Market Notes: October 23, 2006

Dan Denning, from the Elwood hot-zone

--The earth moved for us last night in our St. Kilda redoubt.

--Alas, it was just an earthquake. We were reading “The Fatal Shore,” by Robert Hughes, about Australia’s founding when we heard what sounded like a loud explosion. Perhaps it is complacency, but we didn’t think much of it and went on reading a few more pages until we fell asleep. We were surprised to learn this morning it was an earthquake. If only markets gave the same kind of audible signals to let you know a change was coming…

--Who needs change when things are as good as they are in Australia right now? Provided you’re not a farmer, Australian output can barely keep up with demand growth. The strain to meet demand is what has the Aussie economy operating at near capacity and with tight labor markets. Chris Richardson from Access Economics calls it a “new golden age.” He writes that the current economic growth doesn’t guarantee that commodity prices have reached a permanently high plateau. “But it does guarantee a supercycle in commodities demand for decades to come—one that Australia will be selling into when we’re all dead.”

--Speaking for ourselves, we are more interested in the kind of markets we can profit from while we’re alive, but his point is well taken. The business investment boom in Australia which has driven this latest round of growth is strikingly different that the growth in U.K. and U.S. asset markets. It is, dare we say, the healthiest kind of growth you can have.

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