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 regarding elections and its debt problem.

Now it is back.

Alexis Tsipras is back as Greece’s pm.

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

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

From a report in the Age:

‘Foreign investors have turned particularly bearish on the Australian economy, 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 revealed “uniformly negative view on Australia’s prospects”.‘

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

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

Cue the next recession

Now, even though we see bad news ahead for the Aussie economy, seeing the actual mainstream take the same look at gives us pause for believed.

But not for too long.

It’s true that the actual mainstream usually arrives past due on the scene with things like this.

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

Typically, the mainstream will grab hold of a story once the effect 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 simply 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 using the Aussie economy right now.

Remember, it is a long time since the last Aussie recession. It’s a shame Joe Hockey won’t be around to determine the next one…

Source: Bloomberg

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

When the commodities sector was powerful, the Aussie dollar had been strong. When commodities weakened, so did the Aussie dollar.

An undeniable link

Today, the iron 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 worth of the Aussie dollar and the price of commodities, this is it.

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

Source: Bloomberg

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

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

‘At the present time, 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 doesn’t seem therefore clear. Look, we’re not saying that the Aussie economy is just good for digging things from the ground and selling these to China.

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

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

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

When it comes to resources, Australia is among the world’s leaders. If The far east wants iron ore, it has 2 options — Australia or South america.

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

China includes a home-grown technology industry. If it can’t get what it wants in your own home, it can get it from the US, Singapore, Hong Kong, Europe…and elsewhere.

For years investors, commentators, and economists 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. However 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 things will pan out for the Aussie economy, and what investors (and non-investors) can do to prepare for it. Go here for details.

Cheers,

Kris