Readers: The previous installment was dated
May 6, 2001. Another post of May 6, 2001, time 15.47, presents useful web
sites supporting the series.
H: Although Japan, Australia's largest trading
partner, is " shut down " and the Asian economies are slowing down, Australia
has a resilient economy!
As a consequence of higher oil prices over the last
two years, coal prices have moved up and Australia is benefitting from
the export of primary products coupled with a low $A .
The Reserve Bank has defended the decision to have
raised interest rates in August 2000, when the economy was in
This, coupled with the introduction of GST, brought
on a decline of 0.6% growth of GDP in the last three months of 2000, the first
decline since 1991. This in turn dragged down the dollar but the RBA is
pleased that it has been reversed.
G: We know that the severe slump in
housing had a massive effect on the economy; it certainly affected CAH
H:Yes, and the RBA was forced to slash
interest rates from 6.25 to 5.00 percent in only eight weeks!
Some commentators suggested that they could go
lower still - arising from any further easing by the US - ;
however, the Bank said that they considered the 5.0% cash rate as the
low or end of this interest cycle.
They said that the expansionary impact from
last year's tax cuts would continue and that a big upswing in
the housing sector was expected this year and
that household spending was now on the rebound.
G: What do you read in this as far as the AX is
concerned? Will the markets move to a much higher level?
H: Much depends on the US outlook during the next
few months and the economy in Japan, I think. The Australian banks are reporting
well, though! Last week was a very good one for the Financial sector
G: And what is your opinion on the Boards and
Management in Australia?
H: It is a bigger country of course, there are
plenty of companies with shares of $A 10 or more. The mining sector is massive
and is internationally inclined, and they will be able to attract some good
CEO's, COO's and CFO's.
The country has some very good overseas
investments; mind you, many of their companies have also been taken
The comment has been made that unlike NZ, where
inability plays a role in faulty management; in Australia, it is often a
case of fraud!
G:It is a nation of go-getters and unlike Helen
Clark, they " won't be filling any gaps! "
They can be hard-nosed at times but
believe in winning - no bleating over there! And they feel somewhat
threatened by a big neighbour and the boat loads
of clandestine emigrants! But
they are achievers and proud of it! I say, good luck to them!
H: A good country to invest in at the right time;
it does seem that investors are starting to take positions in the
It would be good timing if a
recovery will occur before the end of the year!
By the way, I came across a disturbing graph
from sources CSFB, Datastream and IMF.
It shows a regression of real commodity prices
over time; period: 1957 - 1998.
There is a very strong correlation and it shows
that the IMF all-item raw materials index in real SDR
terms declined by 2%.
CSFB mentions that the long-term trend for
commodities and therefore the NZ dollar, is to decline at 2% pa
relative to CPI. ( NZ is a large producer of commodities
It is an emperical observation but
is nevertheless, a very pertinent one! They did say that this
correlation broke down a couple of years ago due to the investment flows into
the US, and sofar has not resumed.
I think that, as there will be more and
more " congegration of power in a few hands ", this relationship may
not always be that strong in the future:
The Cartel in the oil
sector is slowly being followed by market power being derived from
having some metals in the hands of say no more than
three massive corporations.
G: You are saying that they can then control the
price and output in an economic cycle and reduce the variances prevalent when
high economic activity is followed by a recession?
H: Call it " Even out the pricing ". The all-over
effect will be to raise prices / reduce costs but it could have a
Summing up, Australia is a very
strategic country as far as mining is concerned. Japan is
normally their largest customer and, hopefully, may recover, given
Australia is a resilient country and has
managed to diversify trade when called for. It is a good country to invest
in, but as always, take care: there is some very powerful PR over