Shareswatch Australia

It wasn’t that long ago when ex-Treasury Head Ken Henry talked about the Australian economy being in a ‘Golden Age’. I guess when you can retire on a lucrative public service pension and then parachute into a highly paid job as an advisor to the Prime Minister the future does probably seem bright. But now in early 2012 as unemployment appears set to rise and the economy is showing signs of weakness, Ken Henry’s ‘Golden Age’ comment might end up in the same category as Tim Flannery’s ‘Dams will no longer fill’ prediction.

As we approach the end of another year we should not be surprised by the economic turmoil in Europe, the ailing U.S. economy or the rumblings of a major slowdown in the Chinese property market. The signs that all was not well with the global economy have been raised on this humble site going back more than a year. Simply put, borrowing vast sums of money and splashing it around did not fix the global economic imbalances highlighted by the market meltdown in 2008.

The interest rate cut yesterday by the Reserve Bank of Australia suggests that finally the RBA understands that the Chinese economy will not keep expanding at a rapid rate while its major trading partners are struggling. But even if the Chinese economy slows more than most economists expect this is unlikely to send the global economy back into a GFC-like slump.

Prices for hard commodities such as copper, iron ore & coal have risen strongly over the past decade and are now trading well above their long term historical averages.  This in turn drove the ASX All Ordinaries Index to a bull market high in 2007 and has helped put some support under the market ever since.  But is it realistic to expect high commodities prices will keep propping up the Australian stock market?

Commodities, precious metals & energy prices are in US dollars unless otherwise stated. Charts can be selected by using the links on the left. Commodities prices and charts are provided for information purposes only.

We are almost through a third of 2011 and the mood across global markets appears to be decidedly downbeat.  The bullish voices of late 2010 have now faded and even the Reserve Bank of Australia and Federal Treasurer are sounding cautious. But don’t be fooled by the talk that recent events have caused the global economy to face headwinds because the reality is that 2011 was always going to be a tough year.

Over the last few weeks most of the financial media have once again managed to draw the wrong conclusions on a range of issues from Australian dollar to the strength of the Australian economy.  Talk of the so called two speed economy seems to be back in vogue whereas I believe we should be focused on and worried by, the unbalanced nature of the Australian economy.

According to many major news outlets and financial commentators in Australia, the recent trade data released by the Australian Bureau of Statistics (ABS) is proof  that the Australian economy is “booming”.  The Reserve Bank also seems to think the nation is in the midst of a boom and the amazing Ken Henry (of where is my tax report fame) reckons Australia will enjoy a “golden age” for decades.

Despite how convincing market experts appear on television or how cleverly they put pen to paper, the truth is that nobody knows for sure how the global economy will perform next year. For every positive sign or trend there is a worrying one, and despite the Dow Jones having some strong days recently the fact is the U.S. economy is still in bad shape.

Recently you have probably noticed that gold prices are getting plenty of media coverage and we are often hearing predictions that gold will hit $2000 USD an ounce in the not too distant future. Sadly what is often not highlighted is that gold is rising mainly because the U.S. dollar is falling and that the demand for gold is largely being supported up by investors.

Over the past few weeks most of the economic news from Australia’s major trading partners has been fairly good. As a result the Australian stock market has continued to rise along with markets in Europe, Asia and the United States. But before we get too carried away it is probably a good idea to look beyond stock prices in order to check how the global economy is really faring.

BHP Billiton (ASX:BHP) is one of the most widely held stocks in Australia and is often a core holding in many stock portfolios. Over the last few years the stock have reflected the fortunes of the commodities boom and as a result the BHP stock price saw a peak last year of over $45 only to come tumbling down to less than $25 a few months later. But maybe at current prices BHP is once again a stock worth looking at?

Sometimes when confronted by a seemingly endless barrage of economic data it is beneficial to just grab a cup of coffee and calmly review a few stock market related charts to see if they are trying to tell us something. Yes it is pretty chaotic in the global economy these days but believe it or not, some order appears to be creeping back into the Australian stock market.

The problem with picking which mining stock to invest in is that you really need to know something about mining or you need to be getting advice from someone that does. Unfortunately most of the analysts out there covering companies like BHP and RIO do not have any qualifications in disciplines such as mining engineering or geology, and for me that is like having a stock broker tick-off the pre-flight checklist on an aircraft I am just about to fly in. He might be a smart guy, but personally I would prefer someone who knows about aeroplanes up in the cockpit thanks.

One question that investors need to consider amongst all this market turmoil is; has the dream run of the Australian stock market come to end? Perhaps for example the days of the Australian market (ASX) outperforming the Dow Jones Index are over and we need to be prepared for less glamorous returns? We might even have to put aside our patriotic feelings and look offshore for better returns in the future?