Think like a tycoon! Just think about the practical needs emerging industrial economies have, and there you will find investment opportunities. Simple is usually better.
It is nearly impossible to predict what the world’s monetary affairs will look like in five years, much less fifty. It is a giant game of Stratego or Risk in which the large players are central banks, hedge funds, sovereign wealth funds, banks, pension funds and other market players. We will leave the Grand Strategy to the grand money shufflers.
If you think like a tycoon, it comes down to simple questions. Where can you make the most money for the least risk? That is a much easier question to answer than what the next global monetary system will be. The most money? It’s hard to do better than resource stocks, especially in WA.
As for risk, we expect Australia to enjoy a growing premium simply because it’s Australia and not Africa. Not that we have anything against Africa. But one of Australia’s advantages in the global mineral grab is the stability of the political system. It is possible that foreign perception of Australia could change with a Labor government. But really, no one is going to mistake Kevin Rudd for Robert Mugabe.
So if Australia does not have political risk to weigh against its resource wealth, what is the biggest remaining risk? Rising interest rates? Perhaps. But we suspect rising energy costs are more of a worry to cashed-up mining firms than rising borrowing costs.
What about labour shortages? Last week, Peter Costello worried out loud that Australia might run out of workers. Hmm. There are plenty of bloggers, financial planners, and analysts we know that have a healthy pair of hands that could be put to better use. But his point is well taken.
For example, today’s paper reports that Rio Tinto (ASX: RIO) would like to add another 100 million tonnes of capacity to its Pilbara iron ore operations. This ramps up expansion plans by 50%. The firm wants to be producing 320 million tonnes by 2009.
How will that happen? Rio has the capital. Australia has the iron ore. But what about labour and capital goods?
Ah, thinking like a tycoon, we come back to mining services. For capacity build outs to happen in Australia, a whole new generation of small firms are going to have to quickly expand to meet demand. And remember, Australia also imports a lot of capital goods-the machinery and equipment that makes the Big Dig possible.
The Daily Reckoning Australia