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

Here we go again.

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

Now its back.

Alexis Tsipras is back as Greeces prime minister.

What may happen this time? Its something else for traders to worry about. But in truth, its only a sideshow. The real worry for Aussie investors is right here in Australia.

And theres no sign it’ll get better anytime soon

From a report in the Age:

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

Chief economist Ivan Colhoun said a recent visit to clients in Britain, continental Europe and the Middle East exposed uniformly negative view on Australias prospects.

This is why all of us took the controversial choice to publish Vern Gowdies new book, The End of Australia.

You can find out how to get your hands on a copy here.

Cue the next recession

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

But not for too long.

Its true that the mainstream usually arrives past due on the scene with things like this.

But its not true to say that the mainstream is a counter indicator.

Typically, the actual mainstream will grab your hands on a story once the impact has already been underway.

Then, as the message (positive or negative) filters through to the bulk public, youll start to see the biggest reaction in the market.

Thats because, until that point, the mainstream is possibly ignorant of whats going on, or hasnt taken it seriously.

Thats where we’re with the Aussie economy right now.

Remember, its a long time since the last Foreign recession. Its a shame Joe Hockey wont be around to see the next one

Source: Bloomberg

Also keep in mind that foreign investors still see Australia as a resources economy. Foreign investors also begin to see the Aussie dollar as a goods currency.

When the commodities sector was strong, the Aussie dollar was strong. Whenever commodities weakened, so did the Aussie dollar.

An indisputable link

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

Thats a long fall in the giddy heights above US$180 per tonne in 2011.

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

Below is a chart of the Aussie dollar (yellow line) from the price of iron ore (white line):

Source: Bloomberg

You dont need to be Columbo to interpret which chart.

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

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

That may be true. But how about in an export sense?

That doesnt seem so clear. Look, were not saying that the Aussie economy is only good for digging things out of the ground as well as selling them to China.

As somebody who has followed small-cap and microcap stocks around the Aussie market for more than a 10 years, we know there is plenty of development in Australia.

But digging up sources and selling them to China is different to innovating within technology and selling that technology to the world.

The world doesnt need Australia for this resource

When it comes to sources, Australia is one of the worlds leaders. In the event that China wants iron ore, it has two options Australia or Brazil.

But when China (or any other country) wants a different kind of resource technology Australia isnt the initial place that springs to mind.

China includes a home-grown technology industry. If it cant get what it wants at home, it can get it from the US, Singapore, Hong Kong, Europeand somewhere else.

For years investors, commentators, and economists worried if The far east could adjust its economy to the future. They may well have a cause for concern. But here in Australia, folks need to worry regarding Australias ability to adjust.

It may achieve this. But even if it does, it will take a long time. Its why we recommend investors get hold of Vern Gowdies new book now.

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

Cheers,

Kris