EvannTel

Blimey

Some sound arguments on here. I applaud you gentlemen.

As a middle man in value adding to mining it frustrates me that we as country can't value and further process the minerals others truly exploit.
Power though is just too dear - $11 a gigajoule comported to about $3 in the US.

GarryP

Given the track record of the financial 'experts' - take the answer they don't say, in fact say won't ever happen. Its the only path that seems to have a track record of being right.

And keep an eye on the Chinese real estate market, and Greece still not agreeing terms.

Swerv-o

This is a big gripe I have with Australia. It really grinds my gears that we just dig up raw materials, dump them into a boat and sell them off - A particularly good example being uranium.

Adding value by processing uranium ore into usable fuel not only generates a premium product that can be sold at a higher price, but also helps to develop a supporting knowledge industry and infrastructure that further benefits the country.

But no. We just sell the raw product.


S

Tramps_mate

A friend of mine says there's 50 years left in coal easily, but when the Chinese decide not to buy it then the coal mining could be knackered.

carling black label

I do not buy this strong correlation between the Australian Dollar and money in the ground (commodities), i think its a bum steer....If its such a strong link then why is the Kiwi dollar at all time highs? Commodities are currently in a bubble, money is chasing yield, where can you get yield? Property, lose capital, in a bubble, poor yields. Cash, well CB's are just itching to get you to take risks. Bonds, in a bubble, poor yields. Equities, currently supported by free QE money. If you were a huge Corp, had a billion to invest, but was not sure you would get it back/ turn a profit, in the current enviroment, well why spend? The Australian dollar, is attracting hot money due to the current yield, similar to the Kiwi dollar. If interest rates in Australia dropped to near zero, similar to the US, UK, Japan, Euro, do you really think the Australian dollar would retain it current dizzy heights, just because Australia digs up mud and sells it to the Chinese? I think the speculation in commodities, the exotic casino, (capital gains); could fall off a cliff this year, we are seeing commodities slow now, but i still think the Australian dollar will remain strong while the RBA keep interest rates at least two percentage points above the other major central banks....Merv and Benanke, know domestic inflation (wages) are muted, thats why rates are at ZIRP, they also know they could pull the trigger, raise rates if they wanted and attract money out of the exotic casino of commodities. But they won't because i think we are in a demand driven depression, so with demand falling, what will happen to commodities? So in answer to the first OP post, i see the AUD retaining its strong current value, while the RBA hold interest rates well above the other major economies around the world......

slapphead_otool

Ross Gittings, todays SMH:

http://www.smh.com.au/business/all-h...0127-1qld6.htm


This year we'll see more painful evidence of Australian businesses accepting the new reality: our dollar is likely to stay uncomfortably high for years, even decades.

It has suited a lot of people to believe that just as the resources boom would be a relatively brief affair, so the high dollar it has brought about wouldn't last.

If there were no more to the resources boom than the skyrocketing of world prices for coal and iron ore, that might have been a reasonable expectation. But the extraordinary boom in the construction of new mining facilities makes it a very different story.

The construction boom is likely to run until at least the end of this decade, maybe a lot longer. The pipeline of projects isn't likely to be greatly reduced by any major setback in the world economy. That's particularly because so much of the pipeline is accounted for by the expansion of our capacity to export natural gas. The world's demand for gas is unlikely to diminish.


Again, I rest my case.....

carling black label

Still we all have different views, but that is mine......I would still rather be in Australia's position than the UK's.....

Budawang

Ross Gittins is the most impressive economics journalists around. He has a knack of explaining complex issues in a way most people can understand and gives the impression he really knows what he's talking about.

"It seems clear the world's financial investors are shifting their portfolios in favour of $A-denominated financial assets. And remember, because they're so much bigger than we are, what's only a small shift for them is a big deal for us."



Read more: http://www.smh.com.au/business/all-h...#ixzz1kmh11wfq

GarryP

But the chain goes like this. High resources earning puts money into the economy. This tends to create inflation, but if your central bank wants to control that it uses interest rates. High interest rates, relative to global currencies means high capital inflows as individuals seek returns - strong currency numbers.

If you cut off the beginning of that chain, the rest reverses. Any sign of recession, or even lower growth, and interest rates fall, and with it the currency.

Of course, if everyone else falls at the same time it wouldn't be as dramatic as if the US maintained growth and others didn't, but that's a relative game.
Oops, but the current vogue for extracting shale gas via fracking is providing new domestic gas supplies in many countries, pushing down prices in the short to medium term. Doesn't make gas exports business a robust bet. Eventually it will sort itself out, but it wouldn't be good to be focusing on it short term.

carling black label

There is your mistake....Inflation? Cost or Wage? The central bank uses interest rates to control domestic wage inflation. Wages maybe rising in the resource sector but back in the real world, real Australia, people are struggling, costs are rising at a staggering rate, interest rate rises will not address cost inflation, look at the UK; wage inflation is currently negative, so we have a two speed economy, real and resource. Its why rates will fall, they have to, servicing high personal debt is sucking disposable income out of the economy, this has to be addressed, so to stimulate spending, so the economy....

GarryP

You are giving central bankers too much credit - they look at spreadsheet numbers, think they are real, and play the real economy as their spreadsheet/model tells them too.

Plebs 'stuggling' only exist for central bankers when the effect shows up in the numbers.

The gap between the performance of different parts of the economy isn't something that they are really up for bothering with - their theory tells them not to think about such trifles.

Rates fall because house prices aren't as strong as they think they should be. Problem is, house prices are massively too high, and allowing miners to inflate the Perth market even more isn't going to do anyone any favours. But pushing down house prices (they need to fall 50%) by other means requires them to look up from their spreadsheets, and politicians to admit they screwed up. Fat chance - so things eventually collapse uncontrollably, rather than being managed.

PS the money that currently goes in the wasted black hole of house prices should be going to build up new Australian business. It's hard to be entrepreneurial when you've a dirty great mortgage hanging over your head.

carling black label

I can't disagree with you, because you may be right about the RBA, i just know i am right also.....

RE: House prices, i just do not see them falling a great deal. The big four in Australia apparently are that deep in the doo doo with ragards to lending domestically against private dwellings, if their assets they have lent against fell 20%, they would not have a liquidity problem, they would be deemed insolvent.....Similar to the UK, so they will drop rates, so to stimulate the economy but also support asset values.....I am not saying assets are not over priced, but i am saying they may stay that way for a long long time, rates will fall, along with the AUD, but that is my opinion, i could be wrong?

slapphead_otool

Interesting discussion chaps, and very enjoyable.

Sadly I'm off to another internetless remote island for a few months, and so I must drop out. Sorry about that.

(interestingly I get paid in USD so I lose with a high AUD).

It's going to be an interesting few months. I wonder what the rate will be when I get back....

GarryP

Yeah, but house prices are sentiment based, and Australia isn't really used to the idea of falling house prices (though many migrants are). Any shock big enough to start pushing down the current high levels (8x earnings) is potentially large enough to get the idea of falling prices into people's head. Once that takes hold, it tends to roll forward via feedback for at least a way.

I'm also not quite sure how much of the housing market is inflated by overseas individual investors looking for a home for their money. If China turns down and they need the money at home, they could flood the market and induce a 'crash'.

GarryP

Internetless, does that still exist?

USD won't go down till Nov, No.1 priority of Obama is that.