Forum Archive Index - May 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

 

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 fact slowing.

 

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 stocks.

 

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 over!   

 

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 market!   

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 positive effect on Australia's exports !!     

 

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 time.

 

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 there!  

 

Gerry