ANZ-specific lawsuit about excessive fees are weighing on the stock.

It’s still too early to tell what specific impact a lawsuit over the imposition of excessive bank fees on customers will have on ANZ, as the proceedings are still relatively early in the evidentiary process. The case is being closely watched by other Australian banks, however, even though the amount at issue–AUD50 million, the damages allegedly suffered by 34,000 members of the ANZ class–is relatively light.

The dividend is well covered, however, and at current levels just above the early August one-year low the over-the-counter (OTC)-listed American Depositary Receipt (ADR) is yielding nearly 8 percent. Australia & New Zealand Banking Group is a buy up to USD22.

Aggressive Holding BHP Billiton Ltd (ASX: BHP, NYSE: BHP) is down 9.3 percent on the New York Stock Exchange since AE’s debut, joining Conservative Holding ANZ as one of two Portfolio stocks underperforming major benchmarks thus far. BHP’s decline is a direct reflection of the concern among investors about the long-term sustainability of China’s growth trajectory.

Fellow Aggressive Holding GrainCorp Ltd (ASX: GNC, OTC: GRCLF), slightly positive on its home Australian Securities Exchange, is down about 1.9 percent in US dollar terms since AE’s inception.

New Hope Corp Ltd (ASX: NHC, OTC: NHPEF) is the pride of the Australian Edge Portfolio for the first five days of its trading history, having posted a 5.5 percent gain on the ASX and a 1 percent gain in US dollar terms.

Here’s our general view on how to go about building exposure to our Australian Edge Portfolio Holdings, first expressed in the preview issue’s Portfolio Update:

Our best advice right now–unless you’re really conservative–is to buy all eight of these charter Australian Edge Portfolio stocks if you can. One strategy is to decide on how much you want to invest and then dole it out by thirds, taking one-third of your positions now, one-third a month from now and another third a month after that.

Another approach is to buy a third now, but try to time further investment with market moves–say, by buying on potential pullbacks. When a stock’s price drops, it’s always critical to find out why. Most of the time, it will be for market-related reasons that have nothing to do with the health of the underlying business. Such times are golden opportunities to buy.