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The 2013 Federal Budget, the Australian Economy and Gold

May 20th, 2013 · Greg Atkinson · 83 Comments

For the last few years I have been warning that steps needed to be taken to prepare the Australian economy for when the commodities cycles would turn downwards. Back when I first started writing about this, it was almost considered treason to even suggest the mining boom may draw to a close. But these days even the RBA, Treasury and Wayne Swan are talking about the end of the commodities boom.

So what can I say about the 2013 Federal Budget that I have not said over the past few years? Not much really. Back in 2011 for example, when that work of budget fiction was put together by Wayne Swan I wrote:

“…Swan’s budget has done nothing to tackle tax reform or prepare the Australian economy for a world where commodities prices are lower and the Chinese economy is no longer growing at nearly 10% per annum. Maybe a downturn in the commodities cycle will be short, say just six months or a year, but it could also drag on for two or more years and due to the economic madness that has gripped Australia, there is no Plan B.”

Source: Swan’s lazy 2011 budget and Australian economic madness

Fast forward to today and the Gillard led Government (led perhaps being too strong a term) have finally admitted that the budget would not be balanced as they promised. As a result they are scrambling to clean up a budget mess which they created by relying on overly optimistic forecasts.

Of course Gillard, Swan and Co. will be living quite nicely on an overly generous taxpayer funded pension while others try to repair over the next decade, the budget damage they have caused.

There is still no Plan B and nothing in this years budget will stem the decline in the manufacturing sector. Within a few years I believe at least one of the car manufacturing operations in Australia will either stop production or dramatically scale back production in favour of importing vehicles from facilities located offshore.

By the way, I reckon the first significant move will be made by Toyota when the import tariffs on vehicles drops to 5%. In case you have not heard, this is currently being discussed with Japan and in return they will lower the tariff on Australian beef.

That type of arrangement pretty much sums up the limits of Australian trade strategy – we export raw materials and food while on the flip-side we import technology, equipment, processed materials etc.

In the mining sector for example, automated trains and trucks are being imported to help improve productivity.  It isn’t just the underlying technology being imported by the way, but the entire truck or train.

But Federal Budgets are generally full of spin anyway – they are after-all politically inspired exercises and are increasingly being put together by politicians of declining competence.

We are unlikely to see any improvement in the quality of politicians in Australia until the perks and pensions they gouge from the nation are slashed.

Politics should not be the career path of choice for an assortment of under-achievers, professional manipulators, ex-union officials and ex-journalists.

We should be aiming to have more successful people serve for one of two terms and then they can get back to doing what they do best. This would mean that they don’t need to hang around waiting to qualify for a overly generous pension, be given a plum role on some semi-government board or handed a diplomatic posting.

As long as the nation is guided by what is effectively the second eleven down there in Canberra, we can only hope to get by on luck. It’s getting close to commodities or bust.

Now onto gold and as regular readers of my ramblings will know, I have been a gold bear for some years. As I said at the start of the year, I expect gold to finish closer to a $1000 USD and ounce than $2000 – which was the call being made by some gold bulls earlier in 2013.

ASX Listed ETFS GOLD versus ASX All Ords Index

etfs_gold_vs_allords_1_year_chart_may_2013

The gold price in AUD terms has been trending downwards now for the last year and shares in gold miners like Newcrest Mining (NCM) have been hit hard recently.

Also gold in AUD terms has underperformed the ASX All Ordinaries Index by a wide margin and I don’t expect that this will change much in 2013.

I have written many times that I didn’t know when the gold price bubble would pop, but that I was confident it would at some point and I reckon the popping has just started.

That’s not to say that there won’t be short term rises and opportunities for shorter term traders to make money. Also for investors who got in early, say below $1000 USD,  they are probably not that worried at the moment and I suspect many of them have already cashed in some healthy gains.

The gold price hasn’t fallen enough yet to tempt me, but the stock prices of some of the gold miners have and I will be watching them closely over the next few months. But trying to catch a falling knife is risky so it might be wise to just steer clear of anything to do with gold for a while.

Finally let me just bore everyone again with a chart of the Baltic Dry Index.

Baltic Dry Index 5 year price chart

baltic_dry_index_5_year_chart_may_2013

Source: Bloomberg

This chart suggests to me that the outlook for global economic growth is at best weak and this means we can expect prices for commodities like iron ore & copper to remain under pressure for at least this year.

Yes the mining boom sure looks like it is over. The question now is..what happens next?

Greg Atkinson is the editor of Shareswatch Australia and Managing Director of Ohori Capital. He currently works & resides in Japan.
He can be followed on twitter via


83 responses so far ↓

  • 1 Stillgotshoeson // May 21, 2013 at 11:55 pm

    http://www.afr.com/p/business/companies/companies_slash_profit_forecasts_qT6W3TaT4Oing7BLxfvIHN

    Well a few of us new it would not last, timing may not have been perfect but the end result is proving that we were not different, we would be ok because we have a booming economy.

    http://www.afr.com/p/national/treasury_warns_on_surpluses_Ewq25pE4t8x8W0iw3FMfXJ

    They are right, taxes will rise or spending will have to drop.

    There is suggestion of taxing lump sum payments from superannuation, @15% for basic and 30@ in excess of “set” limits

    Not sure where gold fits in here though, very few people own physical gold (and silver) compared to other forms of investment and certainly very few hold it as a significant portion of their investment portfolio.

  • 2 Greg Atkinson // May 22, 2013 at 5:52 am

    Regarding gold, here is something I read this morning which may be of interest:

    “The precious metal took a hit earlier this month, when the Central Bank of India, a major buyer, announced plans to curb gold imports. The measure, part of an effort to reduce New Delhi’s current-account deficit, is likely to dampen growth in the country’s demand, which exceeds 800 tons a year.”

    So physical demand for gold also seems to be on the slide.

    Source: Gold Losing Fans As Luster Fades(Nikkei)

  • 3 Biker // May 22, 2013 at 9:08 am

    “The precious metal took a hit earlier this month, when the Central Bank of India, a major buyer, announced plans to curb gold imports. The measure, part of an effort to reduce New Delhi’s current-account deficit, is likely to dampen growth in the country’s demand, which exceeds 800 tons a year.”

    Well a few of us (k)new it would not last…

  • 4 opinder // May 22, 2013 at 1:26 pm

    Hi Everyone.

    One point regarding Gold I would like to mention here is Demand rises a lot In India in months of Oct/Nov being a big festival and marriage season..

  • 5 Biker // May 22, 2013 at 2:01 pm

    Heck, it doesn’t matter if India isn’t buying… .

    I know a fella in Shandong Province who will do just about anything to get the stuff!~ 😀

  • 6 Stillgotshoeson // May 22, 2013 at 2:50 pm

    I do not think government intervention in India will curb gold imports to India.

    A custom thousands of years old won’t be seriously impacted by government intervention.. Gold through official channels is more expensive due to duties increased.

    Corruption is rife in India, it will just create a bigger, polite term here, off market market.

    There will still be many whom by through official channels even though it has gone up.

    It is like people here bitching about the price of petrol when it goes up 20 cents a litre in the high part of the cycle, they bitch, whinge, moan and complain about but still fil their tanks up at the high price rather than walking a bit more.

    Gold will still be popular in India regardless of government interventions.

  • 7 Biker // May 22, 2013 at 2:58 pm

    Yes, custom is persistent.

    One ancient Celtic group have traditions supporting pots of gold at the end of the rainbows, in fact…

  • 8 Greg Atkinson // May 22, 2013 at 3:15 pm

    It is the Central Bank in India which is cutting back on gold purchases, it isn’t the government trying to stop people buying gold.

    There will be continued demand for gold of course, but the question is…at what price?

  • 9 Biker // May 22, 2013 at 3:36 pm

    Gold is certainly an attractive proposition to some, even at incredibly high prices:

    “Perthmint for me too… have purchased some more 1Kg bars recently…” (Jul 21, 2012)

    I suspect these high-wealth individuals are buying wheelbarrows of it at current prices.

  • 10 Stillgotshoeson // May 22, 2013 at 3:54 pm

    The 1kg bars comment actually was referring to Silver… Not Gold…

    The Indian Government were?/are trying to limit gold purchases by increasing duty/tax on it Greg.

  • 11 Greg Atkinson // May 22, 2013 at 4:01 pm

    Ah yes..I missed that! Sorry. India Gold Imports Become Expensive(WSJ)

    “Gold imports to India will become slightly more expensive, as the government announced over the weekend that it has increased the base rate for calculating import taxes on the precious metal.”

  • 12 Biker // May 22, 2013 at 4:23 pm

    “The 1kg bars comment actually was referring to Silver… Not Gold…”

    Ah well, then… my apologies! You’ve made money!~

  • 13 Stillgotshoeson // May 22, 2013 at 9:41 pm

    No apology needed, whilst it is accepted you have poor comprehension issues arising from your narrow and blinkered mindset making you see a key word in a comment which triggers the fog machine in your head. I am happy to concede the comment I posted then was a poor and confusing use of the English language making it easy to misunderstand the message I had intended to say.

    There seems to be an increase of “shoes quotes” appearing, this would not be the petulant 6yo child in you having a “I was wrong, but so was he” moment?

    Afterall the media is now onto the Australia is not doing as well as we thought message of the government.
    Mining expenditure is coming off the boil.
    The dollar is falling.
    Interest rates are being cut (as Keen predicted)
    Expectations that unemployment is now going to rise.
    Over extended on credit households reducing discretionary spend.
    Canadian Housing market looking decidedly weak.

    You know, among other issues us “doom and gloomers” have been saying would occur. (admittedly timing out) would happen.

    “Oh but Gold and Silver were supposed to be prices to the moon Shoes and look they are 30% and 60% from their peaks.”

    Patience old man.. their time to shine is coming.

    This post may be edited or removed like some of yours, however I won’t bitch and whine or post snide remarks about it.

  • 14 Biker // May 22, 2013 at 10:18 pm

    Your chief problem is sheer inability to discriminate between a meaningful comment and sarcasm. Frankly, I’m content to watch you crash-and-burn, as you have on an almost weekly basis.

    My guess? You’re almost broke. I’d be surprised if you still have footwear… .

  • 15 Matthew // May 22, 2013 at 11:40 pm

    Shoes mc Cup “Canadian Housing market looking decidedly weak”

    Fair go. Now I dont want to wade further into the doom and gloom war but who really gives a toss about the strength of Canadian housing in terms of the Austrlaian market(s).

    They are not a major trading partner, are at best a leisure destination.

    In the real terms of our economy Canada are as important as Ireland and Greece – they are not.

    On the bright side tourism via Indonesia is at record highs…..

    As for the rest of your comment, being:
    Mining expenditure is coming off the boil.
    The dollar is falling.
    Interest rates are being cut (as Keen predicted)
    Expectations that unemployment is now going to rise.
    Over extended on credit households reducing discretionary spend.

    For a guy that to that point I thought had a bit of a grip on economics, you are now in free fall in my honest opinion.

    Are you a Wayne Swan spin doctor by any chance?

  • 16 Stillgotshoesonon // May 23, 2013 at 12:47 am

    The Canadian property market has nothing to do with the Australian economy.

    It is however something that Biker has brought up many times in discussions.. How strong and resilient it is, how high prices are and the general up beat mood Canadian property owners (mortgagees too) have.

    Now, not so much…

    Our dollar fell more than a cent tonight, under 97US cents now

    I am sure it is just coincidence but it does seem strange that when biker is on the defensive another blog commentator appears..

  • 17 Stillgotshoesonon // May 23, 2013 at 1:29 am

    http://www.afr.com/p/national/resources_boom_falls_to_earth_plWZ5dsFhBzKGbha37ZeOJ

    “The federal government’s chief commodities forecaster has warned that the shelving of $150 billion mining and energy projects over the past year and $29 billion in cost blowouts means the resources construction boom has peaked and is likely to fall sharply through the next half decade.”

    RBA recently dropped rates to their lowest. 2.75% Some are tipping 2% on the way. This does not happen in a strong economy.

    http://www.thenortherntimes.com.au/story/127367/jobless-rate-tipped-to-rise-above-6/

    “AUSTRALIA’S official jobless rate could top 6 per cent next year, according to the Macquarie senior economist Brian Redican, who says the underlying unemployment rate is climbing faster than official figures suggest.”

    There are others whom quote 6% as well but later than this year.

    The trend has been to underestimate the negatives so a higher figure may well be likely.

  • 18 Stillgotshoesonon // May 23, 2013 at 1:56 am

    Comment by Stillgotshoeson on 13 May 2010:

    Comment by Ross on 13 May 2010:

    Narrative shoes. Leverage can now take prices any which way right up til the event day.

    Agreed… DOW could go to 15000 with all the cash thrown about.. I still think it is set to hit a new low though… Sub 5000

    Well we hit the 15000…….. now we wait.

    3 years later and Ben is still saying stimulus is needed… where is the recovery?

  • 19 Greg Atkinson // May 23, 2013 at 7:04 am

    I think we got a good indication of what US stocks may do when QE is wound back overnight. The Dow Jones was down around -0.5% just because there was concern the Fed will scale back stimulus.

  • 20 Greg Atkinson // May 23, 2013 at 10:00 am

    Well I was right about when I wrote “Within a few years I believe at least one of the car manufacturing operations in Australia will either stop production or dramatically scale back production in favour of importing vehicles from facilities located offshore.”

    But I did not expect it would happen in a few days and I thought it would be Toyota first.

    I have been writing abut the decline of manufacturing in Australia for a few years and it appears that the decline is now picking up pace.

  • 21 Stillgotshoeson // May 23, 2013 at 3:44 pm

    Perthmint Bullion Letter….

    Dear XXXXX Shoes

    A RECORD MONTH FOR GOLD

    A massive surge in demand for gold beginning mid-way through April resulted in a record month at The Perth Mint.

    Clients purchased more than 110,000oz of gold bullion products, while demand for silver coins and bars also leapt significantly to 1,102,465oz for the month*.

    The catalyst was a dramatic day in the market which saw the price per ounce of gold fall to its lowest level in almost two years.

    Far from being deterred, gold buyers around the world piled into physical metal to take advantage of the new price levels.

    The latest Bill Evans economic outlook does not give a glowing report of our current situation either.

  • 22 Biker // May 23, 2013 at 4:35 pm

    Fools rush in, defying ‘expert’ opinion (again):

    http://www.dailyreckoning.com.au/dont-buy-gold-yet/2013/04/18/

  • 23 Stillgotshoeson // May 23, 2013 at 9:13 pm

    Wow, you need a dailyreckoning.com.au link to support your argument…

    The same dailyreckoning.com.au you have spent the last 4 years or so saying are _utterly_wrong_

    Now they, might be right.. it might prove to be not the best time, no one knows when the best time will be, they buy when they perceive value over time.

    They do this whether it be shares, precious metals or property.

  • 24 Biker // May 23, 2013 at 10:54 pm

    Four years? Almost twice that… .

    Haven’t heard much from them regarding Australian property for a while, though.

    Too busy defending PMs, I guess… . 😉

    Tip: Get a little more sleep tonight, Shoes.

  • 25 Biker // May 23, 2013 at 10:56 pm

    “…they buy when they perceive value over time…”

    Funny that. Thought they always bought on dips…

  • 26 Stillgotshoeson // May 23, 2013 at 11:04 pm

    That would be when people generally perceive value.. dips.

    Gold has had a big dip from its high of $1900 and now we have record sales at Perthmint on perceived value…. It may get even better from here..

  • 27 Biker // May 23, 2013 at 11:08 pm

    It seems to me you buy when it’s high.

    Did you miss Guenther’s closing comment?

    “If you are well versed in trading, you could try to play a snapback move in gold futures or miners.
    If that’s your game, keep tight stops and expect the unexpected.”

    Whatever happened to your much-vaunted stops?

  • 28 Greg Atkinson // May 23, 2013 at 11:54 pm

    At some point of course gold will hit a bottom, at what level that is we can only speculate.

    Gold is a hard one to call. There are supply and demand fundamentals at play like other commodities but unlike most others, it is also parked in vaults and that gives the supply/demand situation a bit of a twist.

    I have been a cautious about gold for a few years but it still has a place in the hearts of many investors so if it falls another 10% then maybe I will give it another look.

  • 29 Lachlan // May 24, 2013 at 6:30 am

    “still has a place in the hearts of many investors”
    Gold casts a magic spell on some people. Seen it and experienced it first hand. And yet some people, you show them gold and they just shrug. Who knows why. Bower Bird gene? 🙂

  • 30 Biker // May 24, 2013 at 7:29 am

    “Gold has had a big dip from its high of $1900…”

    “…a big dip…” ?

    As O’Flaherty notes, the gold bubble *popped*. Some have been praying for a lesser correction for Melbourne property than that 27% implosion…

  • 31 Biker // May 26, 2013 at 12:30 am

    That’s Seamus O’Flaherty, by the way. Diviner-of-rainbows and the like… . 😉

  • 32 Greg Atkinson // May 26, 2013 at 4:35 pm

    Lachlan for some reason silver doesn’t quite get the same treatment..it was also used for coins, been traded for centuries etc but gold reigns supreme.

    Anyway I think we are seeing a cyclical downturn for hard commodities now and I doubt gold will buck the trend.

  • 33 Lachlan // May 27, 2013 at 7:10 pm

    Yeah its strange Greg. I occasionally read the silver bulls stuff. They really want the world to silver the way they do. I do have a high regard for it. I just know that people have perceptions about things…and gold the fever is a genuine phenomenon I can see in front of me. Met a fellow while walking with the kids on Sunday just gone. He was prospecting and had found about 8g for well….a lot of hard work over many days. I could have bought an ounce or two for that much work. But you know he can’t sleep for thinking about it. He’s a goner. His wife will curse it in a few years you wait. I was like that once.

    The commods are still bearish for now Greg. I can see a very sudden bearish signal on the ASX 200 in the last few days also. We all know these markets need some correcting…I still think 10% or so. This could be the first sign of a looming down draft. Just when it looked ready to gain another 5% or so. That was a classic bull trap. Yes I did say it looked ready to rally again before the correction. But it did look ready to rally from a technical perspective… and my policy is not to trade such short term moves for this exact reason. That is what a good bull trap does. And these markets chop and change too often.
    I will wait to see if the markets come off and if so look for a rebound in PM’s at some stage before the bottom in shares.
    The AUDUSD has collapsed from its pennant also. I am expecting this to shake out the bulls who have positioned over the last 2 years before resuming a rise to 1.20 plus. I was just talking to a mate on the phone telling me its going to crash and burn. He has many good fundamental reasons all of which I agree with to some extent. I just point out however that no matter how bad it is here (bar an unexpected geopolitical thing) we are never going to be as bad as many of the others before this crisis is finally resolved. Maybe I am a little simplistic but that’s a large part of the situation in my view.

  • 34 Stillgotshoeson // May 28, 2013 at 9:33 am

    http://www.theglobeandmail.com/globe-investor/inside-the-market/smart-money-most-bullish-on-gold-in-five-years/article12165636/#dashboard/follows/

    ““The current dynamics between the three groups signal that a significant intermediate-term bottom is forming in the gold market. This does not necessarily mean that prices cannot head lower, but it does mean that prices are attracting commercial buying interest – the smart money – at levels not seen since the financial crisis when gold declined from about $1,000 an ounce and hit a critical low at about $700 an ounce,” he said.”

  • 35 Lachlan // May 28, 2013 at 8:39 pm

    Time will tell if it means anything or not Shoes but for now this sell off in Au is, while impressive in nominal terms, about the same in percentage terms as the decline from 1K to 700.

  • 36 Colin Rae // May 28, 2013 at 9:23 pm

    Greg, nice work on the -1 car manufacturer.

    I manufacture a product in Australia, and import an alternative to my own product.

    Although we don’t, by global standards, use much tax payer money to support our car makers, it boggles me why we do it at all. I know the typical rationales: keep jobs (but the car people cut jobs), keep skills (skills go with the jobs), more money in the domestic economy (do we actually export our cars?), and the “we don’t want to be a country that makes nothing”.

    Personally, I’m quite happy to buy a foreign-made car that has been subsidised by the tax-payer of another country. I note the irony of Japanese or US tax-payers reducing the amount I have to pay for a car, while adding to their sizeable national deficits.

    Given that the manufacturing sector is shrinking, there is little value in competing for a bigger slice of a shrinking pie. Taking a long term view, the manufacturing sector, taken over the world, is shrinking. Agriculture used to be the dominant sector a few hundred years ago, and I see the manufacturing sector ending up about the same size as the present-day agricultural sector. In other words, manufacturing will be a shadow of its former self.

    I still see a case for supporting the manufacturing sector in Australia. Much like we need food security (although we take our food production for granted), we will need a minimum manufacturing sector to ensure strategic defence capability, both in terms of limited vulnerability to supply shocks of foriegn manufactured goods, as well as the ability to extert targeted leverage over other nations. I anticipate a future of broadly protected manufacturing and agricultural sectors, that compose a relatively small proportion of our overall economy.

    The connection between long-term considerations and valuation bubbles is better expressed by Carlota Perez (http://www.carlotaperez.org/)

  • 37 Greg Atkinson // May 30, 2013 at 9:50 am

    Lachlan for now, I see the ASX 200 trading around the 4800-5200 range for maybe all of this year. Yes it will try to break out on either side but I reckon 4400 is probably a good support level on the downside and I can’t see it getting above 5200 for any extended period.

    As I mentioned last year, the mining boom is over and the people who were talking about a “golden era” or “super commodities cycle” are now very quiet indeed. The big problem is that policy-makers and the business sector did not prepare for the end of the cycle so now it will be left up to the RBA to try and heal the wounds by cutting rates.

    This will probably send the AUD down thus driving up the cost of imports at a time when exports will be falling. End result…a nasty period of trade deficits.

    As for gold..when it is closer to $1000 USD I may get interested but for now, I will remain on the sidelines.

  • 38 Biker // May 31, 2013 at 1:53 pm

    A fair call?

    http://www.eurekareport.com.au/article/2013/5/31/gold/australian-dollar%E2%80%99s-gold-bonus

  • 39 Greg Atkinson // Jun 3, 2013 at 9:31 am

    Colin when it comes to manufacturing in Australia it seems there are a few issues nobody really wants to talk about.

    Max Yasuda, the President of Toyota Australia outlined his concerns about worker productivity a few years ago and was basically criticised by the government for commenting that workers were taking too many sick days.

    Australians only want to hear that they are hard workers and if there is a problem with manufacturing..well it’s because of the high dollar, unfair trade practices or the tooth fairy.

    We have been though this cycle before as outlined in the AFR article from 2012:

    “Japanese firms have been turned off by Australia’s industrial relations landscape in the past, in ways which have damaged the national interest. In the 1970s and 1980s, Japanese steel makers were so shocked by industrial trouble at Australian iron ore mines that they diverted investment to build up the Brazilian iron ore industry to guarantee alternative supplies.”

    Source: Toyota right to stand tough

    Our mining operating are at the high end of the cost scale and the Japanese, Chinese and Koreans are investing outside of Australia to secure alternative sources of raw materials. So it looks like we are going to repeat the errors of the 1970’s and 1980’s again but this time our woes will be compounded by the shrinking of the manufacturing sector. (which is a work in progress)

    Then when the TPP kicks-in, the imports will start to really ramp up regardless of what the AUD is doing simply because there is no local alternative to most imported goods.

    Australia could be a competitive base for manufacturing. But it would require a major attitude change and for that reason alone, I doubt it will ever happen.

  • 40 Biker // Jun 3, 2013 at 3:23 pm

    “…it would require a major attitude change…”

    …and, as Gina has pointed out, lower wages… . 😉

  • 41 Colin Rae // Jun 5, 2013 at 8:15 pm

    Biker and Greg,

    Attitude shift and real wage depreciation could indeed take a while. Here in Australia we can not compete with the ability of larger nations (I’m thinking US and China) to devalue their currencies. So, I anticipate lots of imports and a relatively significant decline in Australian manufacturing, as well as a decline in manufacturing world wide (see Carlota Perez’s research for this)

    To some extent, I don’t mind about a shrinking manufacturing sector. We need to reduce our GDP’s dependency on manufacturing, and the sooner we grapple with this the better. The big challenge here is not how to have a manufacturing revival in Australia, but how we can have national economic growth with a manufacturing sector that is one-tenth its current size.

  • 42 Biker // Jun 5, 2013 at 11:54 pm

    The falling ozbuck promises to deliver some benefits, especially for tourism and higher education. Figures recently released for Chinese visitors indicate an average of $7K spent while touring Australia… and projected figures are impressive:

    “Andrew McEvoy says that tourism from China will hit a new milestone by 2018. Our expectation is that China will become a one million person inbound market, spending in excess of $10 billion,” he said.”

  • 43 Greg Atkinson // Jun 6, 2013 at 6:41 am

    Colin it is not just a currency issue. In Austrlaian we also do not have the competence or skills to set up much advanced manufacturing operations in other markets either. Instead what often happens is that Australian manufacturers are taken over by foreign companies and then when costs get too high they shut down operations in Australia and sent production offshore.

    Maybe tourism will help make up for the loss of manufacturing jobs..but I doubt it. Like educational services they are global products and global competition will keep a lid on growth.

  • 44 Biker // Jun 6, 2013 at 8:12 am

    “Australian manufacturers are taken over by foreign companies and then when costs get too high they shut down operations in Australia…”

    Cheaper labour offshore… . Very little to do with skills.

  • 45 Greg Atkinson // Jun 6, 2013 at 8:21 am

    Biker do you specialise in stray man arguments? In any case skills are very important in setting up offshore production bases which are very often used to target regional markets. It isn’t just a case of lower wages. Toyota in the US for example have been able to use their advanced production system (exported from Japan) to make their manufacturing facilities more efficient that the once dominant domestic car makers.

  • 46 Biker // Jun 6, 2013 at 8:36 am

    Responding to Colin’s comments, Greg. He included me in his response, Greg.

    “Bob Graziano said approximately 1,200 workers would lose their jobs when the Broadmeadows and Geelong plants were shut down.. the company had lost $141 million over the last financial year – taking losses over the past five years to more than $600 million. “Our costs are double that of Europe and nearly four times Ford in Asia,” Mr Graziano said.”

    Greg, do you have a problem acknowledging high labour costs as the chief issue in non-competitive Australian manufacturing?

  • 47 Greg Atkinson // Jun 6, 2013 at 9:06 am

    Biker high labour costs is just one of many problems with manufacturing in Australia. Technology can in some cases mitigate labour costs for example…i.e robots don’t get paid.

    Main problems in my view – lack of imagination and innovation.

    The fact that the debate in Australia focuses largely on labour costs shows how far behind we are.

  • 48 Biker // Jun 6, 2013 at 9:53 am

    Apparently our use of robotics, p.h.o.p, is greater than anywhere else in the world, Greg. Mining might help account for that.

    Asking Australia to compete, say in clothing manufacture, with those vast, 19th-century sweatshops of Asia, where slave-labour toils in unimaginable even dangerous conditions, is probably not going to endear Australians, who enjoy a comfortable lifestyle and working environment.

    I just watched a Rivers commercial, in which the models flaunted attractive $15 items, with the enticement that if one spends $50, you’ll get a $50 voucher. Not haute couture, I’ll grant you; but pretty hard to compete with… .

    Should Aussie wages be reduced? Hard to imagine that happening. Are Europeans _twice_ as skilled, Asians _four times_ more skilled than Australians? It’s far more likely that in countries with higher unemployment, workers are simply much cheaper…

  • 49 Greg Atkinson // Jun 6, 2013 at 11:10 am

    Biker I have never seen anything that suggests robot use in Australia is extensive. When I come back to Oz all notice is the lack of technology. What I do see is all imported.

    Not sure why you picked clothing as an example..but it’s typically the example used in Australia.

    Yes it is all too hard…Americans can make hi-tech/hi-value products, the Swedes can as do the French..but let’s skip the debate and pull out the sweatshop example.

  • 50 Biker // Jun 6, 2013 at 1:40 pm

    “Americans can make hi-tech/hi-value products, the Swedes can as do the French…”

    And they’re increasingly manufacturing them offshore. Volkswagen is a prime example of a quality European manufacturer offshoring its operations in cheap-labour zones like Mexico.

    Hard to argue with the clothing trade example, isn’t it?

  • 51 Greg Atkinson // Jun 6, 2013 at 2:43 pm

    Yes Biker and when American companies set up offshore they use their skills to set up and manage these facilities. You clearly missed the points I was making above.

  • 52 Biker // Jun 6, 2013 at 2:54 pm

    “…they use their skills to set up and manage these facilities…”

    They use cheap labour. They send the jobs offshore.

  • 53 Biker // Jun 6, 2013 at 2:56 pm

    Rather than face some glaring home truths (cheap foreign labour, for example) there’s often a tendency to blame someone, something, some government or government department, the education and training system, the taxation regime, etc.

    There’s little mileage in identifying cheap foreign labour as the major factor in our non-competitive manufacturing sector (unless you pinpoint boat people or 457s 😉 )… so it’s easier to blame Aussies: lack of skills, lack of imagination, lack of innovation.

    Online news blogs are replete in ‘Aint it Awfuls’, in which we enjoy blaming a host of others for our problems. The most common of Berne’s four games
    “Look what they’ve done to us now!” is the most persistent thread, conspiracy theories the most extreme form of AIA. Probably serves some therapeutic purpose for those whom the system has failed, so ‘Aint it Awful’ does have a place in the scheme/ing of things… .

  • 54 Stillgotshoeson // Jun 6, 2013 at 4:15 pm

    Greg Atkinson // Jun 6, 2013 at 9:06 am

    Biker high labour costs is just one of many problems with manufacturing in Australia. Technology can in some cases mitigate labour costs for example…i.e robots don’t get paid.

    Main problems in my view — lack of imagination and innovation.

    Not debating the issues here, just raising them.

    High company tax rates, high energy costs, legislation and bureaucracy, too powerful unions, small population (economy of scale) and a reduction in trades related schooling over the years.

  • 55 Greg Atkinson // Jun 6, 2013 at 4:57 pm

    That is a pretty good overview Stillgotshoeson. High energy costs is one thing that is being cited quite often recently. The decline of trades is also another good one…although I am biased since I started my working an an apprentice.

  • 56 Biker // Jun 6, 2013 at 5:05 pm

    Dan Murphy probably sums it up a little more perceptively:

    “The classic example of this is where a bunch of employees sit around the water cooler or having a beer after work, and bitch about how screwed up the company is, how all the managers are clueless, how so many co-workers (none of whom are present) are morons, lazy, or corrupt, and so on. This game can go on indefinitely, generally until it is time to return to the cube or go home.
    Although a “game”, this is not one with a goal, nor one where there is a finish with a winner and loser. It is simply a ritual that serves the moment, and indeed, no one walks away feeling like the loser. On the contrary, this game allows the participants to feel some level of bonding around their shared experience of misery and frustration.”

  • 57 Lachlan // Jun 6, 2013 at 5:17 pm

    Technology is changing so fast that there will inevitably be a skills lag in a global sense.
    Even though communications and computerisation are incredible now I feel stressed because it is so hard to control. My computer has a mind of its own and so do these new phones. My son seems to love the computer tech however. Maybe I’m just too fossilised even at middle age. I have tried to embrace these things however…hoping for an edge.

  • 58 Biker // Jun 6, 2013 at 5:24 pm

    It’s a global issue, Lachlan. Despite that, my 92 yo mum uses the iPad we bought her, daily; as does my 87 yo mom-in-law, on her iMac.

    Maybe an Apple might be more user-friendly and intuitive?

  • 59 Stillgotshoeson // Jun 6, 2013 at 6:00 pm

    One of our customers (on and off) had about 200 employees when we first started dealing with them. (6 years or so now)
    They are down to about 120 employees and when I was there last week they were talking of further reductions of around 40.

    Some of these reductions have been straight out replaced by more modern machinery removing multiple operators from the process, other reductions have been due to economic conditions.

  • 60 Lachlan // Jun 6, 2013 at 6:01 pm

    That’s lovely BP.
    And I was only just thinking about going Apple for the first time early today. My PC nearly got tossed out the window last week. I spent all day doing a quote for an agreed time and then ruined the entire spreadsheet while trying to clean up a few little, probably unnecessary things. I am hoping otherwise for a revolution in the user friendly department. I’ll ask a brother of mine who uses an apple.

  • 61 Lachlan // Jun 6, 2013 at 6:12 pm

    Shoes I was reading about how these simple robots would reduce dispatch floor workers by 85%…about six months back. I think these are good things even if jobs go. There a million better things people could be doing.

  • 62 Greg Atkinson // Jun 6, 2013 at 6:42 pm

    Lachlan in 2005 there were around 370,000 robots at work here in Japan and I have read estimates where it is said they are now a virtual workforce of over 1 million workers.

    High labour costs don’t impact robots much..although energy costs do.

    Using robots is the type of innovation that keeps manufacturers ahead and is something I am interested in since I work/design automated systems.

    Also not all manufacturing heads offshore – strategic processes and production techniques involving patents/IP tend to stay close to home.

  • 63 Lachlan // Jun 6, 2013 at 7:26 pm

    Excellent Greg. Its probably a topic that deserves more attention, at least here in Oz. My son is fascinated with robots and his school is quite involved with them.

  • 64 Colin Rae // Jun 6, 2013 at 8:08 pm

    The robots thing also really helps cut labour costs in software. The ability to write automatic test harnesses, for example, counts as a virtual workforce.

    A note on skills. It’s helpful if I’m setting up shop for some of the local population to have relevant skills. However, skills are quite portable, either through training locals or importing foreign skilled labour. It’s a global skills economy. If I consider software again, even the training can be done virtually/remotely, and importing foreign skills doesn’t even require a 457 visa.

    As for automation reducing the labour cost, I can see it working quite well to a point. There is a minimum number of staff required to keep things running, and at this point no amount of automation can reduce the labour cost. That being said, if there is more automation of tasks (e.g. OCR reducing the requirement to type data into accounting software packages) then this will free me up to spend more time selling/sourcing product. So I will happily have higher productivity but my wage bill may not decrease.

    In fact, I admire how much Greg can do. To me, this demonstrates the opportunity that exists to dominate a niche and have an incredibly tiny wage bill. The future (and the present) belongs to people working like Greg. People who start something meaningful and work at levels of productivity that shame even the Japanese. Productivity made possible by those who have come before (thank you WordPress!) and those who keep making our working lives increasingly free of mundane tasks (I’m thinking of bank reconciliation in Saasu – a real joy).

  • 65 Biker // Jun 6, 2013 at 8:30 pm

    You have a background in AI, Greg?

  • 66 Greg Atkinson // Jun 6, 2013 at 8:47 pm

    I would not go as far as calling it AI Biker. What I am working on with a team of other engineers is some automated control systems for marine applications. Amongst other things these systems reduce the need for labour. I have also in the past carried out inspections of production lines and spent a bit of time exposed to manufacturing.

    Colin..thanks for the kind words. I am not sure I can do that much…attempt might be a more accurate description 🙂 I have carried out some incredibly mundane tasks in years gone by (such as working around at 1am checking equipment gauges) so I generally view automation as a good thing.

    Certainly we can’t stop all manufacturing heading offshore, but maybe we can try just a little harder to keep jobs & skills in some key sectors.

    P.S. Lachlan for your son: International Federation of Robotics http://www.ifr.org/

  • 67 Lachlan // Jun 7, 2013 at 5:31 am

    Thanks Greg. I’d love to visit some of these places. I have a friend in the same line of work who travels to China and Taiwan. He has an Asian beauty in his life. Maybe I’ll get there in a few years I guess. I am too busy at present trying to make my fortune. If I told my son we could go over there he’d be SO excited…he might just explode 🙁

    Better careful how I break it to him.

  • 68 Biker // Jun 7, 2013 at 12:26 pm

    Newcrest writes down $6bn in assets, scraps dividend on gold price fall | The Australian: http://t.co/3VPMtnrByd about 39 minutes ago

    We’ve watched Newcrest with interest after some online speculation re Lihir… and its later acquisition by Newcrest. Even as late as almost a year ago (30/7/2012) some were buying at around twice today’s price: “I bought 500 more NCM last week under $23…”

  • 69 Biker // Jun 8, 2013 at 9:07 am

    The world according to Kohler:

    “Between Friday night and Tuesday lunchtime, Newcrest shares rose 9%, who knows why. The gold price had been rallying for a week, and gone up US$50 an ounce, so that may have been the reason, but…

    Anyway, at 1pm on Tuesday it started to fall against a rising market with heavy volume, closing 3.5% off its peak at $15.15. Wednesday morning, UBS came out with a downgrade from neutral to sell, lowering its target by 33% to $12. Newcrest fell to $14.31 at the opening. On Thursday morning both Credit Suisse and Citi downgraded, CS to a target price of $14.55; Citi to $13. Once again the stock crashed at the opening, to $13.60. It closed Thursday at $13.36, down 15% in two days.

    On Friday, Newcrest announced $5-6 billion in asset impairments.

    The question is: who got out of the stock on Tuesday, and what did they know about the forthcoming downgrades? And what did the brokers know on Wednesday and Thursday about what was to be announced on Friday? One thing’s for sure: small investors knew nothing about any of it until Friday morning, after the stock had fallen 15%.”

  • 70 Lachlan // Jun 8, 2013 at 10:11 am

    With the share sitting a while off a gap of three bucks or so from a major support you had to have your popcorn ready BP. And your fiats.

  • 71 Biker // Jun 8, 2013 at 10:28 am

    Just an innocent bystander, Lachlan!~ 😀

  • 72 Biker // Jun 8, 2013 at 12:50 pm

    The world according to Madoff (cited by Kohler):

    “Marketwatch.com, the Dow Jones stockmarket website, has interviewed Bernie Madoff, who is serving 150 years for running the biggest Ponzi scheme in history. Here are some quotes from the interview (which can be read in full here):

    “The individual investor is the last person that has any information.”

    “Brokerages and advisers should have independent custodians and the government should have forced me to have an independent custodian. Client funds should be held by independent custodians. If they had, I would have been caught long ago.”

    “Scamming investors has been going on since the beginning of time, and I don’t think it’s going to end.”

    “If you don’t understand something, then don’t invest in it. People asked me all the time how did I do it, and I refused to tell them, and they still invested with me.”

    “The best chance for the average investor is to put money in an index fund.”

  • 73 Lachlan // Jun 8, 2013 at 3:23 pm

    Biker that is all very likely true.
    There is of course a legitimate reason for markets to exist. And individuals can easily invest in an operation of their choice. And achieve some diversification for themselves.
    I guess the problems come with basic abuses as our natures would predict. Investors and brokers both tend to treat share markets as a gambling den. Investors think of short term gains when long term views are more rational. Institutions take advantage of their weaknesses as one would naturally expect.

  • 74 Biker // Jun 8, 2013 at 3:57 pm

    “Institutions take advantage of their weaknesses as one would naturally expect…”

    Yet we put our trust in so many of them, Lachlan. Perhaps, given the myriad examples since the beginning of the GFC, it’s more natural to suspect not only institutions, but anyone providing advice… more so, of course, if they benefit from that advice.

    Our fortunes certainly changed after we sacked our FA and gave a second one the finger before he could transfuse our finances… . 🙂

  • 75 Colin Rae // Jun 10, 2013 at 3:22 pm

    No surprise that individual investors are the last to know. As an individual investor, I spend maybe an hour a week, make no effort to dig beyond the asx releases, and rely entirely on share gravity (to borrow a Buffett-ism) to take care of capital gains while I enjoy 6 to 7% dividend yields.

    In my place of employment, however, its a different story. I find out the buy prices of competitors and prospective customers. I find the range of sell prices of suppliers, customers, and distributors. I visit other companies’ warehouses and find out how they are responding to the major industry player who went into voluntary administration. In a different industry, my Dad flies to India and sees the crops in the field, walks through various processing facilities, talks with various suppliers, and keeps on accurately predicting the future price direction of his key raw material.

    In my employment, I’m responding to information way before anything could possibly end up in an annual report, and I’m seeing our sales increase. My Dad happened to buy 3 years worth of raw material just before the price rose by 500%.

    There is no way a passive individual investor could possibly have information as soon as me or my Dad, in our respective fields. I see no injustice when individual investors find out last. My take: if you want something (e.g. information, better returns); take action.

  • 76 Greg Atkinson // Jun 19, 2013 at 3:36 pm

    Now Holden are looking at cutting costs which is probably a precursor to announcing job cuts. One factor they say has driven up costs is the carbon tax. So now imported cars for them bring in the money whereas locally made cars lose them money. End result..probably more carbon into the air (since the cars need to be shipped to Australia) and the continued decline of manufacturing in Australia.

  • 77 Greg Atkinson // Dec 5, 2013 at 9:18 pm

    So first Ford, now Holden…next will be Toyota. Actually I thought they would be the first to move but maybe they are still making money exporting subsidised cars to the Middle East?

  • 78 Biker // Dec 9, 2013 at 11:32 am

    Fama, on Index Funds: http://www.watoday.com.au/business/world-business/nobel-prize-winner-eugene-fama-fears-worldwide-recession-in-2014-20131209-2yzy8.html

  • 79 Greg Atkinson // Feb 10, 2014 at 4:46 pm

    As expected Toyota has announced today that it will cease manufacturing in Australia from 2017. See: Toyota to pull plug on Australia production http://asia.nikkei.com/Business/Companies/Toyota-to-pull-plug-on-Australia-production (Nikkei Asian Review)

  • 80 Lachlan Scanlan // Feb 10, 2014 at 8:25 pm

    It’s hard to kill Australia. They’ve tried. Julia killed our live cattle export. We’ve donated our manufacturing to Asia. They clobbered the dairies. Houses and holes is what they wanted all along. I’ve adapted to it though even if I don’t have to agree with it and things for me are much better every year for some years now. However my younger dairy farming ex neighbours remind me of the hard times I had a decade ago. I hope they find their way through it.

  • 81 Biker // Feb 11, 2014 at 9:25 am

    Mr Abbott will save us, Lachlan. 😉

  • 82 Greg Atkinson // Feb 11, 2014 at 9:43 am

    Lachlan I don’t think there is much will in Australia to turn manufacturing around and as a nation we simply don’t have that commitment to engineering excellence like a nation like Germany has. So Australia cannot complete in terms of cost or quality which means as Free Trade Agreements are signed, the manufacturing sector will decline further.

    Hopefully mining & farming will keep the dollars coming in though much of that is likely to be either foreign owned or partially foreign owned as it is already.

  • 83 Lachlan Scanlan // Feb 11, 2014 at 7:25 pm

    hmmmm, yeahhh BP…practically the human race can save themselves but observation over time sheds extreme doubt on it happening. Tony from what I can tell has really irritated lefties on the ground. I haven’t really stopped to see what’s wrong…doubt I need to know.

    Greg yes the political will remains averse to catering for Oz manufacturing as far as i can tell. And then I also believe our mines in the main may continue along well even if they do shake out investors and employees periodically. Agriculture will be interesting to watch. There are a lot of older people living out their last years on large grazing blocks in my travels. The children long since run off to the towns, cities and suburbs. Then there is this GMO thing which I have never looked right into. I suspect there is lot of unwarranted fear. Also rightly I understand people will be feeling nervous as they become more disconnected from the means of food production.

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