Boom Time Australia
If you’re not already, it’s time to get excited about stocks.
The market hit a three-month high yesterday.
And we can now see that Prime Minister Malcolm Turnbull is prepared to splash the cash across the country.
The PM was in Victoria recently, promising funding for a Melbourne Airport rail link.
Then he jetted to Western Australia, promising to splurge hundreds of millions of dollars on health and transport projects.
And now he’s sweet-talking Queenslanders…
The Australian Financial Review reports that the federal government will fund half of an $800 million upgrade on the Sunshine Coast. It’s part of a $2 billion package for Queensland.
There’s plenty of building going on in Australia right now…and there’s going to be plenty more in the future…
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The first government in years looking forward to budget night
The PM can get away with this — and still deliver modest tax cuts — because the government’s revenues are smashing previous expectations.
Part of this is related to the ongoing strength in commodity prices, which looks very bullish for Australia.
We can thank China and Japan for much of this, although for different reasons.
China is actively trying to reduce its reliance on coal in order to clean up its appalling pollution.
It’s still a heavy coal user, but even this shift has sent its imports of LNG up strongly. It’s now the second highest importer in the world after Japan. This is sending Australia’s LNG exports booming.
But the bigger surprise might be Japan. Its demand for coal is growing strongly again as it bucks the worldwide trend away from coal burning in developed countries.
This demand is not going anywhere anytime soon. Science Magazine reports that the Japanese government expects coal to provide 26% of Japan’s electricity even in 2030.
At one point, the country wanted to slash that figure to 10%. Instead, 36 new coal-fired power plants are on the way — just to prove the point.
This is partly what’s keeping the price of thermal coal higher than the Australian Treasury previously forecast. And coking coal is even stronger against the previous price estimate in December.
The longer these prices stay strong, the more excited you should be about the market’s future. The more revenue that pours into mining companies, the more the Aussie market will heat up…
Watch for a re-rating on this stock
One company seeing the benefits of this is BHP Billiton Ltd [ASX:BHP].
Higher oil prices are coming at the right time for the company. It’s no secret that BHP wants to sell its shale assets in the United States. The higher that oil goes, the better the valuation it can ask for.
And don’t forget the productivity improvements put in place by some of the miners recently…
Fortescue Metals, Rio Tinto, BHP and Gina Rinehart’s Roy Hill mine all have autonomous trucks working to some degree, and with more to come. Expect to see in the future a ‘truck’ with no cabin at all. It might just be a tray on wheels.
Meanwhile, accounting giant KPMG has a new head of mining, Trevor Hart. He was featured in The Australian yesterday forecasting that miners were in for good growth.
But it’s not just from higher prices and increased production that miners will benefit. Soon they’ll have much better ideas on how to put all the data they generate to work. That’s going to make them even more efficient than they are now.
For example, the Wall Street Journal reports that big oil companies are using supercomputers to produce fossil fuels more cheaply and easily. There’ll be less wasted investment in wells that fail or have limited potential.
By way of example, the expansion of the Tengiz oilfield in Kazakhstan is due to open in 2022. It will have a million sensors feeding data to the cloud that can be analysed.
The outlook for the Aussie dollar could be stronger than you think
A strong commodity sector could see international capital flow back into Australian stocks and the Aussie dollar in a big way. As far as the rest of the world is concerned, we’re a commodity play.
Now, the Aussie dollar is off the boil at the moment. But I’m not convinced it will stay that way.
For now, I can’t help but wonder if everything I’ve mentioned above will begin to drive inflationary pressure in the economy.
One Western Australian mining company noted recently that labour was harder to find because of the infrastructure boom on the eastern seaboard.
Now we have PM Turnbull writing cheques for more projects, as well as miners becoming cashed up and ready to expand production if they can find the right projects. Don’t forget too that the Northern Territory is going to lift the ban on gas development.
This potent mix makes me think employment will stay strong; we might even see some of the hard-hit mining towns recover from their bad real estate losses.
We’ll have to see on that. But everything I see says the game plan remains the same: Accumulate as much of the best shares as you can before the market really begins to move.
Editor, The Daily Reckoning Australia