All Posts Tagged With: "china"

Another week in Australia without a new government. Not bad for a Monday. The current Prime Minister is set to meet with three so-called independent members of Parliament to discuss forming a minority government. This gives us a chance to correct an error we made awhile back.”Every election is a sort of advance auction sale of stolen goods,” wrote HL Mencken. We misattributed that quote to Mark Twain, another great American wit.

It’s a given that increases in household wealth support higher consumer spending. For one, when people see their share portfolios or housing investments go up, they are, in fact, richer on paper. This may give them more disposable income to actually spend. Or maybe they just feel richer and spend more freely (the wealth effect).But one thing we recall seeing at the peak of the U.S. housing bubble is a massive increase in borrowing against home equity.

Can you be a world dominating company when there’s inherently cyclicality and volatility in the underlying price of the commodity you produce? Or even more simply can commodity stocks be world dominators? If you accept the premise that you’re investing in a great transitional period in history where, generally speaking, standards of living are falling in the West and rising in the East, what Australian companies (if any) are in the best spot to dominate (or at least profit) from this trend?

Uranium prices appear to be bottoming, as China buys major supplies from Cameco (NYSE:CCJ). On June 24, China agreed to buy more than 10,000 tons of uranium oxide – yellowcake – over 10 years from Cameco. According to Thomas Neff, a physicist and uranium industry analyst, China is buying unprecedented amounts of uranium.

China’s General Administration of Customs reports that the nation’s exports hit a record and June and generated a big trade surplus. Exports were up 43.9% year-over-year, while imports were up 34%. The $22.84 billion surplus gives China more money to buy U.S. bonds, if it so chooses. But the alarming statistic, from an Australian perspective, is that imports of iron ore and copper were down for the third straight month.

Now, back to the business of business. And yesterday on Wall Street, business was good! The Dow rallied by nearly three percent and so did the S&P 500. For one day at least, investors decided to price stocks for a recovery instead of a recession. The very positive retail sales figures helped.

What we both agree on is that no one knows what will happen. Your editor believes that the Austrian theory of the business cycle has both explanatory and predictive power when it comes to figuring out what has to happen at the end of a leveraged asset boom. But it is true – from meat pies to the platypus (both reptile AND mammal!) and in many other ways-Australia is exceptional.

One is that debt is no longer productive in boosting living standards. When it was, households were happy to borrow and so were businesses. But each addition dollar of new debt taken on in the economy is producing less and less real growth. Indeed, each additional dollar taken on is going, at least part of it, to service previously borrowed money.