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Guest Post: The 2-Product, 2-Customer Wonder Called Australia

Tyler Durden's picture


Submitted by Alex Gloy of Lighthouse Investment Management

The 2-Product, 2-Customer Wonder Called Australia

Australia is the sixth-largest country (2.9m square miles) on earth, just a tad smaller than the contiguous United States (3.1m). They are a little short on people (22.8m), which comes handy, since they dig up their entire country and sell the dirt to China.

Australia has a remarkably low government dept-to-GDP ratio (29% ), low unemployment (5.2%), a moderate budget deficit (3.4% of GDP) and moderate inflation.

However, Australia has been running current account deficits of up to 6% of GDP for more than 50 years. The “mates”, until recently, didn’t like to save, hence most investment has to be financed by borrowing from foreigners.

I was curious as to how much of the success was due to exporting dirt to China. From the Australian Bureau of Statistics you get the following data about their top-10 export markets (accounting for 82% of all exports):

A bit more than half (50.2%) of all exports go to two countries: China and Japan. If you stripped out those two, there wouldn’t be much growth left.

The dependence on China and Japan has doubled over the last decade:

Over the last 12 months, total exports grew by A$ 35.6bn. Of that growth, 24.2bn, or 68%, came from China and Japan.

Let’s look at exports by product. Here are the top-10:

Two products (iron ore and coal) account for 47% of all exports.

Australia is a 2-product, 2-customer wonder. If either China or Japan has a problem, so does Australia.

To import a car (let’s say 2 tons, $30,000), Australia has to export 214 tonnes of iron ore or 248 tonnes of coal, leading to unfavorable the terms of trade.

As Scott Grannis recently pointed out, the Australian dollar trades far above its purchasing power parity:

Putting all eggs in one basket will come to haunt Australia once Japan and China collapse under the weight of their debt. A much lower Australian dollar would then be needed to make other goods attractive for exporting.


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Thu, 01/05/2012 - 14:09 | 2036123 lolmao500
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AP Source: GM to call back 8,000 Chevy Volts


OP you forgot also that the Australian real estate market is MENTAL!

Thu, 01/05/2012 - 14:16 | 2036151 Gully Foyle
Gully Foyle's picture

They ended RUSH because the tax credit only ran 65 episodes so fuck em.

Thu, 01/05/2012 - 14:16 | 2036153 StockProdigy
StockProdigy's picture

The exact reason I'm short Aussie Banks.

Thu, 01/05/2012 - 15:24 | 2036370 ihedgemyhedges
ihedgemyhedges's picture

by the way, they don't just export dirt.  they export Amanda Drury too......

Thu, 01/05/2012 - 14:11 | 2036131 kito
kito's picture

funny, china buys australian dirt, which is then used to help china sell us their crap..................

Thu, 01/05/2012 - 14:18 | 2036156 Ahmeexnal
Ahmeexnal's picture

which in turn is paid with worthless paper fiat....made from Amazon rain forest trees....chopped down to create open air gold mines....

Thu, 01/05/2012 - 14:25 | 2036177 kito
kito's picture

@ahmeexnal.....which are then used to extract gold which is then bought by central banks so they can store it and manipulate the price in order to maintain fiat supremacy????.................

Thu, 01/05/2012 - 15:43 | 2036464 Bluntly Put
Bluntly Put's picture

Thus proving that central planning is still subject to the power of a pencil.

I pencil.


Thu, 01/05/2012 - 14:35 | 2036158 Mercury
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Daniel Defoe sought to rectify a similar situation in 1728 with A Plan For English Commerce - arguing essentially that England shouldn't be exporting raw wool and importing finished woolen goods from foreign nations. 

If you want your nation to prosper he wrote, restrict the export of raw materials and subsidise domestic finished goods industries.  Un-free trade basically.

It worked.

Thu, 01/05/2012 - 14:35 | 2036219 Vengeance
Vengeance's picture

I've been arguing the same thing about many of Canada's exports for years! No one listens or cares... Sad really.

Thu, 01/05/2012 - 14:57 | 2036279 redpill
redpill's picture

Regardless I don't think Australia is going to run out of people to sell commodities to.  Of all the countries in the world to be worried about the future of, Australia not very high on my list.

Thu, 01/05/2012 - 15:06 | 2036302 Mercury
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But they might run low on commodities to sell and in any case the argument is that you can turn a bigger profit as the value-added manufacturer.

Thu, 01/05/2012 - 15:11 | 2036321 redpill
redpill's picture

Run low on commodities?  Do you realize how big Australia is?

Not arguing that they couldn't do better for themselves than sell off all their commodities, just that the implied thesis of the Post is that Australia is on the brink of collapse because of Japan and China's problems and I just don't see it.

Thu, 01/05/2012 - 15:20 | 2036359 Mercury
Mercury's picture

I suppose although surely the whole country isn't made of iron and they must have some environmentalists jumping up and down about mining.

In 1950 Saudi Arabia and S. Korea were pretty similar on paper. Half a century later S. Korea is much richer per-capita than Saudi despite Saudi's massive endowment of one key natural resource.  The difference (in a nutshell - MENA has lots of issues) is manufacturing.

Thu, 01/05/2012 - 18:40 | 2037293 kaiserhoff
kaiserhoff's picture

That's odd.  I didn't know "issues" meant total lack of a work ethic;)

Fri, 01/06/2012 - 06:13 | 2038344 Element
Element's picture

Environmentalists are like the Abos, we entertain their silly views and behaviours, plus give them far too much time and undue consideration simply because we can afford to do so.

The typical hard-working Aussie will gladly export them as woodchips if we can no longer afford their obstructionism and ignorant lies and propaganda.

And yes, great tracts of the country and what lies under really is made of iron and coal and a lot of almost everything else, except for deep fertile soils and abundant water supplies (the opposite of the US situation) hence a much smaller population will persist than on that other continents, or we'll get a local version of the Horn of Africa, eventually.

Consequently, Australia will remain a particularly rich country, as long as the population does not grow too large.

Thu, 01/05/2012 - 15:26 | 2036377 GeneMarchbanks
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It's on the brink because of a massive RE bubble and high household debt. The trigger is irrelevant. Concentration of risk is very high, fragility as Taleb says.

Australia = one trick pony with no back up plan.

Thu, 01/05/2012 - 16:24 | 2036639 Lord Koos
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Even in a worst-case scenario, Japan and China will remain huge markets for raw materials for some time.

Thu, 01/05/2012 - 16:32 | 2036670 GeneMarchbanks
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You're optimistic. Probably a side effect from living there. Japan is an island with nowhere to expand to and massive demographic problems. Best years for Australia are over.

Thu, 01/05/2012 - 17:32 | 2036995 fnord88
fnord88's picture

You are so right. When the shit hits the fan, who wants to be living somewhere with shit loads of food and energy. I mean the lights will be on, and bellies will be full, but nobody will have an ipad.

Thu, 01/05/2012 - 18:00 | 2037144 Squid-puppets a...
Squid-puppets a-go-go's picture

nup. When japan dies, India will fulfil the same role for Australia. We have customers waiting in line.

However, thats not to say we wont go to shit when Jap/china collapses. In the great depression America was as much a creditor to Europe as china is to America today. Did being a creditor spare the US from the worst of the depression?  Not on your life.

my point is that australia will hurt as much as anyone, but when the creditor nations come out of this thing (a decade ahead of america and europe), Australia is one of the few western nations that will bounce back with them.

When you see how small its government debt is, it has considerable capability, if invested wisely, to refurbish its economy 


that said, i totally dont deny the lack of wisdom of open market policy by which you export raw and import manufactured - you're never gonna win long term with that. So the trick for Australia in the post new depression is to restart its manufacturing industry and position its currency to affect that. Australia has not printed money like other countries - perhaps it should!

Thu, 01/05/2012 - 21:56 | 2037748 BigJim
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So exactly how does Australia "restart" its manufacturing industry?

Clearly, entrepreneurs don't think the return on capital worth their while, otherwise they'd be doing it. Oh! Wait! I get it! We''ll get the geniuses in the Aussie government to 'invest' other people's money on their pet projects... and then we can all stand around amazed as their projects fail.

Don't you guys ever learn?

Sat, 01/07/2012 - 03:18 | 2041756 Socratic Dog
Socratic Dog's picture

That is exactly what the plan is.  Little entrepreneurial ethos in Australia.  And with such a high aussie dollar, huge obstacles in the way.

Value added has been the plan for about 50 years.  Donald Horne wrote a well-known book in the '60s, I think it was, "The Lucky Country", saying basically what is being said here.

Saudi Arabia, or any other oil-rich basket case, is a fair comparison.

Sat, 01/07/2012 - 11:48 | 2042045 i-dog
i-dog's picture

How do you create a small business in Australia? Give an Aussie a large one, then wait....

Thu, 01/05/2012 - 15:19 | 2036356 mac768
mac768's picture

they are not a primary target of long range missiles from the "axis of evil" :)

Thu, 01/05/2012 - 15:29 | 2036388 GeneMarchbanks
GeneMarchbanks's picture

Neither is the US, unless of course, it is instigated by the Duo-Death Dragon of MIC + Moneychangers.

Thu, 01/05/2012 - 14:14 | 2036139 Vergeltung
Vergeltung's picture

my brother thinks the Australian Dollar is the answer to all things investment-wise. I should send him this article!

Thu, 01/05/2012 - 14:14 | 2036140 lemonobrien
lemonobrien's picture

hey, I buys lots of Perth Mint golds and silvers.

Thu, 01/05/2012 - 17:51 | 2037093 UnpatrioticHoarder
UnpatrioticHoarder's picture

When the above customers and commodities fall apart Australia will just pull another couple of aces out of its sleeve, those being gold (2nd largest producer) and silver (one of top 5 producers). Gold at $10,000 and silver at $500..... no wuckers mate.

Thu, 01/05/2012 - 17:55 | 2037124 fnord88
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Plus I read in the paper this morning we have the highest per capita marijuana consumption in the world. And we make excellent beer. Whether today is better than yesterday only matters if you can remember yesterday. 

Thu, 01/05/2012 - 20:15 | 2037537 TGR
TGR's picture

Plus the world's biggest legal opium poppy operation in Tasmania, over a million feral camels, kangaroos in the millions, an undergound aquifier of immense proportions and seafood in abundance from the relatively clean southern ocean - if the world goes mad max, I can think of 192 other countries which might be worse off.

Thu, 01/05/2012 - 21:59 | 2037754 BigJim
BigJim's picture

So can the Chinese. That's why they'll team up with the Indonesians, and invade.

Australia should get themselves some nukes now, while the US can still afford to be playground monitor.

Fri, 01/06/2012 - 00:20 | 2038052 TGR
TGR's picture

They won't team up given their systemic dislike for each other. If China ever thinks about expanding, it will go for Mongolia first, full of resources and right next door.


Fri, 01/06/2012 - 06:05 | 2038504 Element
Element's picture

Australia should get themselves some nukes now, while the US can still afford to be playground monitor.


Australia developed everything it needed to manufacture nukes prior to ratifying the NPT in 1973 --and the Aust govt of the day told Washington that it would not ratify the NPT until it had achieved the ability make nukes in future as a safeguard against the NPT's widely predicted eventual failure.

Here's some of the current public evidence of just one of the later advanced uraniaum enrichment programs;

I have zero doubts that the ADF can put a fully-developed weaponised and miniaturised light-weight HEU tactical munition on multiple weapon systems and platforms -- within 24 hours.

What people don't realise is that the NPT and CTBT did not in any way prevent any country from actually designing and developing functional advanced nuclear warheads. If you developed the tech to produce the HEU and other tech, before you ratified the NPT, you thus also have the materials needed to make a prefabricated but non-assembled arsenal of them.

The only thing the NPT and CTBT do prevent a country doing is fully assembling a functioning munition, and also testing a non-zero yield nuke, or from 'proliferating' the technology to another country (selling the tech, or weapons, or doing deals with it, but which in the case of SILEX, is basically exactly what Australia did, anyway, only it was the USA that got the Tech ... in some still undisclosed series of bi-lateral deals and agreements).

The NPT and CTBT actually provided zero means to prevent a country like Australia from using its pre-existing pre-NPT enrichment tech to enrich uranium to weapons-grades, and then secretly storing up a large national stockpile of HEU, and 50 or so prefabricated and machined HEU fissile cores.

Such cores only need to be placed in an already fully-prefabricated and zero-yield tested warhead design. Most people also don't realise that a HEU weapon does not have to be a heavy 'gun-type' design, they can also be miniaturised in a 2-D or 3-D implosive core configuration, to get a big-bang out of a very much more compact and light HEU munition.

Indeed, such designs are many times safer and also far less detectable than any Pu weapon, and they don't get hot and damaged via Pu decay, so last for decades in storage before requiring re-manufacture.

Thus you can get a nuclear-armed state popping-up in 24 hours or so.

And that is without doubt the existing potential with regard to Australia's status - Japan also.

SILEX was released publicly under a US commercial licence, after formal DOE testing, simply so that other country's would fully understand the real situation, if they ever got funny ideas.

It also informed the US that it couldn't regard Australia as a disposable strategic pawn or call all of the shots all of the time, without regard to our strategic priorities.

So far this has worked out well, with no further need to hint at a nuclear potential or capability.

I expect that as US power declines, as it inevitably will now, the mutual 'alliance' with Australia will necessarily grow stronger, not weaken.

So the US will not rock the boat here, in this regard, and is actually very likely to indirectly assist Australia to prepare an effective independent strategic defence capability. That's the real-politic of the emerging strategic environment in Asia as Asian demand for resources grows, and European NATO rifts and flops, and the US recedes to the Pacific Basin and North Atlantic basins.

Thu, 01/05/2012 - 14:14 | 2036144 Oztralian
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Thu, 01/05/2012 - 14:19 | 2036162 zenith191
zenith191's picture

That's "by jingo, by crikey" to you mate.

Thu, 01/05/2012 - 14:48 | 2036251 stopcpdotcom
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Thu, 01/05/2012 - 20:16 | 2037543 gilliganis
gilliganis's picture

'ken oath mate, too right!

Thu, 01/05/2012 - 14:17 | 2036155 Oh regional Indian
Oh regional Indian's picture

Coal and Ore. Karmically horrible. OZ is totally screwed anyways. They have had the most freak weather this past year. Draught and Floods in equal measure. Add the housing boom and a population that drinks just a tad too much and yuo have parent UK reflected through and through. Sports, Binge Drinking and hard jobs.

Sounds like a throwback to older, meaner times.



Thu, 01/05/2012 - 15:31 | 2036394 GeneMarchbanks
GeneMarchbanks's picture

I'm starting to believe the more a person is junked, the harsher the truth coming from their words, trolls aside.


Thu, 01/05/2012 - 22:11 | 2037775 fnord88
fnord88's picture

Because if I want to listen to people talk about the karma of coal and iron ore I will hang out with my hippie friends. Wonder what he things the Karma of his caste system is? 

Fri, 01/06/2012 - 05:01 | 2038513 PeaBird
PeaBird's picture

I have a sneaking suspicion that ORI is just pissed off (that means "sour grapes" to our american friends), that the Indians got slaughtered by the Australians in the Sydney cricket test...hahaha. BTW reading ORI's comments on Australia clearly shows that there is very little depth of knowledge regarding the subject matter in his comments. We have read & lived all of those cliches & platitudes regarding Australia what's new?

Regarding ORI's comments trashing those who drink alcohol...I would trust a man that drinks alcohol, over a man who does not, any day... People who don't drink alcohol take themselves too seriously. People who take themselves too seriously are dangerous to others. Also, you can't enjoy a drink with them after a day's competition...because they don't drink...and they probably take themselves too seriously to be seen drinking & talking BS with competition...and that sucks.

Thu, 01/05/2012 - 16:01 | 2036558 falun bong
falun bong's picture

I won't junk him, I'll just say I've lived here for 5 years and it's bloody f*cking marvelous. 5.3% unemployment, actual jobs available. Easy for my kids to find summer jobs. University for them will cost me about $1800 per year. I had a minor operation recently: superb care, cost me 1/10th of what it would in the USA (I checked). 4 proper weeks of annual vacation with no snivelling boss wondering where you are the day after Christmas. Employers required by law to put 10% of your pay in a separate account you own and can invest how you like. Best beaches in the world. Best fishing, diving, sailing, snorkeling in the world. Great restaurants and night life. F'ing gorgeous women.

Downside: property costs are very high, that's why i just sold and am renting. Stuff (washing machines etc) is very expensive. Rowdy bar fights, sure, but 1/4 the murder rate of the US.

Yes it's probably a two-trick pony but if you ask me the US is probably just 3-4 tricks maximum; 1. War; 2. Kardashians; 3. Financial "products" 4. Useless shit like Facebook. I'll take red dirt and black dirt anyday. OMFG they have enough to last a few lifetimes, a guy I know was in iron ore country, had a welding machine that tipped over and welded itself to the ground the ore was so rich. More mineral wealth per capita than Saudi Arabia by far. We packed up and left after Bush was appointed the second time, best decision we ever made.

Thu, 01/05/2012 - 21:04 | 2037641 myne
myne's picture

SHHHHH!!! ;)

a guy I know was in iron ore country, had a welding machine that tipped over and welded itself to the ground the ore was so rich.

Bahahahaa that's gotta be one of the most ridiculous things I've read in a while! Well... Aside from statements by US Republican candidates.

I can barely imagine it, but I can imagine the look on his face! Hahaha!


Fri, 01/06/2012 - 05:18 | 2038518 Element
Element's picture

I lived in the Pilbra for 18 months when boy, and drop a magnet in the dirt there and it literally comes up covered in a handfull of iron filings ... and that goes on for hundreds of kilometers. ... and thats the low grade stuff no one bothers to mine ... the high-grade stuff is up to 95% pure iron oxide.  Thunderstorms are fun when the ground and every hill is literally made out of conductive metals.

Thu, 01/05/2012 - 14:17 | 2036157 GoinFawr
GoinFawr's picture

"The 'civilised' keep alive the territorial war. Erase the race that claim the place and say we dig for ore. Or dangle devils in a bottle..." -Kate Bush

Thu, 01/05/2012 - 14:19 | 2036159 TheSilverJournal
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China is set to boom when the USD collapses. When China sends us their real goods that took real work and real resources to makes, the US sends them pieces of paper from a printing press that took no real work, no real resources to make. When China figures out that that they're really getting nothing back in exchange for their goods, and they stop exchanging their goods for nothing pieces of paper, they're economy will explode.

Thu, 01/05/2012 - 14:25 | 2036178 Oliver Jones
Oliver Jones's picture

It's not as simple as that.

China has been busy spending their American-issued paper, buying up large portions of the world - such as Africa.

Thu, 01/05/2012 - 14:31 | 2036201 TheSilverJournal
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They've also been busy buying US Treasuries and stashing them as Chinese Reserves. The problem is they can never spend those US denominated reserves or the USD will tank, so those reserves are essentially worthless to China. Savings that can never be spent are not savings at all.

So it is as simple as that when counting the dollars that are received from shipping goods to the US that are wasted on US Treasuries.

Fri, 01/06/2012 - 00:04 | 2038026 aminorex
aminorex's picture

China could not sell treasuries until QE, so they had to stockpile copper using current account surplus.  Now the fed keeps prices up via QE, so PRC can dump treasuries at will.

Thu, 01/05/2012 - 14:37 | 2036224 TheSilverJournal
TheSilverJournal's picture

If you want me to make it real simple, the world will be better off when it stops exchange its real goods, that took real work to make in exchange for US pieces of paper.

Fri, 01/06/2012 - 05:24 | 2038520 Element
Element's picture

They pull the same trick when we 'sell' them real, red, black and yellow gravel by the ship load.

Why take it? ... they only have to 'print' digits ... and the more Ben 'prints' ... the more they 'print'.

So they get it all for nothing and we agree to call it free trade.

And free it is.


A gold standard would not work so well .. for them ... me thinks.

Thu, 01/05/2012 - 14:23 | 2036164 hedgeless_horseman
hedgeless_horseman's picture



Australian for exports...


American for exports...


Which does China need more?

Thu, 01/05/2012 - 15:01 | 2036284 earleflorida
earleflorida's picture


mongolia, pakistan, and india via nepal is/are a win-win, no-barrier for a prudent, practical and highly skilled  diplomatic china

shipping just to high/timely for aussies in todays cut-corner world of common-trade commerce

spread the yuan's wealth to the wanting  neighborhood

Thu, 01/05/2012 - 15:26 | 2036375 xela2200
xela2200's picture

LOL Nice picture. Does the paper comes from Canada?

Thu, 01/05/2012 - 15:27 | 2036381 NuYawkFrankie
NuYawkFrankie's picture

Re 1st image:

So the Incas were in Australia too? Wow!

Thu, 01/05/2012 - 20:29 | 2037571 i-dog
i-dog's picture

They build inverted pyramids down-under.

Thu, 01/05/2012 - 14:22 | 2036167 Athena
Athena's picture

Hydroponics is the coming thing for Australia.

Thu, 01/05/2012 - 14:32 | 2036205 Kalevi
Kalevi's picture

Aquaponics mate.

Thu, 01/05/2012 - 15:28 | 2036385 xela2200
xela2200's picture

Not only for Australia. Since labor has been going up in agriculture because of immigration policies, it is giving hydroponics a boost here in the states. That and Pot of course.

Thu, 01/05/2012 - 17:11 | 2036872 delacroix
delacroix's picture

that first picture, looks like a temple complex, to honor the god mammon

Thu, 01/05/2012 - 14:34 | 2036203 Manthong
Manthong's picture

It's all over for them down under now.

"Inexpensive imports from Asia, coupled with a 55 percent jump in the local dollar since October 2008, are delivering a double dose of pain to one of Australia’s most iconic industries."

Thu, 01/05/2012 - 14:39 | 2036227 _underscore
_underscore's picture

I have extensive contacts with Oz & my over-riding impression is one of a nation being coddled by an abundance of natural resource & (relatively) low population, which leads to a somewhat unrealistic view of what 'fair value' is.  Their social entitlements (esp. for govt. & general public sector) remind me rather of cross between late 90s UK Labour 'boom time'  delusion & Sweden's 'cradle-to-grave' social benefit structures - both of which, now, have been re-modelled drastically, to reflect the more austere envrionment.

I'm not blaming anyone here - hey, who wouldn't if you had the dig-out-the-ground resource base they do, but the stats. above show how precarious that could be, or even, in extremis, what a rich, ripe plum Australia looks like to the teeming far east giants... The recent placement of US military assets in northern Austraila can't surely have been just ping-pong diplomacy.



Thu, 01/05/2012 - 14:51 | 2036266 Clam McCain
Clam McCain's picture

Glad im a rich aussie compared to the poor yanks!!

Thu, 01/05/2012 - 15:45 | 2036477 blu
blu's picture

Yup, we got nuth'n except banks. And like leeches banks will bleed you dry if you don't kill them fairly often.

Okay we also have nu-cu-lar weapons. Whatever that gets us. We have to wait from some maniac to bomb us first before we can use them, so the short answer is it doesn't get us much.

Fri, 01/06/2012 - 05:58 | 2038525 Element
Element's picture

The only reason Oz has not sunk like sub-prime amerika did is because our GDP per capita is almost 15% higher than the US's ... so our mortgage market had that much more financial rope to hang us with, so it takes longer, and that's why most house prices went up in 2009, and especially 2010.

That rope's slack is about used up now.

Thu, 01/05/2012 - 15:10 | 2036318 Hephasteus
Hephasteus's picture

Austraiia. It's southern hemisphere for Canada.

Japan is eastern hemisphere UK.

The symmetry is very LULz.

Thu, 01/05/2012 - 15:12 | 2036325 Jack Burton
Jack Burton's picture

Hard to guage the future for OZ, but this article presents an interesting point about OZ's two trick poney export economy. 

OZ is simply well placed to export to the Far East and blessed whith lots of what the big nations out there need. Coal, iron and food.

Play their cards right and OZ is well placed, but counting too much on a handful of exports is not playing smart. Use some of those export profits not to consume, but invest in industry that lots of money and high tech can make profitable, even in the face of cheap labor to the north. Simple to say I know, but that doesn't mean not to try. Simply consuming those profits leaves you exposed in a bad way to a China slowdown, or the great Japanese debt implosion.

Been out to OZ and I do love the place, a world unto itself, prosperous enough to be an attractive place to live, no doubt about it!

Thu, 01/05/2012 - 15:53 | 2036528 blu
blu's picture

'Tis an island. Will be as safe a place as any other in the world when the curtain goes down on the last 300 years of insane oil-lubricated growth.

And they speak English! Well very nearly.

I can see a lot of US "west coast" refugees ending up on the shores of OZ one day. In which case the migration from Europe will have gone another ocean further on is all, and taken 200 years to do it. And since Australians are English from the other direction the two masses will have met in the middle! What a muddle.

Hope they have some decent vineyards.

Thu, 01/05/2012 - 16:50 | 2036756 Onohymagin
Onohymagin's picture

"Hope they have some decent vineyards."

Yup. We do.

Thu, 01/05/2012 - 16:55 | 2036778 ForTheWorld
ForTheWorld's picture

We have some VERY nice vineyards (and breweries too). The Hunter Valley in NSW is producing some of the best reds and whites in the world.

Thu, 01/05/2012 - 21:17 | 2037658 smiler03
smiler03's picture

Here in the UK we drink more Australian wine than French or American wine. 

Fri, 01/06/2012 - 05:40 | 2038534 Element
Element's picture

One thing you notice about any actual Aussie manufactured goods (if you can find some) is that the ones that are made here are damn good quality, and last for ages. And are recognised as such, else they would never survive in a market of 'cheap' Asian rip-offs and endless under-cutting.  Our remaining manufacturers only survive because most Asian stuff is over-priced (even though very cheap!) totally unreliable shit that doesn't last, and it may injure you in most unexpected ways.

(unless it comes from Japan - which is top-notch gear)

Thu, 01/05/2012 - 15:33 | 2036406 Grinder74
Grinder74's picture

Australia? Is that where they speak Austrian?

Thu, 01/05/2012 - 16:51 | 2036738 Dugald
Dugald's picture

Not Austrian you clot....its called "Strine" its what the "cobbers" do to the English language....much like the  mess Americans make of it in fact.

ie, Alooooominum, levur, al...


Thu, 01/05/2012 - 20:34 | 2037587 i-dog
i-dog's picture

Considering the variety of unintelligible regional "English" accents in the UK, that's a bit rich. kettle.

Thu, 01/05/2012 - 21:18 | 2037662 smiler03
smiler03's picture

Don't forget Glaswegian, its Scottish. Complete gibberish, specially when they're drunk, which is most of the time.

Thu, 01/05/2012 - 15:46 | 2036488 Scalaris
Scalaris's picture


I caught an interview with Australia's finance minister, Penny Wong, earlier in December in Bloomberg, touting Australia's safe and increasingly growing economy, based on growing Chinese demand.

While "official data" show an increase in economic growth, derived mainly by Australia's mining states, Western Australia and Queensland which hold up the domestic economy.

Oil and Mining supermajors are increasing their exposure in Australia's commodity boom, based solely on Chinese expansion, while being cautious due to exchange rates increase caused by the stronger Aussie dollar.

Large capital inflows are influencing further the domestic political scheme in the form of government opposition for labor's carbon tax and shale extraction and hydraulic fracturing moratorium's which contribute to further cost pressure. Queensland's next month election will test the 23 years of almost unbroken Labor rule there, along with putting pressure on Green's momentum.

As said above, Australia's main economic driver is Chinese demand, hence the substantial investment in coal & ore extraction and LNG projects, and considering the abnormally steep demand increase from 2005 and thereafter, one should wonder about the effect of a Chinese manufacturing stagnation, since many assume that China's growth will be perpetual, while others see a bubble ready to burst.
Links regarding Chinese economic growth
  1. China Debts Dwarf Official Data With Too-Big-to-Finish Alarm
  2. Chinese provincial debt reaching crisis point
  3. China will go slow for longer, but a hard landing is unlikely
  4. Chinese Real Estate Market Slows
  5. Why The Wheels Are Falling Off China's Boom
  6. China's conundrum of liquidity, inflation and structural deficiencies
  7. China manufacturing, investment hurt by global crises
  8. China's Growth
  9. Will China Break?
  10. Jim Rogers vs Marc Faber: Faber Cautious On China; Rogers Bullish On All Commodities
  11. China's factories feel EU slump
  12. China PMI: A Landing, But Soft Or Hard?


Thu, 01/05/2012 - 16:55 | 2036784 banz
banz's picture

Hi guys, public accountant in OZ, heres the reality;


70% of my small business clients are really struggling financially, DIP in property

prices have killed the ability of many to refi their homes.

Our reserve bank is dropping interest rates and will continue to do so, the number of

people 3 months+ in arrears is growing.

Our tax office is owed 30 billion dollars+ by small/med business, 1/3 of my clients

are behind in their tax payment from anywhere between $5000 - $50000.

We have inflation, and its more like 7 - 8%. its killing us, food and energy in partic.

Retail is mostly dead, they say people are saving, thats bullshit, people just dont have

any money. Inflation has taken their weeky surplus.

If not for the mining sector we would be in recession, effectively more than half

the country already is. Job losses are starting to occur.

Real estate is just about fucked, supply is over whelming and I would suggest

that prices have dipped about 10% from 2008, by the end of this year I am predicting

that to be 20%.

The pain is here, and this year its going to get a lot worse.

Thu, 01/05/2012 - 17:10 | 2036860 blu
blu's picture

An accountant would certainly know. Thanks for that report from the trenches. And good luck/skill to your clients.

Thu, 01/05/2012 - 17:38 | 2037025 lolaus
lolaus's picture

Well said Mate. I am also an accountant but work for a company and have been telling our staff to sell 'investment properties'. girl bought three houses and redraws eveymonth from the loan to pay bills....



Thu, 01/05/2012 - 18:17 | 2037203 gezza65
gezza65's picture

I'm also in public practice and I would agree with banz's assessment.

Our clients probably aren't as in bad shape but none are doing that well either, it's all very so so.  The most telling sign is creditor payments.  The majority of our clients are finding that getting paid is taking longer and requires more work.

The residential property market lost any correlation to real incomes and is thus starting to correct.  I think over supply is relative to particular areas though i.e. inner city Melbourne, Gold Coast etc.

Even Perth has taken a hit, we have clients who have taken a hit on investment properties there as well.





Thu, 01/05/2012 - 18:30 | 2037257 banz
banz's picture

Hey Gezza, am located in Tas and at times we can tend to lead in terms of indicaters.

Its a horror show here, the last year is starting to remind me of 1987.

As you would understand we do have some, difficulties to contend with which

are not necessarily the case in other states, but I see little or NO good news here.

Our State Government is pretty much broke, our RBF super scheme is an out and out

Ponzi, as per state reporting requirements they dont even have to report how

much its under funded by. Its Billions, with a substantial amount invested in...the property market.

My wife got her RBF retirement projections a month ago, 750k, sure, like thats going to be

avaliable in 15 years. We promptly cut her personal contribution level.

The real issue is we are turning into a services economy. Meh, if I didnt own my practice I

would be outa here.


Fri, 01/06/2012 - 06:31 | 2038562 BigDuke6
BigDuke6's picture

Calm down, laddie.

Tassie will be fine, with global warming the new barossa.

You think anywhere western is better?   Maybe Argentina or Chile for your kids but for you its australia all the way.

if it really kicks off its a defensible island where many boats will want to come.

Tasmania...  oz is an indefensible island.

Fri, 01/06/2012 - 05:51 | 2038536 Element
Element's picture

Good summary ... 2012 is going to be recession and stagnation for sure.

The Govt will of course dole out more stimulus direct payments, and offer indexed mortgage relief payments etc., to take the edge off inflation and unemployment growth as interest and AUD fall, and this will run up the public debt, justified in an effort to stave off a much more problematic and un-affordable big bank collapse.

And this will most likely 'work' for a few more years, and will be declared wise and clever financial goverance.

Welcome to the 'miracle' economic buoyancy of Australia, in 2013.

Thu, 01/05/2012 - 17:41 | 2037045 UnpatrioticHoarder
UnpatrioticHoarder's picture

Hey is Lighthouse Investment Management upset about this article, I am assuming so because none of the above pictures linked from their website are displaying.

Thu, 01/05/2012 - 17:51 | 2037095 Bazza McKenzie
Bazza McKenzie's picture

A rather half-assed analysis.  Got a few things right but missed the big picture.  Perhaps a surprise to the author but before the current boom in iron ore and coal (and natural gas) we weren't all dumb hicks bouncing around on kangaroos.

Per capita, Australia exports more education (secondary and tertiary) than any other country, the US included, and many of the young Indians and Chinese who come to study in Australia ultimately stay. So its substantial immigrant inflow is skewed to young, intelligent, educated as well as affluent.  Rather different to the pattern of the US.

It has a large tourism industry, manufactures cars and other products for internal consumption.  But its core business now is agriculture, minerals and service exports to Asia, of which of course China just happens to be the biggest market.

Of course Australia is being hit by the global downturn and it will be hit even more as the China boom slows.  But does anyone seriously believe the rest of the world won't also be suffering and the exporters of manufactured products, like the US and Germany won't be taking a big hit.

Does anyone seriously doubt Asia is going to continue to grow faster over the next decade than Europe and the US?  It has a lot of building to do and there will be continued increase in its energy consumption.  And Australia is where much of the supply will come from.

The current decade is going to be tough all around, but where Australia will be hitting some big potholes, many other countries will be going off the cliff.

Thu, 01/05/2012 - 20:25 | 2037559 gilliganis
gilliganis's picture

Don't you mean 'half-arsed', Bazza?

Thu, 01/05/2012 - 18:14 | 2037184 hannah
hannah's picture

aussies carry personal debt loads that make americans look like frugal savers. everyone has a house they cant afford along with paying outrageous prices for items like cars. is FREE...right....everyone gets free healthcare and no one has to pay....?....where did i hear that before?

aussies and the gov are levered up and just like ll businesses, if sales drop by 1% they are fuc.ked.

it is funny how people try and make out like any of the first world countries are dissimilar?...they are all alike. they all have bubbles and massive debt and are screwed...

Fri, 01/06/2012 - 05:56 | 2038546 Element
Element's picture

Yes, but not quite, not all have low NET public debt levels, not all are pushing on a string yet, and not all have several gigantic captive customers who definitely will be coming back for more.

Fri, 01/06/2012 - 12:10 | 2039387 hannah
hannah's picture



Sat, 01/07/2012 - 07:58 | 2041870 Element
Element's picture

er ... ok ... Australia and Australia and ... oh yeah ... Australia again.

Just where the fuck did you think I was talking about?

Thu, 01/05/2012 - 18:25 | 2037239 Poor Grogman
Poor Grogman's picture

Remember bernaks "great moderation"?

That's exactly where Australia is.

Next comes the "Minsky moment"

Thu, 01/05/2012 - 20:32 | 2037581 archiehicox
archiehicox's picture

Not by chance a Steve Keen fan with the Minksy reference ;)

Im on the gold coast.  Real estate is suffering but turnover appears to have picked up and at a lower pricepoint. In the most expensive real estate markets houses previously 6mil have been turned over for half that.  >2mil homes are at least off $500k.  There has been a massive exodus of trades as the new home/development boom has crashed, the M1 to Brisbane everyday is a line of utes seeking trade jobs in Bne.  GC stats on development approvals are down to 10% of 2007 levels.

I watched the AUD/USD drop from 93c to something like 57c in 2 weeks when the crash in 2008 happened so Mr Market can speak volumes with rapid capital flows. Ive worryingly hedged by buying a chunk of USD one the way up to parity on the basis that this might well happen again.  Retests of risk off times do suggest the capital flows will repeat that process in a short term window.

Aussie stocks down 14.5% for the year I think.  My self funded retiree inlaws lost a bunch in the 2008 + era, havent recovered, largely went into property instead.  Their income stream from their investements isnt holding any longer and they are eroding capital to live.  Banks not lending like they used to. LVRs much lower than the prior 110% (now about 80%).  Mortgagee in posession is a popular sign.  Down under, your mortgage is inescapable without bankruptcy and you will struggle getting any credit for anything after that - no handing back the keys and thanks for all the fish here!

Office/commercial property oversupply is large, "Incentives" to lease abound, rates are falling or at best flat.  Anecdotally Im seeing a lot of shops closing up and it feels like 08/09 in that sense.  Everywhere has sales.  The recent xmas season saw deep discounting. 

Ive been trying to find out which aussie banks dont have derivatives exposure and rely less on offshore funding - ? bendigo bank is about it - but its a devil in another suit as an absent reliance on offshore wholesale funding = strong reliance on domestic funding and heavy real estate exposure.

Gold bitchez? yes I got a little, but its still a bit fringy to hold physical here and im too conservative to go all in on it.

There is definitely a "2 speed" economy here with mining booming again and the rest of the country struggling.  Im thinking US property is the best value asset to get into a little.  I cannot bear to go into property here!  Ive been thinking about getting a mortgage just to shore up capital access downstream should I want to go on a buying spree when things get deeply discounted.  As Harry Dent says, a crash should bring the biggest economic firesale of our lifetimes.

I also cant be arsed earning any more money as 50c of every dollar I earn goes to the parasitic government.  Whats the point of working harder?

Thu, 01/05/2012 - 21:19 | 2037665 Poor Grogman
Poor Grogman's picture

Australians have been sold the fairytale of never ending rising property prices, pushed into indebtedness by the greedy Government and Banks

Almost every middle class Aussie is "All in" on at least one mortgage.

The cracks are starting to show now although the mining boom is helping the cash flow situation. If that stops, look out below....

Good time to step aside and be nimble.

Good luck old mate...

Fri, 01/06/2012 - 02:23 | 2038254 Patrick Donnelly
Patrick Donnelly's picture

50%!!!!!! That is as bad as THE USA!!!!!

Pardon me while I weep for ya! I suppose you consume no government services? 


I am happy that you are so well off that you do not need to work to keep 50% of what you earn!


Spend some of what you have kept! Invest in a Ponzi scheme. they'll take 100%!

Thu, 01/05/2012 - 20:33 | 2037583 archiehicox
archiehicox's picture

oops double save

Thu, 01/05/2012 - 21:05 | 2037638 OzCynic
OzCynic's picture

As this article notes, the Australian economy is a two-trick pony. China is stockpiling huge amounts of the two things we sell them: coal and iron ore. When the Chinese want to "stick it" to Australia, they will Just Stop Buying It. I wonder what will happen to our mining companies then?

The big action in Australia will start in February, when our biggest broadcaster, Channel 9, suddenly admits the obvious: it is broke and cannot pay the 80 banks it owes bilions to:

When Channel Nine falls over (it's unlikely to restructure it's debt) it will trigger a media-lead recession in Australia. The Chinese buyers have left our property market and they were the only thing holding the Australian property market up. I give it about a month before that feeds through and then watch the falls. 30% price reductions are a conservative estimate. In former mining communities, we'll see a 95% drop in house prices and mass unemployment.

The government told the banks to expect this before the New Year and this was very well covered in the Australian media:

Never believe anything until it's been officially denied:

Note: this is denied by one of the banks ordered to do the stress test, not the regulator ordering the stress test - methinks the banks doeth protest too much. 

The huge debt our idiotic mining companies have taken on to do the massive expansions we've seen in the last few years will suddenly be exposed as the stupidity it really is and investors will take flight.

Our marvellous Australian Carbon Tax turns out to be worth not $23 or $24 or $25 per tonne but is really around $85 per tonne due to the way the tax compounds at each stage. Most of our electricity is generated via coal-fired power stations. The coal company pays the carbon tax because they are selling the coal; then passes that cost to their customers. The electricity company then pays the carbon tax plus the increased cost of their fuel (the coal price plus the tax passed on by the coal companies) and passes that all on (compounding it). The electrical distribution (retail) company then pays the carbon tax plus the increased cost of electricity (thus they pay the carbon tax three times over). I am unable to work out if the retailer also pays the tax on the tax on the tax. I am also unsure if the carbon tax is charged on a percentage basis or on a dollars-per-tonne basis. I think it's only dollars-per-tonne (at least from all the press releases it is).

Guess who pays the whole lot? You got it, the end consumer. The so-called "compensation" for the carbon tax will actually be revenue-negative so the Australia government will pay out more in compensation for the carbon tax than they will get in, in revenue.

Um, can someone please explain to me how all that works? 

Our manufacturing sector has been massacred since 1980. The US has seen a drop of about 70% in the manufacturing sector; Australia has seen a drop of well over 90%. So, every time we need to build stuff we have to buy it from (you guessed it) China. Isn't that nice of them? 

Our military is waking up to the fact that the Joint Strike Fighter will likely never be seen in Australian skies after spending billions on it. In the mean time our Australian military has descended into a sort of joke - we have a set of diesel submarines known as the Collins Class (named after the first one, HMAS Collins). 

The first three cannot go to sea as they are unseaworthy. The ones that can go to sea are so noisy (due to hull design) they have been described as the least stealthy subs ever built. The periscope is put at what's called a "node point" of maximum harmonic vibration in the hull. So it shakes too much to actually see anything through it. Thanks to the Howard government buying the wrong torpedoes (they were two inches too long for the torpedo tubes so the doors could not be closed behind them if they were loaded) the subs had to have the torpedo tubes redesigned. The  re-designed torpedo tubes made the subs front-heavy. The propellor shaft has a seal to stop the ocean coming in. It leaks. The maximum leak was supposed to be 10 litres per hour. The seals actually leak at 1,000 litres per minute.

Collins class submarine

We scrapped the only planes (the F1-11's - old but reliable) that had enough range and speed to fly all the way from our air-bases to those who would like to attack us, carry enough weapons to do some damage and actually get back without dropping into the sea when the fuel runs out. We have air-borne refuelling capacities, but the air-borne fuel tankers cannot carry enough spare fuel for the fighter-jet escorts plus refuelling the returning "bomber" (well, fighter-bombers).

Our army's tanks, bought in a rush-of-enthusiasm by the Howard government, turn out to be too heavy to safely cross our road bridges and are so thirsty, we could not afford to keep up fuel to them.

We are SCREWED. Economically, financially, socially, militarily. (edited to correct spelling)

Fri, 01/06/2012 - 02:14 | 2038246 Patrick Donnelly
Patrick Donnelly's picture

You wrote too fast and did not think it through?

Investors will leave. But the minerals and mines will remain. They can then be bought for less than cost by Australians? You appear to confuse finance with investment as you are taught to do, by western khazar dominated media.


9 will fail because not for the first time, Packer sold it to an -- investor --. Someone who loaded up what he bought with debt. This is illegal in most sensible jurisdictions, but trapping -- investors -- such as he is an Aussie specialty! We stopped this happening to Qantas? Then Packer will buy it back for less than he received and all will be well again! 

Fri, 01/06/2012 - 02:19 | 2038250 Patrick Donnelly
Patrick Donnelly's picture

Good point about the arms we bought, did not know the details before, well said!

We need an indigenous arms industry then! Manufacturing will benefit greatly as drones and robots become more important in warfare and policing. Big subs are too expensive! For coastal defence we just need emplacements offshore under water, unmanned?

Fri, 01/06/2012 - 08:17 | 2038589 Element
Element's picture

As this article notes, the Australian economy is a two-trick pony. China is stockpiling huge amounts of the two things we sell them: coal and iron ore. When the Chinese want to "stick it" to Australia, they will Just Stop Buying It. I wonder what will happen to our mining companies then?


Australian mining companies are not so dumb, they learned very valuable lessons in 2008 and 2009, namely;

1) Be able to downsize and upsize fast (they did that last time).

2) When your customer is going broke be able to supply any amount of high-grade ore more cheaply than anyone else can, and be able to deliver it very reliably (did that last time too).

3) Make sure your debt is lower than competitors (they learned that lesson in 2008 also).

4) Make sure you have lots of cash (done!)


As a result there's no country that can compete against big miners here.

China is only doing what they must to buffer price swings, so to provide the input price certainties they need to operate the way they are set up for.  Naturally this requires an ability to keep ther big miners here from gouging them out with short-term spikes and cycles. But in the end the Chinese must buy and must pay us their fiat trinkets.

You might logically think our big  and small miners are just blindly over-developing supply capacities at a time when demand may plummet sharply (and it most probably will) but what they're also doing in the process is ensuring that when a customer is skint, and necessarily looking for real bargains these Australian miners can then take market share off competitors via always being able to sell lower than anyone else, for a superior bulk product and supply in any quantity. If you've ever run a business you know how important and valuable a first-rate supplier is. So there had to be production expansions to take up added demand from any out-pricing of major competitors. They have to be able to deliver in that circumstance.

And we saw that very process in effect during mid and late 2009, when production had to expand rapidly to account for unexpectedly strong demand. Frankly, our mining industry could hardly be in a better position for a global depression and a deflationary price/quality/supply competition.

It will be Canada and Brazil that may have big problems in that regard.


As for the F-111s they have been outmoded dinosaurs for a long time. The only advantage they had for the past 25 years has been a dedicated deep strike role, and range, combined with the 2000lb class 150 km stand-off range version of the Israeli AGM-142 strike missile variant, that performed the terminal attack at Mach 5.0, and was virtually impossible to jam or shoot down, before striking. It was a killer combination.

The original F/A-18A and B hornets were designated Fighter Attack aircraft, but originally they never had the weapon mix, nor the un-refuelled range to compete with F-111s for strike missions. But this changed dramatically as our 707s were converted to tankers and new MRRT tankers were purchased, and massive upgrades to weapons and sensors and comms occurred.  Now those original Hornets are networked and have much longer ranges and have devastating precision stand-off weapons that can reach a much higher radius, almost as deep as the F-111 could, with much greater precision effects, and in much higher numbers, and with a stellar self-defence capacity.

I would also point out that only a fraction of the targets that would need to be hit are at maximum range, anyway, and that the weapon precision now does not decrease as the range does. The F-111s could never get near the battle effects and force these upgraded legacy Hornets can now generate.

Then there are the new Superhornets, that can out range both with more efficient engines, a larger internal fuel fraction, larger external fuel loads, new and actual high-performance tanker support (and the F-111 never had ANY of that) and a 400km range 2000lb class precision-guided stealth cruise missile.  The F-111s at no time came close to the performance, roles, capabilities, self-defence, sensors comms, network potential, early warning, real-time tactical displays, and weapon striking power, penetration, precision and weapon diversity of these superhornets, that have replaced the F-111s. 

It also seems very likely that a further 24 Superhornets will be procured if there are any more slipages in F-35A delivery and initial operational service date.

Don't be fooled by the endless disinformation crap from Carlo Kopp and "Airpower Australia" etal in one of your links.

I have wondered if he's actually being paid by Canberra to make the RAAF seem a more innocuous and lower capability force than it is capable of.  The more I think about that plus the assorted crap he comes out with about the F-111s and the legacy Hornets and Superhornets and the F-35A, the more I'm inclined toward the view and conclusion that he is, because what he says clearly could not be any more misleading and outright false--and it's evidently quite deliberate.  Kopp just keeps doing it year after year. You end up having to ask yourself why that is? When he's so clearly and obviously wrong, in almost every major significant analytical respect?  I was forced to conclude that Kopp's Airpower Australia and its cohort of dissenting former senior RAAF flight officers, squadron leaders and engineer commentators are probably a RAAF dys-info operation.

It's obvious they're demonstrably wrong.

And when viewed in that light it's a pretty damn clever ruse, and very effective ... problem is ... I may have 'outed' it.

Thu, 01/05/2012 - 21:27 | 2037680 hz
hz's picture


Another Aussie here... Our level of private debt is ridiculously out of control hence our central banks u-turn on rates in response to the weak spending (despite all the rhetoric they were spewing out only a few months ago about how well-placed we are). Poeple are MAXXED out on credit over here. They'd love to cut rates more and debase our currency but price inflation (in Keynsian terms) is already getting out of control over here.

> "Real estate is just about fucked, supply is over whelming and I would suggest that prices have dipped about 10% from 2008"

Come on, prices are still higher than they were in 2008 (can speak for Melbourne there). They probably peaked in 2010 or early 2011, but they are STILL higher in nominal terms than they were in 2008. Inner-city places that were selling for 400s are still selling for 500/600s (as much as it pains me to admit).How much it will drop from here, who knows (hopefully a lot more).

For our American friends, it's insane over here as you get tax deductions on *investment* properties and not on the place you live in (I believe it's the opposite in the States, which actually makes sense). So in this messed-up scenario, people are better off renting out their mortgaged property than actually trying to live in one for its original purpose (ie shelter)!

Thu, 01/05/2012 - 23:50 | 2037999 banz
banz's picture

disagree on property values, some locations have held well but on avaerage there is a drop.


There are people out there who can't sell dont forget, as soon as they HAVE to sell, the pain begins.

Fri, 01/06/2012 - 02:04 | 2038231 Patrick Donnelly
Patrick Donnelly's picture

Yes. But it won't be as bad as America, nor Ireland!

Fri, 01/06/2012 - 02:08 | 2038237 Patrick Donnelly
Patrick Donnelly's picture

If the government gave a subsidy apart from CGT exemption, on occupiers, then prices would be even higher? Think things through?


The US allows deductions for investments too, but perhaps not against a different source of income like wages as we do in Australia! 

Thu, 01/05/2012 - 21:30 | 2037691 Zoran
Zoran's picture

A dramatic drop in Chinese asset values would shake confidence in China's economic vitality and it would open debate about whether or not the Australian economy is over-leveraged to China (it is). Excess leverage is what made the property bubble aftermath so devastating for Japan, America and Ireland. There's a great discussion here ( ) about the Chinese economic bubble and it's potential impact on the global economy. Several months ago, Chinese "expert" Nick Lardy dismissed worries about what he called the "so-called property bubble" - this was during a conference held at Peterson Institute in Washington DC. However, he now conceded that says a real estate downturn may cause a significant in China, and this is an opinion shared by many other mainstream economic analysts. So what changed his opinion? I would suggest a dawning realisation that most of the massive Chinese stimulus, lending and spending during 2009/10 just ended up in property purchases, which drove real estate prices in an alarming and totally unsustainable manner. Also, a realisation that China's economic system frequently produces bubbles, and that's not very likely to change in the near future!

Fri, 01/06/2012 - 01:33 | 2038168 Peter Pan
Peter Pan's picture

Has anyone mentioned the Australian reliance on Asian students and Asians buying real estate ? A Mercedes dealer in Sydney also told me that 70 percent of Mercs sold are sold to Chinese buyers. Australia will well and truly shit itself if China decides to screw her.

Fri, 01/06/2012 - 02:02 | 2038226 Patrick Donnelly
Patrick Donnelly's picture

They will transfer as much wealth as they can, from China, when that happens! Australia gains again! 

China will not decide to screw Australia, as we compete with Brazil and Russia to send them waht they are over paying for? Trade, not resentment, rules our relations. 

Fri, 01/06/2012 - 01:59 | 2038219 Patrick Donnelly
Patrick Donnelly's picture

A retired Irishman, living in Brisbane on foreign, euro, public service pension. I am also sanguine about prospects in Australia.

For those who care about truth and quantification in economics, read Steve Keen. He is a genius!


But, even he has been wrong for some time about the timing of a property fall, despite Aus property being the least affordable in the world. Most houses are owned outright, with about one third partly or wholly mortgaged. We are a nation of city dwellers, with 90% of the population less than 50 kms from a beach! Property reversals are common here. Land has been over taxed as emigration was putting colossal loads on development. It is now being curtailed and taxes reduced somewhat on land. Interest rates were never as stupid as in USA or UK. Retail mortgage rates bottomed at 6% and fixed terms are still uncommon. At one stage, decades agao, rates were 16%! On admittedly lower capital values, it nonetheless encourages caution! As does the non recourse nature of lending, even if secured. 

As you may have gathered from my hasty words, the main problem is infrastructure in a country that is adding up to 300,000 people a year, 0.7% from migration and nearly 2% from babies, with $5000 on birth! Infrastructure is key, but not as important as in China....  We have slow railroads, ports that cannot handle all the exports and roads and rail that suffer from floods. We could export anoither 20% minerals if we had the capacity to do so. Half the worlds dry capacity is moored off Australia waiting to be loaded up! 

We will join in the --devalue our currency --chorus eventually, but migrants actually bring wealth to us! We cream off the best and in some cases, bilk them for education fees first! We refuse to consider growing to more than 50Mn people, so that will mean even more curtailed immigration.... Our age structure means that jobs to employables is increasing and will do so fo another twenty years. This will alter with more impact from what we call the GFC.

The Aussie government did print money in the 1930s with the Snowy River Project and may have to do so again with other, larger projects, of which there is no shortage! We can grow 5 times more food than we do, by irrigating the North which gets 80 inches, two metres of rain annually. But we won't. We do not wish to. We have reached a consensus with those who were here before the Europeans.  We export more than we eat or feed to ourselves,camels and goats etc in the outback.

Many Chinese are able to consider leaving their home country and want to live in Australia or Canada. They are inesting too much at the moment. Tourist numbers are capped by the Han but have recently doubled!

We pay our students to study! We also charge them less than the real cost and give them state loans to cover!

The Indonesians are welcome to come, lovely people, as the crocodile population is bounded only by lack of food. Hope they send their murderous soldiers and corrupt police first?

Strategically, you, dear reader, may have noticed some recent fuss over smallpox vaccines.... Blame Australia! We reverse engineered the virus years ago. Therefore stocks of the vaccine were not destroyed! WE will use it if threatened by China or India.

No one else threatens us, though we cordially detest septics and their pathetic attempts to engage us and the Indons in an arms race! We are willing to allow the USA as many bases as they wish..... but please stop killing or removing our prime ministers, as it causes resentment of the USA? Think we don't notice?

We have the largest reserves of all minerals in the world of everything, bar platinum group metals, absolutely in most cases, but certainly per capita of population. Sure, we will dig it all up, if you pay us enough? We destroyed the British coal miner! Thatcher was just the manager who had to sack them. She did a great job! Who is next?

The carbon tax is stupid, but we can afford it for a while until it is obvious that the warming scam is just that!

Keep on taking in millions of immigrants America, we are an island, surrounded by sea going crocodiles and large sharks with a taste for refugees! 

Fri, 01/06/2012 - 02:37 | 2038268 jonjon831983
jonjon831983's picture

I've kinda wondered.  Canada and Australia are relatively similar in that their dominant industries are mining.  Both rely on big neighbors for trade... yet I've read stories about Canadian pension funds buying into Australian real estate... It's almost like a double down.

Fri, 01/06/2012 - 03:59 | 2038337 Element
Element's picture

Maybe they concluded that's 'safer' than being reliant on a US recovery?  ... even if you lose 50% ... you still got that 50% remainder.

Fri, 01/06/2012 - 03:57 | 2038335 Element
Element's picture

One thing to remember also is that when the bubbles have all collapsed, and the housing market is gutted, and retail falls off a cliff, and the banks collapse ... there will still be an underlaying and ever-growing secular demand for Australian commodities, from Asia.  I seriously doubt Japan and China are prepared to go backwards in lifestyles, and will do all they can to maintain the gains they have made, as will India, and ASEAN.

No mattter what else occurs, Asia will still need bulk raw material, and more of it over time, even factoring in a transient trade and financial collapse vomit session.

It means the Australian collapse will have a foreseeable bottom, and that growth will return here faster, and more readily than elsewhere, and the currency is more likely to retain strength after an initial sharp plummet.

Personally it won't bother me much at all if the medium-term GDP per capita, falls back to around where it was when I was growing up.

Fri, 01/06/2012 - 04:22 | 2038355 suanye
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Fri, 01/06/2012 - 06:48 | 2038571 BigDuke6
BigDuke6's picture

Great to have an aussie pow wow.

All i can say is they have been predicting a china hard landing for over 10 years now and it looks like they've started with oz.

We'll be in for it but not for a while yet.

Sat, 01/07/2012 - 08:12 | 2041877 Element
Element's picture

The thing I have come to realise about China BD, is that even if they burn the middle class and quell demand with debt obligations, they can still recruit another aspirant middle-class of borrowers faster than any other country on Earth.

In other words, demand will fluctuate wildly (soon) but will rise again steadily thereafter.

I could be totally wrong, but I think its a fairly safe bet, for the medium term (if peak-oil etc does not derail all in the interim).

But we're also entering a phase where geopolitics may suddenly trump any economic trends, or expectation, and demolish any investment.

This seems the far greater hazard to me than Chinese property bubble pop and major banking sector collapse and renovation.

Fri, 01/06/2012 - 07:46 | 2038601 whereisthefuture
whereisthefuture's picture

For those of you who live in Australia, do me a favour and just drive around this weekend.

Go to an industrial area, (Taren Point, Marrickville, etc.) and just look at every second commercial property for lease or for sale. Now think to yourself, not only is this shit for the landlord, but what about all the people who used to work there?

Go down near the Sydney Airport, and have a look at the masses of vacant buildings.

If you are from Adelaide, drive down Green Hill Road and see that every third building is for lease/sale and then some don't even have a sign but you can tell nonone is in there...

Wake up. We are no different. We have huge debts. These days people spend almost 50% of there income on their accomodation...

What I don't understand is that some people always say, but we have a property shortage! COMEON, HOW FUCKING BIG IS AUSTRALIA? LOOK AT ALL THE FUCKING LAND. Ample room.

High Australia Dollar has reduced tourists.We are getting a lot of Chinese tourists, but they don't really do much for many towns throughout Australia because they just usually want to take photos in the expensive buildings/tourist attractions.

Now finally, it is too culturally diverse. Previously Australia was like off the movies, typical Australian mate. Now the Australia's are most likely to speak Mandarin or Arabic. No joke. Do you think this will last? When things get tough do you think the current cohesion will begin to turn into friction?

Anyway, I think Australia is going to be raped in the short term, but it is still far far better off than the USA/some European Countries/ most Asian countries.


Fri, 01/06/2012 - 21:04 | 2041270 falun bong
falun bong's picture

OK, yes, and no. A few factors:

1. Coal demand for power stations across Asia is quite inelastic, neither China, Indonesia, Japan, or India will let the lights go out anytime soon

2. Ask any realtor whether demand from Chinese buyers remains strong: it does. China's RE bubble makes Australia look like a sideshow. Hong Kong, Shanghai, and Beijing buyers are happy to buy an apartment in a country where you can actually breathe the air, drink the water, and eat the food. Especially Hong Kongers. They have an air quality alert system that goes from 0-100, last time I was there it registered 400 (not kidding). Kids all have asthma and can't do any sports. Those parents and grandparents are not dumb.

3. Yes real estate is in a huge and collapsing bubble...that's why i'm a happy renter.

4. Yes Australia will be hit hard by the global slowdown...just not as hard as most other places

5. Did I mention the beautiful women?

6. Australia has a real central banker, not a stooge. OK I think central bankers are all criminals but at least Australia's has not pushed insane ZIRP. Bank CDs pay 6% which keeps some money in the hands of savers and retirees. Duh!

7. Local banks still reliant on too much overseas funding. But check out their credit ratings. A real regulatory regime has prevented them turning into giant casinos fer chrissakes.

8. AUD is a carry trade currency subject to investment flows, when risk is on it costs $1.00, when it's off it costs $0.60. I think the next round of "risk off" takes it to around $0.82 and I'll buy with both fists.

Sat, 01/07/2012 - 00:42 | 2041634 hz
hz's picture

> 6. Australia has a real central banker, not a stooge. OK I think central bankers are all criminals but at least Australia's has not pushed insane ZIRP. Bank CDs pay 6% which keeps some money in the hands of savers and retirees. Duh!

I share your views there except that the the CDs are taxed so heavily in this country it's an absolute joke whilst people are incentivised to sepculate thanks to CGT exemptions/negative gearing etc. Savers who actually work as well are  completely discouraged from saving. Thanks to K Rudd for the tax-exemption up to 1k of interest he introduced post-GFC along with the bullshit, understated CPI figures they put out stealing what's left of those savings... The Keynesian "paradox of thrift" argument that the politicians believe in are proof of what they want (ie 'it's OK for a few save, but too many saving is bad for the economy').

Sat, 01/07/2012 - 08:08 | 2041876 chump666
chump666's picture

australia has the worst stock market in that region...2nd?  China.  Hedge funds will short China through Australia.  Their housing bubble is eye bleeding...2nd?  Canada. China strips 1% of growth....short Australia and Canada.

Sat, 01/07/2012 - 22:09 | 2043051 Nexus789
Nexus789's picture



Australia has vast resources of raw materials. If demand falls it stays in the ground.

The issue highlighted by the charts is one where the long run mining resources boom has squeezed out other productive activities (manufacturing, agriculture, etc) and individual wealth is increasingly an illusion build on debt finance (housing bubble) imported by the banks - Australia's private debt is 160%+ of GDP. Public privation - poor public infrastructure is the flip side of massive private debt.

Costello and Swan are not great Treasurers as all they have presided over is the largest increase in private debt in history. None of them wants to be around when it all turns nasty hence Rudd's stupid home buyers subsidy.

This is 'Dutch Disease' writ large as the high Australian Dollar and resources have collapsed investment in other productive sectors. It will be really painful for Australia as China and Japan slow down and raw materials exports collapse - this is inevitable. This would be a classic 'Seneca effect'* - 'where decline is faster than growth'. The housing sector has risen over 127% during this cycle. I would suggest that with a collapse in exports housing values could crash - 60%+ as reduced activity feeds through to a rapid rise in bankruptcies, home repossessions, job losses, all the debt is linked together.

*Seneca wrote - "increases are of sluggish growth, but the way to ruin is rapid"



Wed, 01/18/2012 - 18:55 | 2076136 kelpie-capital
kelpie-capital's picture

Great chart! Wish I'd seen it before I wrote my Short AUD thesis

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