Australia: Running Out of Luck Down Under

[asdfghjkl32]

Worth a read. http://www.ritholtz.com/blog/2012/08/australia-running-out-of-luck-down-under/

Australia: Running Out of Luck Down Under
By Jonathan Tepper, Variant Perception

Australia has been described as the lucky country, but it is running out of luck and has a terrible combination of fundamental factors. In fact, Australia reminds us in many ways of the housing bubbles in the UK, Spain and Ireland. In each case, the country experienced a banking crisis.

 

[willrocks]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

 

[boston]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Always interested in differing viewpoints from various professions, on the same event. Can you share, what your friend actually advised?

 

[willrocks]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Always interested in differing viewpoints from various professions, on the same event. Can you share, what your friend actually advised?

He was talking about the Chinese economy slowing down, and the effects it will have on Australia. He thinks the flow-on effects to Australia's economy will hit us hard within the next three to ten years. His main concern was how it would affect his business, and how it will most likely hit the financial sector hardest.

By the way this guy doesn't have any PM investments (that I know of), and is very main-stream news oriented.

 

[boston]

Thanks for the advice.

3 - 10 years?? I think it will be much sooner than that. Your friend must be a very optimistic person at heart.

 

[willrocks]

Thanks for the advice.

3 - 10 years?? I think it will be much sooner than that. Your friend must be a very optimistic person at heart.

He's certainly an optimist. I'm not sure if he meant 3-10 years for his specific business, or the economy in general.

 

[JulieW]

At the current speed 3 years is a reasonable expectation. If things go harder faster, then of course 12 months.

 

[SilverSanchez]

Yeah Im hearing all the rumblings of the AUD being over valued. Housing bubble in Japan first then Australia.

To be honest i think people are buying the AUD because of what it's not - namely its not the EUD or the USD

but everyone will want some AuD (Gold Dollars) or AgD (Silver Dollars) before its too late.
We're getting our metal at a discount right now, have been for the entire US summer - that wont last forever.

 

[Blame_Game]

To be honest i think people are buying the AUD because of what it's not - namely its not the EUD or the USD

Well put Sanchez!

 

[Dogmatix]

Thanks for the advice.

3 - 10 years?? I think it will be much sooner than that. Your friend must be a very optimistic person at heart.

10 years! Phew, that's plenty of stacking time

 

[Dogmatix]

Yeah Im hearing all the rumblings of the AUD being over valued. Housing bubble in Japan first then Australia.

To be honest i think people are buying the AUD because of what it's not - namely its not the EUD or the USD

but everyone will want some AuD (Gold Dollars) or AgD (Silver Dollars) before its too late.
We're getting our metal at a discount right now, have been for the entire US summer - that wont last forever.

Or maybe because it is considered a proxy trade on China.

Or maybe because we offer positive currency returns - a carry trade if you will.

If the RBA dropped rates to 0.25%, watch how low the AUD can go.

 

[ozzanon]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Always interested in differing viewpoints from various professions, on the same event. Can you share, what your friend actually advised?

He was talking about the Chinese economy slowing down, and the effects it will have on Australia. He thinks the flow-on effects to Australia's economy will hit us hard within the next three to ten years. His main concern was how it would affect his business, and how it will most likely hit the financial sector hardest.

By the way this guy doesn't have any PM investments (that I know of), and is very main-stream news oriented.

Did he tell you why the Chinese economy might slow? My bet is no he didn't. I'll tell you why. One to two in four Chinese businesses are operating at a loss. Why? Because in China, it is not about net profit. It is about politics and employment. The Chinese government has forced the banks to loan money to businesses solely to keep them afloat in order to maintain employment. So it's not about profit, it is about employment, and keeping such a large population at bay by keeping people employed, so that they don't rise up and kick out the current government due to disdain. It always comes down to politics and controlling the masses. Case closed.

 

[ozzanon]

To be honest i think people are buying the AUD because of what it's not - namely its not the EUD or the USD

Well put Sanchez!

Agree.

 

[ozzanon]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Yesterday I spoke with a "mate of mine" who manages 3 trillion in stocks... blah blah.. whatever. The show Tool Time is coming to mind again. So what is old news tool time? Care to provide some examples?

 

[lucky luke]

Did he tell you why the Chinese economy might slow? My bet is no he didn't. I'll tell you why. One to two in four Chinese businesses are operating at a loss. Why? Because in China, it is not about net profit. It is about politics and employment. The Chinese government has forced the banks to loan money to businesses solely to keep them afloat in order to maintain employment. So it's not about profit, it is about employment, and keeping such a large population at bay by keeping people employed, so that they don't rise up and kick out the current government due to disdain. It always comes down to politics and controlling the masses. Case closed.

(1) So if it's not about net profit, how is it that China has such large currency reserves?

(2) keeping a large population employed (irrespective of the costs) seems a sensible strategy for a government.

(3) China does not have a monopoly on "politics and controlling the masses".

Case opened!

 

[Guest]

I thought the process was broken down a lot simpler by Gerald Celente I think.

US/Euro are consumption environments.
China is a production nation
Australia is a resource nation

(among others)

The US & Euro are slipping into a deep recession/depression now. Europe leading the way, but the writing is on the wall for the US

Both markets are the biggest buyers of Chinese exports. If they are not buying, the China isn't exporting or producing

If China isn't producing because of a drop off in demand, they aren't buying resources.

Australia is running out of willing buyers, especially with our dollar so strong weakening the buying power of these production nations.



I think it'll take some time to play out (the interest rate bullets in the Australian chambers still have a few rounds to fire), but at best I can see a long period of stagnation in the Aussie environment.

Just have to wait and see I guess, but I can't see how Australia (being so far above our median on many vectors) can continue to sustain such a standard when our primary markets are starting to stall.

Such is the nature of an economic model that is only sustainable with perpetual growth as it's core paradigm. Even an extended period of stagnation can be fatal.

 

[willrocks]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Yesterday I spoke with a "mate of mine" who manages 3 trillion in stocks... blah blah.. whatever. The show Tool Time is coming to mind again. So what is old news tool time? Care to provide some examples?

African Petroleum is one of the larger companies: www[.]africanpetroleum[.]com[.]au
Then there's International Petroleum: www[.]internationalpetroleum[.]com[.]au

I'm not about to give out names. Because I have a contract with his company, he's reasonably well known in investment circles, I don't think he'd appreciate being mentioned on here, and it would give away my identity by association.

 

[boyracer]

Yesterday I spoke with a friend who manages over 1.5 billion dollars in Australian shares. He's always been up-beat about Australia's economic position, especially mining. But yesterday he was decidedly negative and warned me of what's coming. Most of what he said was old news to me.

Yesterday I spoke with a "mate of mine" who manages 3 trillion in stocks... blah blah.. whatever. The show Tool Time is coming to mind again. So what is old news tool time? Care to provide some examples?

African Petroleum is one of the larger companies: www[.]africanpetroleum[.]com[.]au
Then there's International Petroleum: www[.]internationalpetroleum[.]com[.]au

I'm not about to give out names. Because I have a contract with his company, he's reasonably well known in investment circles, I don't think he'd appreciate being mentioned on here, and it would give away my identity by association.

^^ nor should you be expected too. Your statement was hardly beyond the realms of believability. I'm really not sure why Ozzanon is being so aggressive towards you and what was a reasonable and useful anecdote.

Willrocks - was the switch from optimism to pessimism in your friend quite sudden ie. due to the rapid iron ore drop and subsequent rout in the miners? Or was it a more gradual process?

Just curious cause where I work the broker advising the guy who buys the shares seems to have switched from chasing mining companies to chasing yield stocks. Way too late of course and they are shredding dollars hand over fist. Can't say I didn't warn em!

 

[willrocks]

Willrocks - was the switch from optimism to pessimism in your friend quite sudden ie. due to the rapid iron ore drop and subsequent rout in the minders? Or was it a more gradual process?

Just curious cause where I work the broker advising the guy who buys the shares seems to have switched from chasing mining companies to chasing yield stocks. Way too late of course and they are shredding dollars hand over fist. Can't say I didn't warn em!

His change from bullish to bearish was quite sudden. So much so I was preparing to lose that contract, which would be devastating to my cash-flow at the moment. Good news is they need me around for a few more years at least.

From what I can gather his sentiment was based on the rapid contraction in iron ore, and more importantly coal. His wealthiest (Chinese) investor owns coal mines in China, so that may have something to do with it.

 

[mmm....shiney!]

Rumours abound at the moment over the future of mines in CQ - a driller's offside I chatted with yesterday says there's not much work for him, he spends his time in the yard at the moment doing odd jobs, but all the odd jobs have been done so it's pretty boring. He has a mate that works at Rio's Clermont coal mine as an operator, apparently he was told that Rio can guarantee his job through until March 2013 only.

I'm getting worried for our local economy as we haven't done too badly since the GFC, and of course it's been local economies like ours that have kept Australia afloat. Doesn't bode well.