Down And Out In Down Under

Tyler Durden's picture

For all the talk China's economic problems are getting (and yes, its official PMI came just slightly ahead of expectations on Saturday printing at 50.8 with consensus looking for 50.0: after all the Politburo can't give the impression of an out of control stall), the real action continues to unfold in its primary derivative economy, that of Australia, and particularly its "China-feeder" resource space, which is a far more accurate indicator of the true demand picture in China than manipulated data out of Beijing.  What is going on there, for those who have not been paying attention, is in one word, a disaster.

CLSA's Damien Kestel summarizes, "As noted in recent weeks it has been happy days for investors enjoying the highs on the S&P 500 and associated rallies across Germany, the UK, Japan and elsewhere. But that joy is a world away from the pain that has been inflicted on the majority of resource related equities and their investors. The AS39 Index on Bloomberg includes 87 mid and (now) small cap Australian resource companies. It has been smashed – just like many of its constituents. From early 2011 it has fallen >65% to now sit at GFC levels while there are plenty of examples of stocks that not so long ago had mkt caps of $800m that are now $50m. The evidence of pain in the resources space is everywhere but probably none more so than in Western Australia, the “engine room of Australia”.

Kestel goes on to compile a page of quotes from "conversations over the past week with friends and associates in the Perth mining game and it brought back memories of the Asian Crisis, Tech bust and of course the GFC."

  • “We’re seeing a much sharper contraction in the Australian economy than we’d anticipated four or five months ago”. Coffey MD, John Douglas. The engineering group has seen its shares, which traded above $4 in 2007, hit 10c last week.
     
  • “We’ve still got a lot of construction under way or committed and there’s a lot of activity that will go on for the next three years or so. I think where the question mark comes in my mind is, well, what will follow those projects?”. Western Australia’s Premier, Colin Barnett
     
  • “Perth has the highest population per capita of self made millionaires in the world”. Extract from a list of fun facts on Western Australia. I dare say there are a few less after the recent carnage in mining stocks.
     
  • The current feeling on St George’s Terrace (Perth’s main business street) amongst brokers and miners is that today is worse than the GFC ever was. It’s 100% pain out there” Perth mining investor
     
  • “I was at the Mines and Money conference in Hong Kong recently. They should really call it Mines and No-Money because no one has any and no one wants to give it to them” Mining CEO
     
  • “By 10am, the Fitness First gym in the city is packed full of brokers who’ve had a gutful of sitting at their desk doing nothing – salary cuts are starting and next it will be jobs” Perth broker
     
  • “Oh mate, the funding market is dead. You are now seeing a few deeply discounted rights issues for those that are reaching desperate levels ….. liquidity has completely disappeared” Perth broker
     
  • “Private equity firms are gearing up for a multi-billion-dollar push into the mining sector, with a wave of proposed asset sales by the big miners, a shortage of competing buyers and the funding headaches faced by smaller companies paving the way for a rise in deals”. The Australian

So, bargain-basement purchasing opportunity, or just the beginning of a secular shift and much more pain to come, as the China "paradigm" finally cracks?

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geminiRX's picture

I think this is bargain basement pricing....demand for resources will always be there. Reminds me of the call zerohedge made on BP during the gulf oil disaster. Anyone who bought BP at the time did nicely. 

kliguy38's picture

thank god someone of your stature brought that "breaking news" to our attention on this thread.....now get back in your mommies basement before she spanks you.

Herd Redirection Committee's picture

The superrich scooping up assets for pennies on the dollar.  Same as it ever was.  

I am not saying the US-China lovefest will continue, just that the world will find ways to grow again, if the current limiting factors are reduced.

One of the top things plaguing the world economy...  Is the excessive concentration of wealth.  On top of that, that wealth was for the most part acquired illegally.  But really, if you smuggle drugs, and then earn interest on that money, was the interest acquired legally? Any way, I postulate the wealth inequality of the 21st century is more stark than EVEN FEUDAL TIMES.

Dr Benway's picture

You think this is "bargain basement pricing", gemini? Because they have the word "resources" in their name, and "resources" are good? Lol, great analysis. You should move to Australia and become a stock shill, you would fit right in.

 

First off, these companies don't actually produce any resources or profits, and never will. They exist by issuing shares at inflated prices to the gullible. Every couple of years insiders ramp the share price, and with stunning regularity this sucks in the next round of moron investors.

 

Secondly, as their share prices have plummeted, prices have become easier to control. These formerly-midcap-currently-penny-stocks are even more manipulated now than before, with prices thus certainly not in bargain basement territory, especially considering many of them having a true value of zero.

 

For more information about fraud in the Australian market:

http://s1144.photobucket.com/user/_DrBenway/library/?sort=6&page=1

JPM Hater001's picture

Meh- on our way back happening here in America but visit India or china and the disparity jumps by leaps and bounds.

And in feudal times 1 knights word was better than 6 peasants.

Now we have video...

aint no fortunate son's picture

screw the penny stock miners in Perth - here's a (formerly) big US company with a lot of interests in Australia - Cliffs - symbol CLF - check out their 3 year chart:

http://stockcharts.com/h-sc/ui?s=CLF&p=D&yr=3&mn=0&dy=0&id=p94070729405

"...The company also operates two iron ore mines in eastern Canada that primarily provide iron ore to steel producers in Asia; and two iron ore mining complexes in Western Australia. In addition, it holds a 45% economic interest in a coking and thermal coal mine located in Queensland, Australia;"

Yah some of that is met coal problems in the US but a lot is China...

Herd Redirection Committee's picture

Its tough, who is poorer, an Indian who is debt-free living on $3 a day, or an American, with underwater mortgage, $44,000 in credit card debt, just lost their job, etc.  

But the point is, I am talking on the global scale.  There has never been a bigger gap between the avg. person and the megawealthy ($1 billion +)

GMadScientist's picture

Start examining the right axes; is the American's high-stress environment better than the Indian's risk of say a Cholera outbreak and which has better access to the coping mechanisms to survive each?

You don't think there were "log scale" differences between Croesus and your average Lydian or Emperor/Pope/Duke what-his-name and the ones fighting the battles?

Something the megawealthy (all 400 of them LOL) should be thinking about... http://en.wikipedia.org/wiki/Gy%C3%B6rgy_D%C3%B3zsa

Herd Redirection Committee's picture

I honestly think if you compare the wealth of a peasant who owned 1 cow, 2 goats, and 5 chickens, to his medieval ruler, the current wealth disparity between peasants and lords would be greater.

mkkby's picture

Then you should stop thinking because it hurts anyone in the vicinity. 

Even the poor in the US are richer than the 50% of the world living on less than $5 a day.  Compare someone on welfare to someone drinking filthy water and foraging in land fills.  Go live in India or Africa and report back.  Your perspective from watching TV makes this the fuck tard comment of the year.

greatbeard's picture

>> Even the poor in the US are richer than the 50% of the world living on less than $5 a day.

And that has what relevance to the issue of wealth disparity in the US?

Oldwood's picture

And why do you care what someone else has as long as you have what you need? Wealth disparity is a issue designed to divide. You cannot realistically compare someone of three hundred years ago with today. Most people were barely scatching an existence out and lived half as long as today, and few "owned" anything. While it is questionable what we "own" now days given taxation and debt, but I really don't think there is much comparison relative to idividual wealth. Now freedom, now thats a different discussion.

greatbeard's picture

>> And why do you care what someone else has as long as you have what you need?

It has to do with a level playing field and how the super wealthy got and maintain super weaalthy status.  I'm a  human equality kind of guy.  I'm supposing you're more of an Animal Farm type?  And who are you to judge what I need?  What do the super wealthy need? Our economy is hamstrung by the concentration of wealth and our governments hauling water for the greedy sons of bitches.

>> Now freedom, now thats a different discussion.

Are you so naive as to presume I, and folks like myself, have the same freedoms as the super wealthy.  I can tell you, we don't, and it's because of their mostly ill gotten gains that gives them freedom and takes mine. 

So now, off to carry water for your masters.

Buck Johnson's picture

I totally agree.  The smaller companies and financial houses there aren't able to compete with the downturn and so the mines will be taken by the bigger and more diverse companies.  Don't get me wrong, the bigger ones will have trouble also but what they will have is time on their side so when or if they have to liquidate to another they have assets.  Where the smaller ones can't. 

 

Also it will be worse than the feudal times, in fact I like to callit Neo-Feudal.  Where the rich will have more access to power and control and will get what they want and the rest of us will sell out mother out to get some droppings from their table.

geminiRX's picture

Words from a true hypocrite likely....

mick68's picture

I'm in Canada and we're the resource basin for the US. Same deal, Obama can spout all th rhetoric he likes about a recovery but we're taking the orders. And it's no different than the China/Aussie story. Anyone who says different doesn't know the facts or these days, is probably just another liar.

hardcleareye's picture

So what exactly are you seeing for order changes?  What resource industry are you in?  It is hard to find data that has not be mulitpulated by TPTB or Lame stream Media....  I think that the Governement of Canada produces more "franken numbers" than the USA......

I have been expecting to see this "bleed" though, wonder when it will show up in the Globe and Mail etc...

kaiserhoff's picture

What idiot can down vote an honest request for information?

Now that we have a speech code like the rest of the parasite media, international communication is about all ZH has left to offer.  Hell, yes.  Details please.

Room 101's picture

The reason for the down vote was the reference to "frankennumbers" which is of course a sexist slur against lesbians living in small cities of western Bulgaria. 

The term is probably a violation of the swiss politically correct and inoffensive speech code that we now have to operate under.  Tyler explained it a few weeks ago.  Something about the swiss getting so upset at ZH that they stopped counting their raubgold for a few minutes and told us how we need to talk nice about preferred social, religious, and ethnic groups. Or something like that...   

greatbeard's picture

>> Anyone who bought BP at the time did nicely.

 

Count this squashed gold bug as one who seriously considered doing just such a thing, should have, wished he had.  Problem is I'm a self made millionaire in the rear view mirror and one step away from homeless looking forward.

mick68's picture

Bought paper gold did you? Then you deserve your fate. If you own physical you've lost nothing. 

ElvisDog's picture

Exactly. Gold (physical) is an insurance policy, a retirement and/or emergency fund if you will.

greatbeard's picture

>> Bought paper gold did you?

Speaking of things you know nothing of makes you look very foolish to those that have the knowledge. 

>> Then you deserve your fate.

You don't have any idea what my fate is so you certainly couldn't judge whether I deserve it or not.

>> If you own physical you've lost nothing.

Monitarily that's got to be one of the most idiotic positions I see spouted.  You wouldn't happed to know anyone buying physical for $1,900 per oz, would you?  Is your position that the folks who held Enron stock lost nothing?

You seem to be a mindless follower, mouthing the gold bug platitudes that TFMetals if rife with. 

Richard Chesler's picture

where women glow and men plunder.

OpenThePodBayDoorHAL's picture

Damn they do glow down here. I've lived here six years after stints in Paris, NYC, and San Francisco, with side trips to places like Milan and Bangkok. They had a program here in the 1950's called "Beautiful Balts" where they encouraged people from Baltic nations (Finland etc) to move to Australia. You see them and their daughters in the supermarket, I can't decide which are more heart-stopping, the leggy 19-year old daughters, or the MILF-y Mom straight outta the fantasy book. Damn.

Dareconomics's picture

The lack of Chinese demand for Australia's natural resources is driving down the value of the Aussie.  You can add that dynamic to the anecdotes above.

 

http://dareconomics.wordpress.com/2013/06/01/around-the-globe-06-01-2013/

JOYFUL's picture

That the lack of demand for Australian(or pretty much any other western commodity suppliers)natural resources can be attributed to a completed program of stockpiling - whereby the Chinese intend to be fully prepared for the Great Reset... wherein the six months or so following the complete collapse of the western ponzi scheme and attendant collapse of global demand have been correctly anticipated as a slack time - after which, being along with Rus and several resource-rich formerly 'third world' powers the last man standing....

the Chinks will forge ahead with the game plan which has already guaranteed their ascendance in the coming shift to a gold-based trade regimen which has been long predicted and anticipated by certain beyond-fringe blogistas but is apparently outside the ken of the collective brain trust of what purports to be the ...."alternative media" ....

important new signalling the arrive of which is 3.2.1 ....ooops...ZH hits the snooze button ... one more time!

earleflorida's picture

gosh,... your good reading JOYFUL

again, nice follow through...

thanks  :-))

disabledvet's picture

what the fuck are you talking about?

hardcleareye's picture

"There's just one thing Dude, do you have to use so many cuss words?"  The Stranger, Big Lebowski

Pure Evil's picture

Gold based trade with China?

Who in their right mind is gonna want to trade their gold for the majority of crap coming out of China?

What do the Chinese have: adulterated and/or highly polluted food products, crap electronics, crap textiles, and other manufactured products that contain dangerous chemicals, i.e., lead in toys, toxic pet treats, etc., the list is endless.

If the Chinese had practically endless barrels of oil instead of cheap labor, then you'd have something to talk about.

Why do people seem to think China is gonna come out of this smelling like a rose.

China has a lot of internal political dissension and the Communists will be fighting tooth and nail to maintain control when the great reset happens. Why else are they hoarding except with the hope of placating their own internal populations.

I bet we see a new Chinese civil war before we see a new Chinese dragon rising.

Middle_Finger_Market's picture

You missed the key phrase above: ''the Great Reset''. Not much will survive of the current fiat system, we are entering a world where commodities trade commodities. The Chinese produce all sorts of shit, but that eceonomy whether by chance or vision has propelled them into a world superpower capable of hoarding the large majorities of the worlds resources. Is this check mate...beware the yellow man. 

11b40's picture

No, he did not miss the point of the great reset.  No one knows if, when, or how any such reset is coming.  And if/when one happens, no one has a clue as to the outcome.  The Chinese better well stock pile, as they simply don't have enough natural resources within their borders to take care of their population, let alone save the world in a new melinnium.

Any great new reset is very likely to involve big-time protectionism as the workers of the Western world awaken and make their voices heard against the multi-national cartels that have been selling us all down the river for 4 decades.  Then see what hapens to the economic miracle of China.....

Their system is one of predatory mercantilism, and sooner or later, everyone else is going to get tired of.  It sure did not take Korea long to tire of Japan's QE.

laomei's picture

As I mentioned below, yep China's got resources, but it's kinda stupid to rush in and exploit them all when there are far better options on the table.  Many of those resources are untapped and undeclared.  China's got plenty of uranium, yet, China looks overseas to buy it up.  China's got some massive untapped oil fields, but there's absolutely zero reason in the world to tap them right now.  When you have tons of foreign capital sitting there, what the hell's the point of it?  When there are countries with oil that are sick of the US bullshit (wherein they sell oil for USD and then are compelled to dump said USD into US T-bills and piss it away on useless crap).  Nope, trade that oil for something far more valuable... actual, real, sustainable development that will help transition the economy away from reliance on oil.... a thing that the west NEVER wanted to happen.

 

Doubt me? Go talk with some of the few foreign China veterans in the industry here, not the ones sitting at a desk, but the ones in the field helping exploration of resources.  So much gets found all the time, and it's hushed up.  In the end all resources are property of the state and all major exploration concerns are state-owned, state-controlled, and that's that.  There's a lot of "peak" everything on the horizon in the not-so-distant future.  So what you do is stockpile and accumulate the foreign resources, while generally concealing the domestic (save that for later).  On the fringe parts of the country, yes, you announce those large finds, but insular? You shut the fuck up about it.  You don't declare it, you don't document it, you leave it entirely off the books and bury the area in red tape to keep it quiet.  This is what happens all the time.

 

Say for example, China goes fully declared and opts for full exploitation of domestic reserves.  China's energy needs are met in full and it'll be that way for a decent length of time. 

  • When there are shifts in energy policy/usage/strategy, you have a lot of fighting to do and interests to placate
  • You have to worry about all jobs from top to bottom
  • You have to worry about environment even more
  • You have to worry even more about energy prices
  • You derive no international benefit, you simply become a hermit kingdom that needs nothing from the outside
  • When resources start to REALLY matter, you're used up and at the whims of the rest of the world

It makes perfect sense if you bother to think about it, and when anyone (like me) tries to explain it, they can be dismissed with the sheets saying that said resources don't exist.  Even better, when China goes around buying up energy companies in the outside world, there's less scrutiny... the reaction is "poor china, obviously they are trying to secure what they need, they are so weak and have no energy".  When in reality, what China is doing is getting cheap energy and placing all the burden on foreign countries for it.   And in the meantime, you are making more nations RELIANT on China for their damned economy... which encourages greater opening up to China.

 

g speed's picture

you wouldn't trade gold for a GM chinee "Buick" ????  --er Cadillac that is???

mkkby's picture

@pure evil -- who in their right mind will buy chink products?

You will, dumb ass.  All of us will.  In case you slept through the last 30 years, almost all manufacturing has been shifted there.  Yes, a lot of it is dishonest crap, but most isn't. 

They already won the future because we begged them to take most of our productive capacity.

laomei's picture

Said it before, saying it again.  China actually does manufacture some top-grade stuff.  Where the disparity comes into play is that factories only produce what is demanded of them by importers, and importers are greedy bastards who are looking for essentially free money.  There are countless products out there that you can buy wholesale for $5 which get a new brand name slapped on them, thrown into a pretty box, and presto, it's $100 plus tax.  Of course, then they press the factory to make it for less and less, while at the same time the actual cost is going up.  Corners get cut, and the importing nation ignores the fact that they are being scammed by the importer, nope, bitch at China.

 

This is why you are seeing such an influx of Chinese brands now.  That's where the money is, they can cut out the middleman, sell for a reasonable price and make quality that doesn't get bitched about.  Of course, this is taking money out of the pockets of the crooks, so they jack up the fear about Chinese manufacturing.  In the end, ya get what is paid for, not what you are paying for though.  There is TONS of great stuff here as long as you are able to pay for it

 

As for oil in China, there's more than they're willing to admit or announce.  There's no point, all it would do is deplete reserves faster.  The current game plan is to trade development for oil, development means new markets.  Simple as that really.  China learned this lesson long long long ago already.  Going too insular makes for bad relations and no power or say.  Same goes with non-perishable staple farming.  It's nice but pays shit, the weather is finiky, the harvest can be unreliable.  Go cash crop and trade for the unmet needs.  When there's a downturn in the economy, you only have to worry about factory orders, not the mines too and all the other labor involved.   Let that be someone else's worry... when it's their economy on the line, you'll suddenly find yourself surrounded with new friends who really don't want to see you fail.

 

And that's how you hedge your economy.. you don't try to take the whole pie, just the good parts.

joego1's picture

when you are feeding a billon people you have a lot of stock pilling to do.

macholatte's picture

 

whereby the Chinese intend to be fully prepared for the Great Reset...

 

WWIII .... bloodless:

take over Oceania, just buy it

take over Africa, just buy it

take over a government, just buy it

 

 

The Capitalists will sell us the rope with which we will hang them.

Vladimir Lenin

 

PT's picture

Re:  "The Capitalists will sell us the rope with which we will hang them."  So true.  Even blind Freddy can see it is happening right now. 

These days I also like to say, "Capitalism is two blokes holding knives at each other's throat and complaining, 'But I have my knife at the other guy's throat, why am I bleeding?'"

Totentänzerlied's picture

You give the comMaonists too much credit. Can they print oil?

JOYFUL's picture

Why bother printing oil when you can use that 2 trillion or so in Treasury paper to buy oil refiners and the fleet to send it home in?

4 cryin out loud: do people still have no idea just how much firepower the Chinese have to spend on offshore investment?

InvalidID's picture

 

 I think you're missing a key component here. Come the 'great reset' as it's being called, that 2 trillion in TBills will be worth less than the ink that printed it. Who the fuck will buy it if the dollars dead?

 

 As for real firepower... The Chinese might have some reserves but I would bet a years salery it's not nearly as much as we think/they say. Moreover, they'll be spending it to keep thier own country together if the global economy collapses. A billion angry, unemployed, hungery mother fuckers... That's gonna take some real 'firepower' to deal with.

mkkby's picture

Well, I wouldn't want your miserable salery or even cellery.  The chinese people don't have many guns, and they will be slaughtered like insects if they revolt. 

Yes, china has a history of revolution, but those were battles of the elites jockeying for positions of power.  Try turning off the TV and learning something other than how well stars dance.

11b40's picture

You have no idea what ou are talking about.  There are violent protests in China virtually every week about one thing or another, and the government has great fear of a peasants revolt, or major factory strikes that spread.