Advance Australia Fair

HappyMJ

Thrugelmir wrote: »

Cutting the wage bill is one way of reducing costs.

Mining wages have already dropped quite significantly over the past few years. Not sure how much further down they can go.

Working away from home doing 12 hour shifts 4 days on 4 days off on a FIFO contract has got to be worth quite a significant premium.

Australia is an expensive country to live in you wouldn't be able to pay much under $100,000 and expect everyone to be on your doorstep wanting work. Average house prices have just exceeded $1,000,000 in Sydney and $600,000 for the country as a whole. $100,000 isn't much of a salary.

Thrugelmir

HappyMJ wrote: »

Mining wages have already dropped quite significantly over the past few years. Not sure how much further down they can go.

Gina Reinhart is looking to reduce them further judging by recent news.

Generali

HappyMJ wrote: »

Mining wages have already dropped quite significantly over the past few years. Not sure how much further down they can go.

Working away from home doing 12 hour shifts 4 days on 4 days off on a FIFO contract has got to be worth quite a significant premium.

Australia is an expensive country to live in you wouldn't be able to pay much under $100,000 and expect everyone to be on your doorstep wanting work. Average house prices have just exceeded $1,000,000 in Sydney and $600,000 for the country as a whole. $100,000 isn't much of a salary.

$100,000 may not be much of a salary but it's about 35% more than the Sydney average.

A cab driver will work his butt off to earn $40,000 a year.

tincans6

Generali wrote: »

A

You do devalue your own argument when you say with absolute certainty that the iron ore price will be in the $30s. You also still fail to account for the currency effect in Aus: the AUD is pretty much tracking the iron ore price down and that makes Aussie iron ore exports all the more attractive. That doesn't make BHP a good investment but it does mitigate the impact of lower iron ore prices in Australia.

Really ?

3/4 of the worlds export market is covered by Australia & Brazil.

The AUD has appreciated against the Brazilian Real significantly over the last 5 years.

In addition the sea freight cost advantage that Australia had over Brazil is being eroded by low shipping costs.

Iron ore is in a vicious circle, the fall in price generates falling wages, better productivity and falling shipping costs - but in an over supply market this just feeds back into the market price.

Supply growth in almost all commodity markets is 'lumpy'. Long lead times from decision to invest to production.

To illustrate how people are still in denial about the slow down in China infrastructure slow down and its impact, ponder this;

In the 3 years 2011-2013 China used more concrete than the USA did in the whole of the 20th Century. Not just a bit more, but 50% more.

Generali

tincans6 wrote: »

Really ?

3/4 of the worlds export market is covered by Australia & Brazil.

The AUD has appreciated against the Brazilian Real significantly over the last 5 years.

In addition the sea freight cost advantage that Australia had over Brazil is being eroded by low shipping costs.

Iron ore is in a vicious circle, the fall in price generates falling wages, better productivity and falling shipping costs - but in an over supply market this just feeds back into the market price.

Supply growth in almost all commodity markets is 'lumpy'. Long lead times from decision to invest to production.

To illustrate how people are still in denial about the slow down in China infrastructure slow down and its impact, ponder this;

In the 3 years 2011-2013 China used more concrete than the USA did in the whole of the 20th Century. Not just a bit more, but 50% more.

Yes, I know that fact(oid?). I'm not sure where it comes from or even if its true but I am aware of it.

We'll see what happens. You clearly hold strong convictions.

Australia is a long way from going bust and has many fiscal advantages (Future Fund, Compulsory Super, low Government debt) that will help her economy through bad times. If it really comes to it, self sufficiency in food and a thriving non-mining export sector will help the future.

There is more to the Australian economy than selling dirt to the Chinese. Mining, IIRC, is 11% of Aussie GDP. If the Aussie mining sector was to fall in size by a third (unlikely IMHO as Aussie mining is very efficient) that would be less of an output shock than the GFC was to Britain.

tincans6

Well that's one leg of the 3 legged stool that makes up the Aussie economy sawn off.

Iron now in the high US $ 30's and still falling.

tincans6

The next leg will be Australia's vastly over priced housing market, which against almost every metric is more over valued than Britain's.

2 million buy to let investors, two thirds of whom make a loss (that is loan interest is more than rental income).
This is mitigated in Australia as you can use this loss to reduce your tax bill on your employment income.

So this works ok when house prices are rising - the prospect of the capital gain outweighs the rental losses. In fact - in many areas the only prospect of turning an overall profit is a capital gain.

But what happens once prices start to fall - you are losing money on the rental, and instead of capital appreciation, the asset is falling.

This crazy tax situation leads to young people who are renting, to buy a house to let out to someone else. It does have a side benefit of depressing rents, but it looks a bit like a Fonzi * scheme to me.

A world of hurt coming for over leveraged house buyers in Oz in the next 2 years.


* after the great Devonian sage.

Generali

Well unemployment is falling and employment rising and it looks like the rest of the Aussie economy is stepping up nicely to cover the fall in mining investment.

I agree that Aussie housing looks expensive and there are the first, tentative signs that prices are turning down in Sydney and Melbourne. That doesn't mean the end for the Aussie economy. Our economist at work reckons that the RBA would be quite happy for the housing market to reverse all the gains of the last two years.

Thrugelmir

Generali wrote: »

looks like the rest of the Aussie economy is stepping up nicely to cover the fall in mining investment.

Is their a growth in exports or is it in the main down to consumer spending.

Generali

Thrugelmir wrote: »

Is their a growth in exports or is it in the main down to consumer spending.

There's a growth in export volumes coupled with a small drop in export values which is what you expect to see when a currency falls quickly. This is exactly what happened in the UK after the pound left the ERM for example. Exports are down about 3% by value YoY.

The reason is that volumes take time to rise but values drop immediately as a result of the fall in the currency. Iron ore volumes for example (c. 10% of Aussie exports) are up about 20% IIRC but down a fair whack in terms of value.

The consumer has been doing her bit for the economy with sales rising about 3.9% in nominal terms or 2.4% in real terms. That's about in line with GDP growth and so what you'd expect really. Lest we forget, making stuff is ultimately about consumption: nobody is going to make cars or TVs unless someone else is going to buy them.