Our Country’s Luck Continues – What’s Keeping Australia from Recession?

Our Country’s Luck Continues – What’s Keeping Australia from Recession?

Where is the recession?’ a colleague asked me yesterday.

I mean, official data on the Aussie economy is miserable, as I wrote yesterday.

Yet that hasn’t shown up in stocks.

The S&P/ASX200 is still bobbing along near all-time highs.

And gross domestic product hasn’t actually gone backwards…yet.

So what is keeping Australia out of a recession?

Well, it’s our land abounds in nature’s gifts…

Rocks & live stock for sale

I recently wrote that Australia hit the geological jackpot.

And it’s what’s deep beneath our land that is keeping Australia out of a technical recession.

Perhaps there is no end to Australia’s luck.

Nonetheless, one of the biggest reasons Australia has dodged a technical recession — for now — has been because of the supply of commodities.

In September, we sent a record $43.2 billion worth of goods overseas.

Driving the growth was iron ore prices, and higher amounts of liquefied natural gas (LNG) being shipped offshore. To boot, grains and wool exports also jumped for the month.1

The stroke of luck, has come from the African swine fever crippling China’s pork supply.

Pushing China to come to Australia for lamb and cattle as a protein replacement.

On Monday the Sydney Morning Herald reported that some 30,000 livestock were shipped to China in October, bringing the total exports for livestock to China to one million for the year.2

The soaring Chinese demand has seen beef prices double per kilo in a short space of time.

Not only that, the increased bidding for livestock are a win for the drought affected farmers in Queensland and New South Wales.

Plus with many of these regions crippled by the recent fires, many of the livestock were going to have to be sold anyway, at any price.

So the sudden price rise of the agricultural goods will go some way to preventing gross domestic product falling too far…

And keeping everything slightly elevated is the weakening Aussie dollar.

With the Aussie dollar trading below 70 cents, it’s a boon for goods being sold in US dollars.

The weaker Aussie dollar essentially means that we’re banking more Aussie dollars for goods sold in US dollars.

In other words, Australia’s luck goes on…but the individual is struggling in the economy.

Going into 2020…

As ordinary investors are struggling to earn interest on their cash held at the bank, more and more investors are going to move into stocks as a way to earn income.

Or even try to grow their wealth.

In fact, I recently wrote that young Australians are now being encouraged to put their potential home deposit into the stock market to grow it quicker…

That means being ahead of the investing curve matters more than ever.

It’s that time of year when analysts around the world start to put out their ‘2020 ideas’ into print.

Morgan Stanley recently joined in, and shared their commodity outlook for 2020 earlier in the week.

And given Australia’s reliance on commodities, perhaps you should take note of this sector.

Where do they see growth?

What’s their go-to?

Copper is hot.

Oil is not.

And gold might not have a great year…they suspect the yellow metal will be stuck around US$1,500 for the year.

Now I rarely put a lot of stock in these types of reports.

Major intuitional banks don’t have a habit of calling the right market moves. Often their public calls are wrong. Yet, they continue to report bumper profits…

So take their insight with a grain of salt.

My desk buddy, chief editor of Profit Watch, reckons that oil will increase next year because of new fuel requirements for large transport ships. So perhaps there’s more to the oil price than Morgan Stanley have looked at.

I also think they’ve got the gold price wrong. I reckon the yellow metal will see even bigger gains next year. The recent sell-off is just a blip.

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However, one spot that is worth chewing on, is their prediction about copper.

Morgan Stanley reckon copper will rally 7% over 2020. Simply because the ‘fundamentals’ look good.3

Although they don’t really explain what these fundamentals are.

However, I have a contrarian take on copper. And while I’m not sure it will jump 7% next year, it would be wise of you to look for companies that are moving into this space.

Why?

Well, BHP made a strategic investment in Canadian copper explorer last year. They threw a million or so into fancy dump trucks…

Sure, that’s a small investment for a multibillion-dollar miner like BHP. But it’s telling that they did it at all. What could that tiny explorer be doing worthy of a multi truck gift?

Rio Tinto — the other major Aussie miner — has been secretly staking out a remote location in the Australian desert. And then they’ve slowly been entering into agreements with nearby copper explorers around the area…

The point is, something’s up in the copper market. The big companies know it too.

But how do you get insider access to that information?

Well that’s where I come in.

And I’ll reveal more tomorrow.

Looks like the Lucky Country’s luck will continue into 2020.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

1 ‘https://www.abc.net.au/news/2019-11-07/exports-balloon-to-record-high-as-trade-surplus-bounces-back/11681754’
2 ‘https://www.smh.com.au/politics/federal/never-seen-the-market-hotter-a-silver-lining-for-drought-stricken-farmers-20191119-p53c2r.html’
3 ‘https://www.afr.com/markets/commodities/morgan-stanley-cautious-on-commodities-in-2020-outlook-20191120-p53c7q’