If you are an investor and you have not contemplated an economic slump in Australia during the next few years then in my view, you might be in for a nasty surprise. Yes the Australian economy did hold up well during the worst of global financial crisis, but the crisis isn’t over yet and it still has some sting left in it’s tail. (just ask the people of Greece!)
So what exactly do I have in mind? Well please allow me to present a fictional scenario on this blog and as you read it, just ask yourself how confident are you that what I am outlining could not happen.
Would you be surprised if anything I mention below happens? Or perhaps there are some issues raised below that we are simply sweeping under the carpet at the moment and if so, isn’t that just a little reckless?
————————-
An Economic Slump in Australia in 2011 – A fictional (?) scenario
Dateline: Mid 2011
Today the Australian Treasurer announced that the plan to bring the budget back into surplus will be pushed back by 4 years as the economic slowdown in China starts to impact the Australian economy.
Analysts say that now that unemployment has crept above 6.5% the Government will have little choice but to look at measures to try and boost the economy again, even though this will mean having to borrow further in order to do so
The situation has been made worse by the Reserve Bank’s efforts to reign in inflation which resulted in interest rates peaking late last year, and these raises are one of the factors behind the current falls seen in home prices nationwide.
“The surge upwards in commodities prices is over” said one mining analyst based in Singapore. “The rules of supply and demand are kicking-in now and as China scales back it’s stimulus spending, many large mining companies are having to scale back output especially as prices fall.”
Indeed many people appeared not to have noticed the enormous amount of money used over the last decade to start new iron ore and coal mining projects. Some of these projects have resulted in extra supply capacity coming online just as demand is softening thus hitting prices for coal and iron ore hard.
To make matters worse the opposite has been happening in the oil sector where many project were shelved as a result the global financial crisis in 2008/2009. As the global economy continues to recover, oil demand is increasing but the underinvestment in new projects over the last few years means that supply is struggling to meet demand.
Oil prices are now near $100 USD a barrel and analysts expect them to reach $120 by the end of the year. Higher oil prices have been a major factor in pushing up prices for a whole range of goods and services from airfares to the cost of bananas at the supermarket.
Another major challenge for policy makers in Australia is that gap between imports and exports still remains wide. The years of current account surpluses have not arrived and this is likely to put pressure on all levels of government to increase taxes in order to make up for the lower than expected income from mining royalties and corporate taxes.
“It’s a catch-22 situation that the Government, RBA and Treasury never thought was possible” commented an economist, “as unemployment rises immigration levels will need to be adjusted downwards, but as this happens this will adversely impact the growth of the domestic economy”
He went on to add: “sadly too much time and effort was put into working out how to spend the proceeds of a decades long economic boom and very little towards working out how to deal with anything else. Australia not only counted it’s chickens before they hatched, they also started counting the eggs before they were even laid”.
Australian GDP is expected to contract by 0.8% in the 3rd quarter but most economists fear the 4th quarter will be even worse and are tipping a contraction of 1.3% as the pullback in house prices has more of an impact.
————————-
I know many people will read what I have written above and consider it highly unlikely that any of what I outlined will occur in the next few years. But then again, is it really likely that none of the developments contained in the above scenario will turn out to be true?
Is the Australian economy really going to enjoy a magical era where:
- House prices keep rising.
- Incomes keep rising.
- Inflation remains under control.
- Iron ore and coal prices continue to rise.
- The population continues to grow at records levels but the economy is able to keep creating jobs in order to keep unemployment low.
- Taxes are not raised.
- Government spending is kept in check.
- The Chinese economy continues to grow strongly.
Imagine what would happen if one of the above does not turn out to be true? How would for example, high inflation affect the economy? Would the RBA be forced to raise interest rates higher than the historical average to try and keep inflation under control and if so, what would happen to house prices?
If house prices began to fall isn’t that likely to have some knock-on impact on another area of the economy? What would happen if something else does not fall into place according to Ken Henry’s rosy vision of the future? How truly robust is the Australian economy?
I accept I might be a little too pessimistic. But isn’t it also possible that many economists, analysts, politicians and bureaucrats are naively too optimistic? Isn’t there a real danger were at witnessing economic “Groupthink” in action? Where are the voices of caution or dissent?
I am happy as always to have my logic questioned and I also encourage readers to post their scenarios or thoughts regarding how the Australian economy will be tracking next year and beyond.
The mainstream media may not be raising concerns about the economy in the years ahead, but at least we can consider that possibility here on this blog!
Search terms: what does it mean when the economic market is dropping?, what is australia\s economy like, australian economics blogs, economic slump, two-speed economy australia council, what is australia\s economy like?Related posts:
- Economic indicators, the Australian economy and the stock market
- Swan’s lazy 2011 budget and Australian economic madness.
- The Australian economy, house prices and economic outlook
- The Global Economy, Baltic Dry Index, Gold and China
- The stampede towards global economic pessimism
 image banner 69637)
 image banner 96840)
 image banner 97764)
135 responses so far ↓
Pages: [1] 2 » Show All
1 Niko // May 1, 2010 at 2:25 pm
You’re logic is very sound, great posting. Why does Australia have such a dearth of real economic reporting?
The Keynesians, Monetarists and Austrians (probably the most accurate with the ‘business cycle’) do a poor job of adequately describing the Kondratiev wave phenomenon.
This guy has an interesting view on economic theory. Although obscure (verges on the nutty but I guess genius and madness is a fine line) his description of interest bearing debt and its consequences and ultimate end is the best I have read.
http://www.perfecteconomy.com/
2 Ned S // May 1, 2010 at 5:15 pm
This bloke seems to agree with a few of your thoughts too Greg:
http://www.theaustralian.com.au/news/opinion/maybe-we-need-another-crash/story-e6frg6zo-1225860810463
3 Biker Pete // May 1, 2010 at 8:40 pm
Preferred ’1984′, Greg.
Comparing the Greek economy to the Australian economy is like comparing Irish realty to Australian housing. Cheer up, Greg! Why must you be so pessimistic?!~
As we know, almost all the hardworking, enterprising Greeks have moved to Oz… and are driving up Melbourne’s property prices daily.
If you painted a post-nuclear Armageddon, when we had moved back into caves (or trees) I’d be more entertained. Shelter is up there with food, warmth and sex… . When we talk of leafy-green suburbs, we’re talking about Nedlands, Floreat and Dalkeith; not a cradle-in-the-branches.
Yes, in our rise as a species, we’ve overreached somewhat; much of the cr*p we ‘need’ is superfluous… but shelter remains a fundamental, a primary refuge from weather and privation.
Disclaimer: A nice bottle of Arlewood Shiraz has not influenced the opinions of your advisor at all. Nevertheless, a half bottle of the same may help you lean towards a property bias… or not.
4 Greg Atkinson // May 2, 2010 at 9:00 am
Biker a fundamental need does not make something a good investment. Take oxygen for example.
But back to the subject at hand, are you saying that none of what outlined above could happen in Australia?
5 Anon // May 2, 2010 at 9:34 am
“A 40 percent resource rent tax could cut the earnings of Rio Tinto by as much as 30 percent and BHP Billiton’s by 19 percent, according to Merrill Lynch & Co.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6PpOPEYVru0&pos=5
lol bibi BHP and RIO. Not looking too cheap if this is announced at 2:30pm in Canberra!
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
6 Anon // May 2, 2010 at 9:39 am
Buffet recently mentioned, he expected the economy to be well into recovery mode by Feburary next year.
However, the main companies he owns that give him indications the recovery is in full force (Marmon, Iscar) are still lagging atm.
Looks like any perceived/or anticipated 2nd half weakness accompanied by a significant equities correction (15-20%), will be a buying opportunity; if you believe Buffets forecasts.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
7 Greg Atkinson // May 2, 2010 at 10:16 am
Anon I am not sure what the Government hopes to achieve by implementing a rent resources tax other than to send Oz mining stocks tumbling and make overseas mining projects a little more attractive.
If the Government keeps changing the rules for foreign investors then my scenario for 2011 may turn out to be fairly accurate.
8 Ned S // May 2, 2010 at 11:32 am
The basics of Henry’s approach -- Tax the miners -- has been known for a good while now Anon. It would seem very strange for the markets to not basically have it factored in?
That’s another risk in your scenarion Greg -- That we could kill the geese we are relying on to lay the golden eggs all by ourselves -- Which would be just too perverse for words of course.
Significant stability in the rules is required -- Agreed, I’ve been whinging about that off and on for a good while now -- Here’s hoping we get to see some sort of a move in that direction beginning again in Oz this arvo!
9 Anon // May 2, 2010 at 12:55 pm
“It would seem very strange for the markets to not basically have it factored in?”
Well they haven’t…they are overvalued just based on my valuation requirements for buying, let alone being taxed more lol!
Down she goes i’m afraid. The markets are very odd beasts. I might buy BHP if it goes under 20$, that would be good value…anything else forget it!
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
10 Greg Atkinson // May 2, 2010 at 1:06 pm
Niko…thanks for the link. That gut really does not like bankers I gather?
As for the mining stocks I guess we will see how they handle what Swanny has to say next week.
Could be interesting if the RBA raises rates again, Swanny taxes the miners ore and then the Chinese economy slows! Ouch!
11 Anon // May 2, 2010 at 1:09 pm
haha Greg, I was thinking the samething.
Our economy resembles a leveraged “to the max” margin loan with maximum exposure to the chinese economy.
When China sneezes we will hit the ground hard.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
12 Ned S // May 2, 2010 at 1:17 pm
It’ll be interesting to see what the guv guys think of Henry’s sovereign wealth fund -- I suspect they’ll figure they need the loot now? ‘Course Kev could try cutting his spending … Ho Ho Ho !!!
Truth be told, if push really came to shove, super is our proxy “sovereign wealth fund” …
13 Anon // May 2, 2010 at 1:27 pm
Where do you guys think we are on this chart?
http://2.bp.blogspot.com/_9MYixPWxtF0/S9kFJKpuEYI/AAAAAAAABkQ/NZKlmRlkbz4/s1600/investor-psychology-illustrated.gif
I vote 18!
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
14 Greg Atkinson // May 2, 2010 at 1:39 pm
I like that chart Anon. I am at 16 and sure glad I did not sell out at 12, but sadly was a buyer at 8!
15 Ned S // May 2, 2010 at 1:43 pm
Thought I’d turn the radio on and see what’s happening -- Footy, the races, some nice relaxing music, and someone having a chat about something to do with discrimination. Oh, and what would seem to be a spoof on the “Life of Rudd”, plus a sad storey about a family going through some sort of personal grief -- Doesn’t look like anyone has seen fit to interrupt their regular broadcasting over the KHR?
16 Anon // May 2, 2010 at 1:56 pm
Confirmed in Review:
-Small Businesses will get 2% tax cut by the 2012/13 financial year. LOL oh no its another promise with a huge timeline
-Big business to wait longer than small business to get the full cut. LOL
-Funded by resource “SUPER” profits.
By the time this is in full effect resource profits might be down the gurgler. But then it wont matter because Rudd would have secured another term haha.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
17 Anon // May 2, 2010 at 2:22 pm
lol Ned…i cant beleive Australia elected this mob…we’ve elected a snakeoil salesman!!
Thats just sad…all that spin about KHR and didn’t even use it.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
18 Ned S // May 2, 2010 at 2:28 pm
It’s an extraordinarily lame response from a extraordinarily lame government alright Anon. A total farce of course -- Apparently a lot of the super recommendations that have been “accepted” aren’t even in Henry??? Gotta laugh …
19 Ned S // May 2, 2010 at 3:03 pm
Agreed Biker -- It’s a negative; As could be the 1% tax on land value; And keeping super locked up until retirement age. Guess we’ll just have to do Swanny’s job for him and sift through to see what we reckon will eventually fly. And take the risks into account.
20 Greg Atkinson // May 2, 2010 at 3:37 pm
I did warn you all about the Henry Tax Review
http://www.shareswatch.com.au/blog/economy/ken-henry-and-his-tax-review-should-we-be-worried/
I wonder if there is anything Rudd and Co can achieve within a 5 year time frame?
21 Greg Atkinson // May 3, 2010 at 8:31 am
Well it seems I am not alone in saying that Australian economy skipped the worst of the GFC mainly because of luck more than good management and that the economy is highly vulnerable to any slowdown in China.
In this article Housing tipped for price implosion in The Australian today Edward Chancellor, of US investment bank GMO says “the Australian economy is yet to emerge from the global financial crisis, despite the widespread belief it has escaped the worst of it ahead of the rest of the world.”
He is also pretty gloomy about the housing market tipping a fall in prices, although less than Keen it seems.
22 Anon // May 3, 2010 at 9:59 am
“However, “given the great growth in private sector credit and the vulnerability of the housing market . . . Australia is not out of the woods. It hasn’t even entered the woods.”"
Thats a good assessment.
When the sh*t hits the fan you must play good defence! Capital gains and dip buying should never be a priority. Capital preservation at all costs.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
23 Anon // May 4, 2010 at 2:58 am
lol losses all recouped … massive rally!
Wonder if we will breach this years high and have that final spike or drop to the floor tommorrow?
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
24 Anon // May 4, 2010 at 4:35 pm
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8sWJwi.PunQ&pos=4
May 4 (Bloomberg) — Australia’s central bank increased the benchmark interest rate for the sixth time since early October after policy makers raised their outlook for inflation and judged the nation is insulated from Greece-sparked debt woes.
http://www.rba.gov.au/media-releases/2010/mr-10-07.html
Well I guess nothing new there?
25 Anon // May 4, 2010 at 5:31 pm
RBA Media Release: Statement by Glenn Stevens
“With the risk of serious economic contraction in Australia having passed some time ago, the Board has been adjusting the cash rate towards levels that would be consistent with interest rates to borrowers being close to the average experience over the past decade or more. The Board expects that, as a result of today’s decision, rates for most borrowers will be around average levels. This represents a significant adjustment from the very expansionary settings reached a year ago. ”
The wording of this might be problematic for intermediate appreication of the AUD (i.e. carry trade). AUD currently looking abit weak, but positively correlated with equities, so if we have that last manic spike, AUD might have one last thrust up.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
26 Anon // May 5, 2010 at 12:41 pm
Sterling on the cusp of a big move
“I’ve just had a chat with a professional trader friend of mine who’s been trading cable at major institutions for over 30 years. He feels that the cable is due for a major move and he thinks it will be up. His arguments are that if some major selling was going to emerge it would have done so by now. The weak EUR has dragged cable lower but the EUR/GBP cross has fallen also and is now below important support at .8600. Once the election is out of the way, he feels that a big rally back towards 1.57 is possible, especially if the Tories come close to an absolute majority.”
http://www.forexlive.com/104086/all/sterling-on-the-cusp-of-a-big-move
Been bullish on the pound for awhile, but been in and out with a few probes. Looks like its about to make a significant move to the upside.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
27 Biker Pete // May 6, 2010 at 8:37 am
“Biker a fundamental need does not make something a good investment. Take oxygen for example.”
Somehow missed this, Greg. Oxygen may become a very good investment. Can’t easily buy it in personal cans in Australia, as you can in North America.
“But back to the subject at hand, are you saying that none of what outlined above could happen in Australia?”
I’m saying that we need to compare apples with apples. We’re not Greece. We’re not Ireland. In fact we’re about as dissimilar as we could be… .
The reasons we might go through some trauma, temporarily, are also dissimilar. They may well affect east coast cities which, IMO, _are_ overpriced. Keen pointed to Black Swan events (since abbreviated to BS events) as catalysts, but it’s more likely that events which may affect property most will be policy-related; or the result of rampant materialism in a confused demographic. Yes, I agree with you, that long-term, Oz may well have some critical trauma to contend with.
An aside: It was interesting recently to see the young couple in deep ship over the interest rate rise had a mega-screen in their living room. I _suspect_ their cars were also new… and on credit. Most of the cars which slow to read our sign(s) are the very latest models. Talking to those who stop to ask about our latest project, I suspect many are people who gave priority to a status want, before a need, shelter. Some are _desperate_ for a ‘cheap’ rental. (And a few must suspect we’re hard up, seeing the rusted old Hilux parked out on the verge….!!~
)
At present, the most at-risk group are those who must-have-it-all-NOW-!
28 Anon // May 6, 2010 at 4:15 pm
Australian Dollar Seaonality (17yr) doesn’t look good:
http://futuresbuzz.com/Aust%20Dollar.gif
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
29 Anon // May 6, 2010 at 5:16 pm
Lots of people seem to be trying to pick a bottom on the EUR/USD. Main reasons are: its oversold or theres excessive pessimism, Greece is going to solve its problems (at least temporarily). I don’t think sentiment matters here -- theres just too much going on and its better to wait till the dust settles.
May 19th Greek debt deadline and ~16 bill Spanish debt due in June.
Theres too much stuff thats comming up to risk a long position. I strongly suspect we are going to break ~1.24. Seasonally its weak. The charts look awful. The trend is your friend. It is what it is lol.
http://www.seasonalcharts.com/img/CURRENCI/EUR_USD.GIF
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
30 Ned S // May 6, 2010 at 8:13 pm
Young and old and middle aged traders, stock market value investors, Oz property value investors, and those on a bit of a learning curve. We make a “rum lot” with all our different perspectives and timeframes hey?
Still enjoying the comments. Ta as always!
31 Anon // May 6, 2010 at 10:21 pm
Hey Ned, where ya been? Been abit quiet round here without ya
—-
“I strongly suspect we are going to break ~1.24″
Provided it breaks “cleanly” and its clear 1.24 wont hold, 1.15 looks like fair value to me. So Euro/USD is set for some serious declines here -- into the last panic and capitulation around 1.10-1.15.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
32 Anon // May 7, 2010 at 7:33 am
OH MY GOD!
What happened???
33 Ned S // May 7, 2010 at 8:03 am
The Yanks reckon a Citibank trader did a Barnaby Joyce and typed “b”illion when he meant “m”illion?
34 Anon // May 7, 2010 at 8:04 am
Dont reckon that was a bottom on the DJIA….normally I would buy that panic sell off but something doesn’t look right….and the risk/reward is still poor.
Perhaps, tommorrow, a short-term relief rally at best, or we will continue to drop.
————--
“The Yanks reckon a Citibank trader did a Barnaby Joyce and typed “b”illion when he meant “m”illion?”
Thanks Ned, do you believe this story?
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
35 Greg Atkinson // May 7, 2010 at 8:05 am
Panic has gripped the markets once again. Now is the time to focus on facts avoid joining the mob in my opinion. In situations like these I am rarely a seller and more likely to be a buyer.
The debacle in Greece is nasty, but we got over Iceland and Iceland so I see no reason that the situation in Greece cannot be dealt with on a global level. Sure some nations in the EU will not have a good run in the next decade, but I doubt that will cause a major headache for the growing economies in Asia.
36 Anon // May 7, 2010 at 8:07 am
“May 6 (Bloomberg) — The pound weakened against the dollar and the euro after an exit poll indicated no party won an overall majority in today’s U.K. election, fueling concern the next government will be too weak to tackle the budget deficit. ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=atgu9AuTM2o4&pos=2
Data miners! Its not weakening against the AUD!
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
37 Ned S // May 7, 2010 at 8:12 am
“Thanks Ned, do you believe this story?”
I’m not a very trusting sort of soul these days Anon -- I fully expect the Asian markets to confirm the move today.
38 Anon // May 7, 2010 at 8:21 am
“Panic has gripped the markets once again. Now is the time to focus on facts avoid joining the mob in my opinion. In situations like these I am rarely a seller and more likely to be a buyer.”
Might be abit early Greg. Cant see alot of retail investors mass dumping, they are still “hanging on.” Gonna look at some sentiment indicators and see what is happening.
I will watch closely and wait for price confirmation. Not going to get infront of a moving bus.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
39 Anon // May 7, 2010 at 8:58 am
http://stockcharts.com/h-sc/ui
Thoughts? That candle looks abit abnormal to say the least.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
40 Anon // May 7, 2010 at 9:24 am
XAO broken support ~4485, at least intraday.
Will see whether this support can hold at close. If not, next major support closer to ~4,000. Not good.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
41 Anon // May 7, 2010 at 9:59 am
Have increased my short positions. Wish me luck
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
42 Anon // May 7, 2010 at 10:07 am
LOL
“Miners may keep more of profits
SHANE WRIGHT and ANDREW PROBYN CANBERRA, The West Australian May 7, 2010, 2:35 am
The Rudd Government has signalled it may allow the mining industry to keep more of its profits under its planned $10 billion a year plunder of the sector’s mega profits.
While the Government appears unlikely to shift on the 40 per cent rate of its “super profits” tax, it has opened the door to changes on when the tax kicks in and what exactly defines a super profit.
“
43 Greg Atkinson // May 7, 2010 at 7:58 pm
I didn’t see this article get much airtime in Australia but it should scare the pants off the RBA and the Government: China Coal at Discount to Australia, Signaling Import Drop: Energy Markets (from Bloomberg)
“Coal prices in China are their cheapest in 20 months against the benchmark Australian grades, signaling shipments to the world’s second-largest energy user are poised to fall.”
I have been warning about coal and iron ore prices for a while. Most market experts reckon resources will kick the Australian economy to new highs in 2010 and fix our balance of trade, whereas I reckon we might just find out that counting on resources alone to save the day was a bad plan!
44 Anon // May 8, 2010 at 12:31 pm
Diminishing Marginal Productivity of Debt in the US Economy (in Dollars):
http://3.bp.blogspot.com/_pCDyiFUv9XU/S-MdpJTJf1I/AAAAAAAAJmo/rOrPSEfYBpQ/s1600/Diminishing+Productivity+of+DEBT.jpg
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
45 Anon // May 8, 2010 at 12:36 pm
VIX overextended — i’m out of VIX
“VIX Implied Volatility Exceeds 2008 Crisis Levels
VIX options are attracting so much attention that the implied volatility of the VIX is currently at 133, which exceeds that high of 126 that was hit during the 2008 crisis. The obvious play here is to sell VIX calls, with short call spreads (bear call spreads) one way to limit risk.”
http://vixandmore.blogspot.com/2010/05/vix-implied-volatility-exceeds-2008.html
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
46 Anon // May 8, 2010 at 4:02 pm
I think this chart answers the question re: sustainable recovery:
http://2.bp.blogspot.com/_pCDyiFUv9XU/ShMqhlU6WKI/AAAAAAAAEEs/wajTta1GHEg/s1600-h/S%26P+500+earnings.gif
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
47 Anon // May 10, 2010 at 1:13 pm
Viscous counter-trend rally…ouch! Big short covering.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
48 Greg Atkinson // May 10, 2010 at 1:32 pm
The old “we dodged a bullet” rally. The rout was probably overdone as usual and I guess if nothing else pops up we will get back in between 4800-5200 again. The next hit could be if news of a Chinese economic slowdown is confirmed.
49 Anon // May 10, 2010 at 1:36 pm
“I guess if nothing else pops up we will get back in between 4800-5200 again.”
Yep I rkn ~4,800. I still think we are in a rolling downleg, but i’ll keep nimble incase I’m wrong. I’m not long or short at the moment and completely in cash.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
50 Ralph // May 10, 2010 at 2:29 pm
Excellent post, Greg. You paint a scenario that I don’t think is too fanciful at all. I don’t see it as pessimistic -- more like realistic and acknowledging the risks.
You’d have to have rocks in your head to think that there’s no risk of at least one of the things on your list occurring. Certainly, the gov’t and RBA are assuming (or hoping?) that nothing does go awry and crossing their fingers and toes. Like some, I’ve come to the conclusion that as long as China (and to a lesser extent India) is powering ahead, the smoke and mirrors can be maintained for a while longer yet. But I’m worried that Aus has willingly put itself at the mercy of a communist regime that makes decisions based on its own self interest. It just happens that their interests largely co-incide with Australia’s interests -- at the moment. In that sense, the Australian economy is a China-based ponzi scheme. That alone is reason to be a little worried.
And if it does go belly up, then I have every confidence that KRudd (or his successor) will borrow, print and spend to his heart’s content to ‘save’ us once more.
51 Greg Atkinson // May 10, 2010 at 2:52 pm
Thanks for the feedback Ralph. By the way I found this article about coal prices in China on Bloomberg interesting: China’s Coal at Discount, Signaling Import Drop: Energy Markets (May 7th)
I don’t think falling coal prices are in the Australian Government’s grand plan. If coal demand falls then I would guess iron ore will follow?
52 Ralph // May 10, 2010 at 3:38 pm
I agree. Not good. Any sort of sustained drop-off in demand would mean KRudd, Swanny, Stevens & co would be having kittens.
Not that I support Australia continuing to focus solely on mineral exports while letting other sectors wither. But true, it would underscore a fundamental vulnerability in being so reliant on Chinese demand for future prosperity.
53 Anon // May 10, 2010 at 6:44 pm
Dow 10,750.00 415.00 4.02
!!!!!!!!!!!!!
Wow.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
54 Ned S // May 10, 2010 at 7:31 pm
That’s nice Anon. But I think what has become increasingly obvious is that lots of promises have been made by the governments of developed nations over the years that they can’t realistically be anticipated to honour. And that the real reason it is pretty difficult to find decent investments in developed nations is because people who expect an average income of $35K pa minimum simply never will compete with ones who can satisy themselves with $15K and less.
While conscientious gardeners harnessing the bounty of some fresh water and the sun’s free rays might be able to turn pig poo into strawberries on a reasonably reliable basis, only the incredulous could bring themselves to believe that politicians and bankers and bureacrats sitting on their bottoms thinking followed by opening their mouths to allow their brains to fall out, in the hope their prognostications will become universally shared pearls of wisdom, can achieve the same.
I’m getting very tired of all these fools!
55 Ned S // May 10, 2010 at 8:22 pm
I don’t believe that anyone can take any of the stuff that goes on regarding world markets seriously -- It’s a game. Even day trading is screwed given that inexplicable 998 point drops in the djia happen.
Buy land (with a house on it if it suits) and/or bullion (cash is iffy too IMO) and leave the rest of them to their manipulations and games to see who does the best job of pinching money off the other.
56 Anon // May 10, 2010 at 8:37 pm
“I don’t believe that anyone can take any of the stuff that goes on regarding world markets seriously – It’s a game. Even day trading is screwed given that inexplicable 998 point drops in the djia happen.”
It is a game Ned, thats spot on. Poker players make great traders for that reason. Day traders…i do know some that make an absolute killing consistently (e.g. 100-200% returns p.a.), but they are rare. For you and me its pure and utter gambling to day trade. Alot of day traders would have busted in that 998 point drop unfortunately
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
57 Greg Atkinson // May 10, 2010 at 9:43 pm
Quote from the movie Wall St.
LOU MANNHEIM: Stick to the fundamentals. That’s how IBM and Hilton were built. Good things sometimes take time.
58 Anon // May 10, 2010 at 11:07 pm
VIX Crashes
“VIX Plunges by Record 36% as Stocks Soar on European Loan Plan ”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.KDLwz0TnmM&pos=3
This is like timebombs going off everywhere. Lucky I dumped on Friday! Inaction is the course of action now I rkn.
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
59 Firebug // May 12, 2010 at 8:35 am
Reading some of the budget assumptions last night, I think some of Greg’s scenarios here could turn out to be spot on!
We need the ALP to be in for the second term to complete the economic mis-management that we had to have!
60 Greg Atkinson // May 12, 2010 at 9:44 am
Firebug it seems Wayne Swan had delivered a budget to help me out! It would only take a fairly minor economic slowdown in China to ruin the budget forecasts.
61 Senator13 // May 12, 2010 at 12:27 pm
This budget is for things that do not come in effect in some cases 9 and 10 years into the future. It just re announced things we saw from last weeks tax review. It is projecting revenues that are not even yet legislated for. All this in betting on something we have zero control over and that is China. What a smoke and mirrors show.
How you can say we are going to come out of surplus on the back of taxes that don’t even exist is just crazy. And these taxes are going to be wacked on the very companies that are keeping us going.
I would NOT say this is a ‘no frills’ budget. I would just call it lazy. Anybody can wack a massive new tax on an industry and claim to half the time to come out of deficit. Nothing special about that.
62 Ned S // May 12, 2010 at 3:42 pm
Have a look at Recommendation 45:
http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm
Not sure if what Henry recommended re taxing the miners is excessive or not -- But either way I AM sure that Rudd and Swan didn’t do what he recommended. (Even their use of the extra loot they reckon they’ll get -- Raising super contribs to 12% -- runs specifically contrary to Henry’s recommendation elsewhere to leave it at 9% -- For which we can assume he had some pretty good reasons; None of which are going to get chatted about).
Recall reading somewhere that Norway funds its sovereign wealth fund with a 50% tax on mining and energy? If so it would seem to me that Henry was maybe looking for much the same rate. After all the state royalties and other bits and pieces had been dropped. The recommendation contains subpoints (a) to (f). So it’s about a lot more that a 40% tax on “super profits” -- And would need a lot of effort re chatting it through with stakeholders to implement.
It’s important to not confuse the KHR with anything Kev and Wayne are doing. For example, that 50% rebate on $1,000 worth of bank deposit interest is so far from what Henry said in Recommendation 14 which contains points (a) to (d), it’s silly to pretend they are really related.
It would seem that Henry attempted to put together a holistic system. From which the guv has picked a few tiny bits of some recommendations and bastardized them. Limited, incompetent, politically motivated -- As well as “lazy” Senator.
63 Ned S // May 12, 2010 at 4:12 pm
The concept of taxing “super profits” seems to be a total bastardization of what Henry recommended?; Plumped up with some politically motivated KruddSpeak. Henry speaks about “a combined statutory tax rate of 55 per cent” on “net income less an allowance for corporate capital, with the allowance rate set at the long-term Australian government bond rate”.
I’d be pissed if I was Henry. But hey, he must figure he’s being well paid to be their stooge -- Poor bugger! -- There’s a lot to be said for being able to live on $40 or $50K pa!
64 Senator13 // May 12, 2010 at 4:28 pm
Good pick up Ned. It also goes onto say:
Recommendation 47: Existing projects should be transferred into the proposed system with an adjustment, as appropriate, to the starting base for the allowance for corporate capital. The Australian government should set out a time-frame to implement the resource rent tax and provide guidance at the time of announcement on how existing investments and investment in the interim will be treated under the resource rent tax.
Recommendation 50: The Australian and State governments should abolish fees and stamp duties on the transfer of interests in a resource project except those related to administrative costs.
My interpretation of that is that the new system should be phased in with a fair amount of lead in time to allow business to prepare and that the government needs to put out a great amount of guidance prior to the transition in relation to the rules and regulations around this new tax. In addition the Feds should already be in negotiation with the states to abolish state taxes in the resource industry before this new tax is introduced.
Correct me if I am wrong, but it looks like Rudd has just sprung this on the resource companies, leaves no lead time to prepare, no consultation with the industry as to how this will run, no talking to the states to figure out which fees and duties to abolish.
All this even before considering alternatives. One of them, which Greg suggests, and that is taking a direct interest in the company if they want to benefit from the business that they do.
You are also right, Ned, people should not confuse the recommendations from the review with what Rudd and Co are actually doing. But Rudd has done a very good job of muddying the waters. It is now just a mess especially since Rudd has started to pick and choose different aspects as well as inventing his own grand sounding ideas. It is not a very holistic approach at all.
This article by Greg is very good at highlighting a few areas of concern that could turn very nasty very quickly if not kept in check. Just look at Greece and the socialism mentality of wanting everything for nothing. And the solution, another bailout…
Already happening are several items listed in this article that might suggest that things could take a turn for the worse. Inflation is on the rise, taxes are on the rise and the government continues to spend money it does not have.
65 Ned S // May 12, 2010 at 4:58 pm
“The Australian government should set out a time-frame to implement the resource rent tax and provide guidance at the time of announcement on how existing investments and investment in the interim will be treated under the resource rent tax.”
Didn’t do that now did they?
(Well maybe they did and we missed it??)
But Yes, I’d expect Henry’s approach on implementation all the way through is the softly, softly sort in recognition of the need for negogiation time and for states and businesses and idividuals to adjust. Whereas Kev and Wayne seem to have noticed one bit that says The miners should be able to pay more and thought Whoopee, we can buy some votes with that and went WHACK!
Poor bloody Henry -- He had to stand there like a naughty schoolboy who’d stuffed it all up while they did absolutely nothing like he recommended -- And stuffed it all up!
PS: As early as November last year Henry had made it very clear to the miners he was going to be recommending they pay more. Which is why I was a bit surprised that the mining stocks took the news so hard -- I thought it would be factored in? But it wouldn’t have been if Henry had said, but don’t get too uptight as I’ve also recommended it all happens slowly and sensibly -- Kev and Wayne are a worry alright!!!
66 Greg Atkinson // May 12, 2010 at 5:37 pm
My worst fears about the tax review have been realised. Back in October 2009 I wrote:
“…the danger is that rather than a comprehensive review of the Australian taxation system ever being undertaken, all we will end up with is the Government taking the bits they like (and saying they were recommended to them by the panel) and parking the bits they don’t. Thus we will simply replace one unbalanced taxation system with another.”
This is exactly what has happened. Henry never suggested that the Government whack another tax on the resources sector. What he advocated was replacing the messy existing system with another taxation method after consultation with the mining companies.
How can anyone invest in Australia with any confidence when the rules could change at any time and be applied retrospectively?
67 Ned S // May 12, 2010 at 6:01 pm
I do wish Joe Hockey didn’t look like a mafia hit man who’d just spruced himself up for his trial date!
(You can delete this comment if you wish Greg. Or if you think it might get me sued. Or make me the subject of a mafia hit!!!
)
68 Anon // May 14, 2010 at 7:10 pm
Consecutive days of well below ma volume occuring on the DJIA…big falls comming imo…altho we can never know exactly when! XAO needs to breach the 200dma (with conviction) or its stuffed.
Investors Intelligence has fallen to 47% bullish, but still far too high. Seems like advisers are still stubbornly bullish!
Not advice, just gambling and speculation. Always see a financial advisor for decisions etc.
69 Greg Atkinson // May 14, 2010 at 8:18 pm
So what’s the status of the overall global economy the moment? Well roughly I reckon the situation is:
Asia ex China/Japan -- ok.
Europe -- a mess.
U.S -- start of a slow recovery?
China -- seemingly booming.
Japan -- slow recovery to sluggish growth.
Australia -- apparently booming as well, although I am not convinced.
If China keeps growing strongly and the U.S recovery gains strength then maybe the world economy can deal with the EU being a mess for a while.
But if China should slow…?
70 Anon // May 14, 2010 at 10:37 pm
Sounds like a sound sum up to me Greg. US equities probably least risky (at the right price) in terms of where they are in the recovery cycle.
Looking to load up on investments in US equities, closer to 9,000 DJIA. May not get it, who knows!
Euro last capitulation downleg underway!
Definitely not advice, just chit chat. Always see a financial advisor for decisions etc.
71 Greg Atkinson // May 15, 2010 at 8:25 am
I wonder how Russia is doing? I have to admit I have not been watching the Russian economy that closely.
Well I am off to soak in the Onsen for the weekend! While boiling myself I will ponder the mysteries of the universe and write another post when I get back
72 Anon // May 15, 2010 at 11:48 am
Have no idea about Russia Greg. Never followed it nor invested there.
Onsen sounds relaxing! Had a quick read about it on wiki. Have fun
None of my posts constitute financial advice, just chit chat. Always see a financial advisor for decision making / advice / info.
73 Greg Atkinson // May 17, 2010 at 5:48 pm
I reckon if they get these mini-reactors going that we will see coal prices plummet. See: http://preview.bloomberg.com/news/2010-05-16/hyperion-s-fridge-sized-nuclear-reactors-to-tap-135-billion-power-market.html
I get the feeling that the 21st century will not be good for the cola mining industry.
74 Greg Atkinson // May 18, 2010 at 10:14 am
Here is another interesting article that won’t get much attention in Australia: http://search.japantimes.co.jp/cgi-bin/nb20100518n1.html Basically what is happening is that Japan & China are looking for other sources of coal because they are sick of being ripped off by the big mining companies.
Personally I think the coal industry in Australia will enter a period of long term decline.
75 Ned S // May 18, 2010 at 11:22 am
Aligns with what you say Greg:
http://www.theaustralian.com.au/politics/simon-crean-bids-to-calm-china-leaders/story-e6frgczf-1225867934078
And I note that Crean couldn’t resist big noting himself at the end. I don’t know much about doing business with Asia, but statements like “They have said they want us to regard them as a market economy and we said that it is essential that they act like one” don’t sound like the way to make lasting friendships to me?
A bit off topic, but this one was interesting on Japan:
http://www.theaustralian.com.au/business/markets/japan-mulls-radical-tax-plan-spend-your-inheritance-now-to-help-the-recovery/story-e6frg926-1225868014891
Policy makers are getting ever hungrier for loot across the globe it seems.
76 Greg Atkinson // May 18, 2010 at 2:09 pm
I see a lot of Sir Les in Simon Crean
Need I say more?
As for Japan I think the consumption tax might be the next thing they tweak. At 5% there would appear room to move, although it will probably cost any PM who raises it their job.
77 Anon // May 19, 2010 at 9:19 am
Watching ~4430 on the XAO…if we cant hold that you better pray!
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
78 Anon // May 19, 2010 at 7:30 pm
US CPI figures released soon:
Prior Consensus Consensus Range
CPI -- M/M change 0.1 % 0.0 % -0.1 % to 0.2 %
CPI less food & energy 0.0 % 0.1 % 0.0 % to 0.1 %
http://mam.econoday.com/byshoweventfull.asp?fid=442358&cust=mam&year=2010#top
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
79 Anon // May 20, 2010 at 8:23 am
Seth Klarman market outlook -- kind of in line with what we’ve been harping on about here for awhile:
” BOSTON, May 18 (Reuters) -- Star hedge fund manager Seth Klarman sees few bargains in the current environment and predicted on Tuesday that the stock market could suffer another lost decade without any gains.
“Given the recent run-up, I’d be worried that we’ll have another 10 years of zero returns,” Klarman, who rarely speaks in public, said at the CFA Institute’s annual conference in Boston.
Current market conditions remind Klarman of a Hostess Twinkie snack cake because “everything is being manipulated by the government” and appears “artificial.”
“I’m more worried about the world broadly than I’ve ever been in my whole career,” Klarman said.
Klarman has 30 percent of assets at his $22 billion Baupost Group in cash, he said. He started the firm in 1982 with $27 million and has averaged 20 percent annual gains ever since. In 2007, amid the depths of the credit crash, Baupost had its best year, gaining 52 percent.”
http://www.reuters.com/article/idUSN1815559420100518
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
80 Anon // May 20, 2010 at 8:38 am
Investors Intelligence Sentiment
“The percentage of financial advisers who are bullish on the market fell to 43.8% from 47.2%, while bearish sentiment is unchanged at 24.7%.
The percentage of financial advisers expecting a market correction rose to 31.5% from 28.1%. ”
They are still stubbornly bullish! Its comming off, but I would have thought there would be alot less bulls by now.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
81 Greg Atkinson // May 20, 2010 at 9:18 am
Anon is this a US focused survey?
82 Anon // May 20, 2010 at 9:33 am
Yes Greg, http://www.investorsintelligence.com/x/default.html
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
83 Anon // May 20, 2010 at 9:36 am
“Surveying a broad assembly of respected views
We study over a hundred independent market newsletters and assess each author’s current stance on the market: bullish, bearish or correction. Since we have had just four editors since inception, there has been a consistent approach to determining each advisors stance and his prior viewpoint.”
http://www.investorsintelligence.com/x/us_advisors_sentiment.html
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
84 Anon // May 20, 2010 at 10:09 am
Need to be careful of the AUD here…it is still a currency that you can positively carry…interest rates have not gone down yet (even tho the RBA arguably implied rates on hold).
Its fallen pretty quickly and USD and GBP and other low interest currencies don’t appear to be raising rates anytime soon (US CPI figures confirm US rate stance for now)
I’d say we are at about fair value atm…altho if China tanks then this will be expensive…China may rollover but this is being priced into the AUD at frightening speed.
Also it could be an over reaction to sovereign risk and foreign money exiting Australia?
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
85 Anon // May 20, 2010 at 1:28 pm
I’m starting to see alot of bearish talk out there from retail investors (end of the world etc)…almost time to load up! (perhaps 2-5% more?) But wana wait for more price and sentiment confirmation, than trying to pick a bottom and then have my blood spilled all over the ground.
A good rule is usually the first break of the 200dma always comes back (for indexes not individual stocks)
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
86 Anon // May 20, 2010 at 6:11 pm
Hey Biker did you see the Depreciation shakeup in NZ?
“Owners of commercial buildings and rental houses will no longer be able to claim depreciation on them.
The budget released today also removes a 20 per cent depreciation loading on new plant and equipment purchased after budget day.
The two depreciation measures were suggested in the Tax Working Group report and the subject of speculation going into the budget.”
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10645757
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
87 Anon // May 20, 2010 at 8:14 pm
Just Bght Sanofi Aventis on a pe of less than 7 lol!
I’m going to just dip my toes in with this for the longterm portfolio…lets hope my toes does get chopped off!
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
88 Anon // May 20, 2010 at 8:41 pm
EUR/USD has bottomed (at least for now)…cant break support
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
89 Anon // May 21, 2010 at 1:06 am
Long AUD/USD. Positive carry is too hard to resist at these levels…might be more downside but any further correction would be met by severe buying pressure given the interest rate differentials and US continuing to be on hold with rates (even if they raised it, would take ages to bridge the gap). It is what it is and China hasn’t rolled over yet.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
90 Anon // May 21, 2010 at 2:23 am
20% long in equities.
Bottom in the next few days imo…if not today! But could be wrong so keep nimble.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
91 Anon // May 21, 2010 at 4:35 am
Put/Call ratio signaling market bottom close:
http://www.market-harmonics.com/images/tech/sentiment/putcall.gif
So hold thru June (albeit it will be very choppy and cause many to panic just before the main rally) and then ride the July Aug rally.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
92 Greg Atkinson // May 21, 2010 at 7:12 am
Well the latest market turmoil is going to make things interesting for a while. The correction is now much more severe than I thought it would be.
I wonder if the RBA, the Treasury and the Government are still confident about their view of the Australian economy?
93 Senator13 // May 21, 2010 at 7:19 am
Let’s hope the confidence is knocked out of them or we might see more business strangling announcements. See if they can knock off the last few hundred points of the All Ords… I’m confident in this governments ability to screw things up…
94 Firebug // May 21, 2010 at 7:39 am
I can’t help thinking they don’t know what will happen in the next three months, let alone next three years
95 Anon // May 21, 2010 at 12:07 pm
Looking for 4270ish to hold.
Anyone that is short here imo is mad
one of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
96 Anon // May 21, 2010 at 12:32 pm
Seeing alot of people loading up on lower quality speccies / micro caps etc…these things may not track the index (at least in the initial part of the rebound)… as people realise the good stocks are cheaper these illiquid pieces of crap may arguably be sold down into the rise (flight to quality). Altho could be wrong of course!
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
97 Anon // May 21, 2010 at 1:26 pm
What a rebound!
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
98 Anon // May 21, 2010 at 1:47 pm
Gonna just sit and do nothing for a few months (and rest). Will hold on tight to existing positions/investments -- no selling!
Things have moved gigantically but I suspect alot more to come over the next few months…patience will be key.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
99 Ned S // May 21, 2010 at 1:55 pm
I’m a bit cynical -- Seems to me like the game is to let currencies go down 8 or 10%, and stocks about the same; Then buy back in at about a 15% discount maybe? Works well I guess -- Although I can see what Ms Merkel is moaning about. I imagine it’s a bit rough on the countries involved. And things like their pension plans and super if they aren’t actively trading.
Wonder if she really can do anything to “keep der baskets honest”?
100 Anon // May 21, 2010 at 2:04 pm
“Seems to me like the game is to let currencies go down 8 or 10%, and stocks about the same; Then buy back in at about a 15% discount maybe? Works well I guess”
Doesn’t work all the time Ned…the game will continuously change…if this correction had occured next year I wouldn’t touch these levels with a 10 foot pole -- infact I would have likely increased my shorts whilst people used the last 2 pullbacks we had -- as a guide of what to do -- and consequently bght the correction. Timing is crucial!
Rules in a proper bear market are no equities exposure…well thats my rule…there are too many time bombs that go off on companies balance sheets during bear markets. I’m not smart enough to pick diamonds in the rough.
None of my posts constitute financial advice – so do not act on it in that manner. Its just chit chat. Always see a financial advisor for decision making / advice / info.
Pages: [1] 2 » Show All