The One ‘Resource’ the World Doesn’t Need from Australia

Here we go again.

It seems like only last week that A holiday in greece was in the headlines regarding elections and its debt problem.

Now it is back.

Alexis Tsipras is back as Greece’s prime minister.

What will happen this time? It’s something otherwise for investors to worry about. But in truth, it’s just a sideshow. The real worry for Aussie investors is right here… in Australia.

And there’s no sign it will get better anytime soon…

From a report within the Age:

‘Foreign investors have turned especially bearish on the Australian economy, with one describing it as “toast”, the National Australia Bank statement says.

‘Chief economist Ivan Colhoun said a recent trip to clients in Britain, continental Europe and the Middle East revealed “uniformly negative view on Australia’s prospects”.‘

This is why all of us took the controversial decision to publish Vern Gowdie’s new book, The End of Australia.

You can find out how to get hold of a copy here.

Cue the next recession

Now, although we see bad news ahead for the Aussie economy, seeing the actual mainstream take the same view gives us pause for thought.

But not for too long.

It’s true that the mainstream usually arrives late on the scene with things like this particular.

But it’s not true to say that the actual mainstream is a counter sign.

Typically, the mainstream will grab hold of a story once the impact is already underway.

Then, as the message (positive or negative) filters through to the actual mass public, you’ll understand the biggest reaction in the market.

That’s because, until that point, the mainstream is either ignorant of what’s going on, or hasn’t taken it seriously.

That’s where we are with the Aussie economy right now.

Remember, it is a long time since the last Foreign recession. It’s a shame May well Hockey won’t be around to see the next one…

Source: Bloomberg

Also remember that foreign investors still see Australia as a resources economy. Foreign traders also see the Aussie buck as a commodities currency.

When the actual commodities sector was strong, the Aussie dollar had been strong. When commodities destabilized, so did the Aussie dollar.

An undeniable link

Today, the metal ore price is US$57.30 per tonne.

That’s an extended fall from the giddy heights above US$180 per tonne in 2011.

Here, we’ll show you another chart. If you need much more evidence of the link between the value of the Aussie dollar and also the price of commodities, this is it.

Below is really a chart of the Aussie dollar (yellow line) against the cost of iron ore (white line):

Source: Bloomberg

You don’t have to be Columbo to interpret which chart.

Of course, some will state that the Aussie economy is changing. Mr Colhoun, from National Sydney Bank, told Bloomberg:

‘At the present period, the improvement in the non-mining economy is much more than outweighing the drag through mining, particularly in an employment feeling.‘

That may be true. But what about in an ‘export sense’?

That doesn’t seem so clear. Look, we’re not saying that the Aussie economy is just good for digging things out of the ground and selling them to China.

As someone who has followed small-cap and microcap stocks on the Aussie market for more than a decade, we know there’s plenty of innovation in Australia.

But digging up resources and promoting them to China is different in order to innovating in technology and selling that technology to the world.

The world doesn’t need Australia for this ‘resource’

When it comes to resources, Australia is one of the world’s leaders. If China wants iron ore, it has two options — Australia or Brazil.

But when China (or any other nation) wants a different kind of source — technology — Australia isn’t the first place that springs to mind.

China has a home-grown technology industry. If it cannot get what it wants at home, it can get it from the US, Singapore, Hong Kong, Europe…and elsewhere.

For many years investors, commentators, and economic experts worried if China might adjust its economy towards the future. They may well possess a cause for concern. But here in Australia, folks need to worry about Australia’s ability to adjust.

It may do so. But even if it does, it will take quite a long time. It’s why we recommend investors get hold of Vern Gowdie’s new book right now.

It has the details on how issues will pan out for the Aussie economy, and what traders (and non-investors) can do to prepare for this. Go here for details.

Cheers,

Kris