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David Dittman is managing editor of Investing Daily (www.investingdaily.com), overseeing a world-class team of editors and analysts who share a common goal: providing individual investors with sound advice and market intelligence across a wide range of sectors. Whether the focus is on... More
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Investing Daily
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Canadian Edge
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The Rise of the State: Profitable Investing and Geopolitics in the 21st Century
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  • Despite the Slowdown, Australia Still Strong

    “There is just a world of difference between the situation in Australia and the situation in Europe and the United States.” That’s the assessment offered by federal Treasurer Wayne Swan early in the day’s trading on Friday, Aug. 5, when the Australian share market followed through with its own swan dive after Western equity markets plunged the preceding day.

    In his remarks Mr. Swan also noted a structural change that’s causing difficulty for critical segments of the domestic economy, primarily retail, tourism, education and manufacturing, which are suffering the impact of a stronger currency. Australians are reining in their spending, as home prices have cooled. Devastating floods in Queensland have also had a lingering impact, putting another drag on confidence.

    The Australian economy contracted by 1.2 percent in the first quarter of 2011. The International Monetary Fund (NYSE:IMF) revised downward its estimate for GDP growth Down Under in 2011, to 2 percent. The RBA followed suit this week, changing its expansion estimate to 2 percent from 3.25 percent. The RBA, the first developed central bank to boost interest rates following the global consensus on monetary policy occasioned by the financial crisis, held its target overnight rate at 4.75 percent this week, among the highest in the world.

    Retail sales for June fell 0.1 percent from May’s levels against a forecast of growth of about 0.2 percent. Sales in May were down 0.6 percent from April. Annual retail sales total AUD240 billion and account for a fifth of Australian GDP. A lot of people work in the sector, and it remains an important barometer of domestic economic conditions.

    Here’s what the RBA had to say in its statement revealing the downward GDP revision and its interest rate decision:

    Growth over 2011 has been revised downwards due to a slower than expected recovery in coal production --a key industry for Australia -- and to a lesser extent a downward revision to consumer spending as domestic and international concerns have weighed on sentiment.  

    The medium-term outlook continues to be characterised by the significant pipeline of resource sector investment with a number of large projects already underway and by strong growth in resource exports.

    There is a large divergence between the mining and related sectors and the rest of the economy with the cautious behaviour of households, the unwinding of the fiscal stimulus and the high exchange rate weighing on a number of industries.

    Although the mining boom remains in full force, growth in non-mining sectors has slowed. World growth is weaker, and overall risks have certainly increased in recent days. But Australia’s economy will continue to ride unprecedented demand from Asia for its natural resources. But the situation is becoming more complicated, as inflation is rising at a pace outside the RBA’s target range. Meanwhile Australia’s trade surplus hit a record AUD22.5 billion  in the 12 months ended Jun. 30, as exports surged 17 percent to AUD298 billion. Iron ore, coal and agricultural exports. Exports to China and Japan, Australia’s top trading partners, rose 39 and 26 percent respectively. Australia’s terms of trade, a measure of export prices relative to import prices, are at a 140-year high.

    As I wrote in my recent InvestingDaily.com article, After the Crisis?, trade with Asia helped Australia avoid the Great Recession, and it’s ready to benefit from a huge amount of spending coming from China. As is the case with Canada, demand for its resources has driven a rally in the Australian dollar (the “aussie”).  The Australian resources industry is riding a similar wave of high commodity prices that’s boosted Canada’s national wealth.

    And there are roughly USD400 billion in new resource extraction projects planned in Australia over the next five years. Western Australia leads the way with USD242 billion in planned resource and infrastructure projects, with approximately half of that spending concentrated in mining, particularly iron ore. There are a lot of natural gas projects as well. Western Australia will have to support population growth, as mining and construction will need an additional 260,000 workers over the next five years, according to government estimates.

    Although there are certainly headwinds, unemployment is low, as is public debt. And the nation’s financial system is also in relatively strong shape.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Aug 23 1:20 PM | Link | Comment!
  • Despite the Slowdown, Australia Still Strong
    “There is just a world of difference between the situation in Australia and the situation in Europe and the United States.” That’s the assessment offered by federal Treasurer Wayne Swan early in the day’s trading on Friday, Aug. 5, when the Australian share market followed through with its own swan dive after Western equity markets plunged the preceding day.

    In his remarks Mr. Swan also noted a structural change that’s causing difficulty for critical segments of the domestic economy, primarily retail, tourism, education and manufacturing, which are suffering the impact of a stronger currency. Australians are reining in their spending, as home prices have cooled. Devastating floods in Queensland have also had a lingering impact, putting another drag on confidence.

    The Australian economy contracted by 1.2 percent in the first quarter of 2011. The International Monetary Fund (NYSE:IMF) revised downward its estimate for GDP growth Down Under in 2011, to 2 percent. The RBA followed suit this week, changing its expansion estimate to 2 percent from 3.25 percent. The RBA, the first developed central bank to boost interest rates following the global consensus on monetary policy occasioned by the financial crisis, held its target overnight rate at 4.75 percent this week, among the highest in the world.

    Retail sales for June fell 0.1 percent from May’s levels against a forecast of growth of about 0.2 percent. Sales in May were down 0.6 percent from April. Annual retail sales total AUD240 billion and account for a fifth of Australian GDP. A lot of people work in the sector, and it remains an important barometer of domestic economic conditions.

    Here’s what the RBA had to say in its statement revealing the downward GDP revision and its interest rate decision:

    Growth over 2011 has been revised downwards due to a slower than expected recovery in coal production --a key industry for Australia -- and to a lesser extent a downward revision to consumer spending as domestic and international concerns have weighed on sentiment.  

    The medium-term outlook continues to be characterised by the significant pipeline of resource sector investment with a number of large projects already underway and by strong growth in resource exports.

    There is a large divergence between the mining and related sectors and the rest of the economy with the cautious behaviour of households, the unwinding of the fiscal stimulus and the high exchange rate weighing on a number of industries.

    Although the mining boom remains in full force, growth in non-mining sectors has slowed. World growth is weaker, and overall risks have certainly increased in recent days. But Australia’s economy will continue to ride unprecedented demand from Asia for its natural resources. But the situation is becoming more complicated, as inflation is rising at a pace outside the RBA’s target range. Meanwhile Australia’s trade surplus hit a record AUD22.5 billion  in the 12 months ended Jun. 30, as exports surged 17 percent to AUD298 billion. Iron ore, coal and agricultural exports. Exports to China and Japan, Australia’s top trading partners, rose 39 and 26 percent respectively. Australia’s terms of trade, a measure of export prices relative to import prices, are at a 140-year high.

    As I wrote in my recent InvestingDaily.com article, After the Crisis?, trade with Asia helped Australia avoid the Great Recession, and it’s ready to benefit from a huge amount of spending coming from China. As is the case with Canada, demand for its resources has driven a rally in the Australian dollar (the “aussie”).  The Australian resources industry is riding a similar wave of high commodity prices that’s boosted Canada’s national wealth.

    And there are roughly USD400 billion in new resource extraction projects planned in Australia over the next five years. Western Australia leads the way with USD242 billion in planned resource and infrastructure projects, with approximately half of that spending concentrated in mining, particularly iron ore. There are a lot of natural gas projects as well. Western Australia will have to support population growth, as mining and construction will need an additional 260,000 workers over the next five years, according to government estimates.

    Although there are certainly headwinds, unemployment is low, as is public debt. And the nation’s financial system is also in relatively strong shape.

    David Dittman is the editor of Canadian Edge and is a regular contributor on www.investingdaily.com

    Aug 11 9:37 AM | Link | Comment!
  • Carbon Tax Down Under

    “It will provide business and investors with the certainty and confidence that they require to make long-term decisions about the future allocation of their capital.” That’s the reaction of Australia’s Institute of Chartered Accountants to the government’s proposal to put a price on pollution.

    The response from leaders in affected industries hasn’t been so clinical. But if the US experience is any guide, these environmental regulations--which aren’t a done deal--won’t be as debilitating to business as some interested parties would have you believe.

    From an economic perspective, the wisdom of Australia assuming a leadership role on greenhouse gas emissions is questionable; the plan involves industries that have driven the country’s economy for a decade. But the ambitious plan would cut emissions in one of the developed world’s top polluters to at least 5 percent of 2000 levels by 2020. Nevertheless, the “Clean Energy Plan” advanced by Prime Minister Julia Gillard appears relatively benign.

    Beginning Jul. 1, 2012, Australia’s 500 biggest polluters will pay a tax of AUD23 (about USD24.65) per metric ton of carbon emitted. The carbon tax will increase by 2.5 percent per year, plus inflation. In 2015 this scheme will expire and the market will set the price of carbon emissions and emissions credits. At that point, Australia will be home to the largest cap-and-trade scheme outside Europe.

    According to this proposal, the market price of carbon credits would decline as businesses reduce their carbon output. In theory, such a regimen would incentivize efforts to improve energy efficiency.

    The plan also includes measures to soften the blow to business. The government would set aside AUD9.2 billion over the first three years to help industries adjust to the new tax, including AUD5.5 billion for upgrading coal-fired power plants that aren’t closed down; AUD1.3 billion for coal mines to target methane emissions; and an additional AUD1.3 billion to create jobs at the mines most affected by the tax.

    High-emission exporters, such as steel, aluminum and pulp and paper makers, would get free carbon permits to assist them while they undertake initiatives to reduce pollution. The proposal grants the steel industry an additional AUD300 million in “adjustment payments.”

    The government would also purchase and decommission the worst coal-fired power plants--about 2,000 megawatts of generation capacity--including the controversial Hazelwood power plant, reputed to be Australia’s least carbon-efficient power station.

    With AUD10 billion in start-up funding, a newly established Clean Energy Finance Corp will invest in companies seeking to get green energy projects off the ground. Another new body, the Australian Renewable Energy Agency, would receive AUD3.2 billion to support the development of renewable energy.

    The proposal excludes fuel for most business and personal transportation from the carbon tax, but owners of heavy transport vehicles will face levies in 2014. Domestic aviation fuel taxes would also increase by an amount equal to the carbon tax.

    Average assistance to households under the plan is forecast to offset the cost-of-living increases that will result as carbon-tax-paying polluters pass on costs to customers. This will form the cornerstone of Gillard’s defense of her Clean Energy Plan, which faces considerable public opposition.

    The carbon tax, should it be enacted, would land squarely on coal-fired power plants that produce 77 percent of the country’s electricity and iron and mineral mining companies that account for 35 percent of Australian exports.

    Uncover what stocks are likely to do well under the government’s compensation scheme by signing up for a risk-free trial subscription to Personal Finance.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Aug 04 1:14 PM | Link | Comment!
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