Boom in rare earth minerals now undone? Find some stocks. make a story for an endless boom. Hype the stocks. Easier now than it was. The Internet is awash with blogs. There are three full-time financial TV stations desperate for stories to make their viewers rich. Bingo rare earth stocks. Insiders have dumped stock. The shares have edged back. That boomlet’s froth is over. I personally never participated. there seemed to be too little substance, too much froth.
The Economist publishes a huge 20-page report on Australia.
The survey is very positive. Items: + ON BALANCE, IT seems improbable that Australia has discovered the secret of eternal prosperity and that the current alignment of low import prices, high export prices and a voracious Asian market will endure. When I left Australia 45 years ago, we all knew Australia was “The Lucky Country.” But we had no idea just how lucky — and how much mineral wealth the country had. This map from the Economist blew my mind.
Words from the Economist:
+ Australia’s commodity exports this year are expected to be worth $221 billion and next year $251 billion. The mining companies, even had they done nothing to increase production, would have seen a fortune cascading into their pockets simply because of rising prices. As it is, BHP Billiton, a British-Australian company, announced half-yearly profits of US$10.5 billion in February, up 72% on a year earlier, and profits for the whole of this year are expected to be US$23 billion. It is now the world’s fifth-biggest company. Its great rival, Rio Tinto, also British-Australian, declared profits of US$20.6 billion last year, up 162%. And Swiss Xstrata, Australia’s third big mining company, in 2010 made profits of US$6.6 billion, up 337% on the year before.
+ The Pilbara has been exporting since the 1970s, when Australia overcame its antipathy to the Japanese and started selling them iron ore in a big way, so expensive rail lines have now been laid and harbours built. Demand seems assured. Australia’s central bank thinks another 300m-400m Chinese will move into cities by 2030 to join the 400m who have already done so in the past 30 years. And India, Vietnam, Indonesia and other Asian countries are also growing richer, building railways, making cars, urbanising. All will need iron ore. A typical Chinese apartment needs about six tonnes of steel and a kilometre of underground railway about 7,500 tonnes. Each tonne of steel needs 1.7 tonnes of iron ore and more than half a tonne of coking coal. Australia has plenty of both. Brazil’s ore may be superior, but Qingdao in China is 35 days’ sailing (round the Cape) from Tubarao in Brazil; from Dampier in the Pilbara it is 11. When freight rates are low, as they are today, the cost saving is US$12 a tonne. Three years ago it was US$40. And no one expects the Pilbara to run out of iron ore for at least 30 years, maybe much longer.
These statistics reflect an astonishing transformation of Australia’s fortunes. For most of its short history—the First Fleet arrived in Botany Bay on January 18th 1788—the terms of Australia’s trade have fluctuated, and bust has followed boom. For 35 years after 1950 the trend was remorselessly down, even taking account of improvements in the 1950s after the Korean war and the oil shocks of the 1970s (see chart 1). Now the terms of trade have reached new heights. As the central bank’s Mr Stevens has put it, five years ago a shipload of iron ore would have bought about 2,200 flat-screen television sets; today it buys about 22,000. That is partly because import prices have fallen, but more because export prices have risen. Neither trend can continue indefinitely, but the average terms of trade over the next two decades are likely to be higher than over the past three.
This big change coincides with another: Australia’s economy—and with it inflation, interest rates and house prices, though not the stockmarket—has decoupled from America’s. A decade or so ago Australia’s GDP growth closely matched America’s, but the correlation has become much less marked, whereas that with China’s has got stronger. It all points to a rosy period ahead for Australia. Even if Chinese growth stutters, runs the thinking, even if China goes through a period of political upheaval, the appetite for development will not disappear, either there or in most other Asian countries. Billions of Asians are eager to join the middle class, and Australia is on their doorstep, ready to provide not just iron ore, coal and natural gas but all sorts of other minerals, and beef and mutton to boot.
So Australia’s position on the world map is no longer a handicap. Indeed, the tyranny of distance, so long bracketed with drought as Australia’s enduring curse, has been turned on its head. It is now the Antipodean advantage of adjacency.
Which Australian stocks to buy? You can buy Australian traded mining stocks. But they tend to go up and down faster than a whore’s drawers (Australian expression). And keeping up with them is not easy. You have to follow Australian blogs. They get no attention here. My preference is BHP:
But also EWA which is an ETF of Australia’s top stocks. It yields 3.13% which, as they say in Australia, is better than a slap in the belly with a cold fish.
A teacher at Sydney High School reminded her pupils of tomorrow’s final exam. “Now listen to me, I won’t tolerate any excuses for you not being here tomorrow. I might consider a nuclear attack, a serious personal injury, illness, or a death in your immediate family, but that’s it, no other excuses whatsoever!”A smart-arsed teenager at the back of the room raised his hand and asked,”What would happen if I came in tomorrow suffering from complete and utter sexual exhaustion?”
The entire class fell into laughter and sniggering.
When silence was restored, the teacher smiled at the student, shook her head and sweetly said, “Well, I would expect you to write the exam with your other hand.”
Harry Newton who wonders why everything suddenly went blue and bold. I’ve given up trying to fix it. WordPress is acting up, a bit like my tennis game on the weekend. Don’t forget the French Open is continuing on the Tennis Channel, ESPN and NBC. The finals are this weekend.
One of the biggest factors in Australia's rosy economy, as it is in neighboring New Zealand, is a conservative government approach to taxation, regulation, the issuance of fiat money and general interference in the free economy. And in that, they have also deviated – to their great benefit – from the current American model.
Having immense riches in minerals doesn't hurt, but as much of mineral and oil rich Africa and Latin America have shown, without intelligent, fair and limited government, rich minerals by themselves don't make a rich and healthy economy, or happy people.
I think you should consider running for president
Compliments gratefully received! Hopefully, the president in 2012 will agree with these principles – we'll see.
From Liveabroad.com: highlighting caps have been used to set the record straight for those with open minds, and provide disquieting information (thereby offsetting out-and-out bullshit) for the rest.
“Australia is a modern, rich nation with a per capita income comparable to that of the U.S. Abounding in natural beauty and resources, it has very little pollution and a variety of different climates, some similar to California …
It boasts long life expectancies and a low infant mortality rate. Its SOCIAL PROGRAMS include excellent education and health care. No wonder Australia holds considerable fascination for people on the other side of the globe.
Australians are ASTONISHED BY OUR IGNORANCE. (Like, for example, thinking that compared to the U.S., Australia has a 'conservative government approach' to taxation, regulation and the like.) David Mosler and Bob Catley from the University of Adelaide, report in the book, America and Americans in Australia, that Australia draws U.S. expats from both sides of the political spectrum.
They write, 'Social democratic migrants focus on ATTRIBUTES OF THE UNITED STATES associated with its WEAK WELFARE SYSTEM, INADEQUATE HEALTH CARE, violence, and GENERAL CONSERVATIVE SOCIAL AND ECONOMIC STRUCTURES.' (Note: HEALTH CARE COSTS in Australia are ONLY 8% OF GDP and EVERYONE IS COVERED. In the U.S., they amount to 15% of GDP and many remain uncovered.)
Americans who see the U.S. as a society in decline, leaning toward socialism, come to Australia for its safer, drug-free environment. However, they object to Australia's STRONG CENTRALIZED GOVERNMENT which they see as being intrusive. They find that Australia has HIGH TAXES, STRONG UNIONS, and GENEROUS WELFARE SYSTEM, also that crime is on the increase.
Yet many stay. Australia may not be ideal but they find it preferable to the U.S. They usually admire the straightforwardness and honesty of Australians, and they like Australia's great outdoors …”
So dream on about Australia being some kind of conservative Mecca. Or is it that you know better, and merely desire to delude the gullible? And do, by all means, run for President.
What's the corporate tax rate in the US compared to Australia? Having been to Australia many times over the years, most recently March & April 2010, as well as NZ, I'd disagree with the professors and ask whose paying for their study. And I'm wondering of the great medicine procedures and prescription drugs, how many were developed in Australia versus the US (where they “all” come from despite the government here imposed cost of $800,000,000 to $1,000,000,000 per drug). Our welfare system certainly is weak, trapping thousands in a vicious cycle of handouts, fatherless children and permanent impoverishment. They also didn't jump on the bandwagon that everybody should borrow and own their own home, no matter their income. To me that all adds up to being a “conservative government”, no?
I don't know what the corporate tax rate in Australia may be and it doesn't matter, because the corporate tax rate in the U.S. is a joke. Our tax code is riddled with special-interest tax breaks and allowances, thanks to the success Corporate America has had in bribing Congress – a success story of greed and corruption that will only be exacerbated by the Conservative Supreme Court's recent decision regarding the Citizens United.
“Study Finds Some Big Companies Paid Little in Taxes. By John D. McKinnon
Some of the largest U.S. corporations have been adept at avoiding federal taxes, according to a liberal research group. A few of the companies disagree, however.
In a much-anticipated new study of corporate tax payments, Citizens for Tax Justice finds that 12 big U.S. companies paid an average NEGATVE 1.5% rate during 2008-2010, while earning $171 billion in profits. If they had paid at the full 35% U.S. statutory rate, they would have coughed up about $60 billion in taxes, the study says. Instead, they actually got a little money from the government, on net – about $2.5 billion, to be exact.” Et cetera.
Since you have such expertise in Australia and its corporate tax rate, perhaps you can tell us all how their EFFECTIVE tax rate – as well as that for all other industrialized nations – compares to the effective tax rate here in the U.S. In Australia and elsewhere, have corporations been as effective in buying off legislatures, co-opting courts and deluding the general public? Inquiring minds want to know!
As to “all” drugs coming from U.S. drug companies … do you know anything about drugs and biotechnology? Ever hear of Roche and Novartis (Switzerland)? How about GlaxoSmithKline and AstraZeneca (UK)? Or Sanofi-Aventis (France) and Bayer (Germany)? Because in a ranking of the top pharmaceutical companies worldwide in 2010, the aforementioned were ranked among the top 10. In the top seven, JNJ and PFE were 1 and 2 – but then immediately followed by Roche, GXK, NVS, SNY and AZN. And about that developmental “government imposed cost” that concerns you: is that due to the clinical trials inherent in the drug development process? Perhaps another area where we should “streamline” and “get the government out of the way”? How about getting rid of Phases 1, 2 and 3 and just have a drug labels saying, “Made by Free Enterprise – Trust Us.”
The rest of what you have to say is devoid of fact or rebuttal – the root of our problems lie not in greed and excess, money flowing from the middle and bottom to the top, extremes of wealth and poverty … but that good old whipping boy, “welfare”. You just don't like to read what you don't like to read, and that's enough for you to dismiss the inconvenient with a wave of your hand.
Reaganhood: take from the poor; give to the rich.
Are you always such a nice guy with your personal attacks? Oh, a liberal; skip my question, I think I already know the answer! As far as the big corporations getting in bed with Wash DC, I completely agree with you. They're all whores, typified by Wall Street. Some years ago after the Enron fiasco I suggested rather than a bunch more rules and regulations, we try these guilty folks and then hang them on Wall Street and leave them hanging there for a month. Far more effective I suggested then, than adding a bunch more laws. The laws got added and then we all saw 2008-9 repeat much of the 2000 dishonest acts, except nobody got caught this time. Solution: more Dodd-Frank laws.
Enjoy your day.
I love it when Conservatives – the intellectual sons and daughters of the likes of Rush Limbaugh, Bill O'Reilly, Anne Coulter, the Swiftboat bunch, the birthers, the “terrorist” accusators, etc. – complain about personal attacks and the tone of discourse. In two responses to your comments here recently, I started out by asking whether you either lived in a fantasy world in which Australia was some kind of conservative Mecca – a dreamworld that I elaborated upon at some length – or whether you knew better, and instead desired to delude the gullible. I still don't know the answer. In my next reference to you personally I asked that, since you had such expertise in Australia and its corporate tax rate, whether you could frame their effective rate in context of the effective corporate rate for the U.S. as well as all other industrialized nations. I did take you to task (even allowing for poetic license) for claiming that “all” drugs came from U.S. drug companies … a claim, by the way, that again raises the question of fantasy-world ignorance or deliberate intent. My final reference to you personally was the factual observation that the rest of what you had to say was devoid of fact or rebuttal. I reached a conclusion that you just didn't like to read what you don't like to read, and that was enough for you to dismiss the inconvenient with a wave of your hand.
Don't expect this Liberal to roll over. If all of this, for you, constitutes a personal attack as opposed to an intellectual challenge, then so be it.
Harry – Are there any specific tax considerations when owning EWA – the Australian etf? Foreign taxes? Do we get a 1099 bor K-1 ? I know some of these foreign securities can be a nightmare at tax time.
I haven't found any problems. As far as I know EWA is an American security.. and I've never had problems in the past. However, why don't you check and let us all know.