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theflasherman

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  • 3 months later...

From another thread but thought I would kick it off .....

 

been doing a lot of work this direction for some time.

 

 

Classic,

 

this market .... 2 weeks ago we were all having kittens and the daily moves looked like a child playing with a crayon ..... and from the depths or depression, oh no its the end of the world we go to the other extreme.

 

Obviously the lows and supports are not even a question and yep they held. Now its the top and the 5950 level took them a few times to get through but here we are going for the all time high. Just amazing.

 

Little surprised about this till I looked and my pet BHP with the buyback going off and super funds scrambling to buy the stock they sold into the buyback certainly a large factor. Telstra back near its high as though it didn't have one political party announce they would fund fibre to the node Internet out of the future fund and it was good for it ?

 

No chance we are going to raise rates ? Even when the RBA tells up we are leaning that way ? .... and even more amusing is my long held belief the Ozzie over the next couple of years goes up up up and breaks the 1990 is highs of 90 cents and there isn't a thing we can do. So lets raise rates today and drop them in 9 months and 87 cent ozzie ?

 

Not to be a downer, certainly it was clear we were going to break the 5925-50 resistance on the third attempt on the ASX 200. Next level is the all time high 6,052 ish but personally sceptical of the quality of this rally .... yes I love BHP longer term and some of the other exporters but remain concerned about the currency as the balancing factor in the equation. So with the Ozzie at 81 cents not seen since 1996 ... and the high then 82 cents

or the high in 1990 when we had " the recession we had to have" from Mr keating and it hit 84 cents .... it remains a concern to me at least on the exporting side longer term.

 

The big cash-flows of the export expansion boom are yet to hit and not till 2008 do we see the larger ones come on line and from then its a steady flow which will hit our current account. After hitting a negative 50 billion per annum and it all added to our foreign debt as we balance our external accounts I suspect in 2010-11 us to have a balanced account and from there it to turn into the black and us pay off our debt.

 

Of course this depends on two things and one view in some ways contradicts the other.

 

Commodity prices remain firm as time goes on, China and its expansion is the large factor in this accounting for 66% of the estimated expansion in demand for iron ore out to 2011.

This expansion in demand globally means it will need the Iron ore export market to grow by 60% by then as a percentage of what Australia exports right now its 100% growth.

Every other commodity is tied into this in one shape or another and clearly China with 10.7% growth right now and much higher internal numbers like retail sales up 18% ect ect ... I have very few qualms about it keeping going and even if it moderates as already expected to 8% growth the picture will remain 100% unchanged. I am frankly not even sure they can slow it to 8% so the projected demand numbers worked on that assumption are in fact if anything too low.

 

Iron ore is the key along with China. Certainly some metals may and I mean may come off as supply comes on line but with the demands on the export market which is only less than 50% of the global supply in most cases .... its needing to keep up with a growth rate of 15% per annum which certainly looks set for the next 4 years if not the next 10 years.

 

Having looked at various estimates from economists over the weekend, we have at one end the totally bizarre ones from Abare which is the government forecaster who has been the worst caller ever, and its still going for the prize. ABARE basically estimates across the board a 30% fall in commodity prices out to 2011-12. Just amazing and idiotic on the main.

Most market economists all sitting one way as well but the 15-20% range for the same time period seems to be the call. Me I do see some falls with ones which have flown on very tight supply and as some more supply comes on line yes they will come back but overall I am not even sure they are even going to come off. At worst as a basket I suspect only slightly.

 

Thing for me its just like China. The bears are talking and have already factored Chinese growth slowing to 8% by 2008 , and even using these numbers the global steel production is estimated to go up a whopping 21% by 2011. Thats the planet as a whole !! Lets just say they are correct about China and it does slow somewhat .... the outlook for steel is based already on these numbers. I remain less than convinced it even happens but its an aside.

 

A 21% growth in production and conversely the growth in various other demand for metals is supposed to remain at half those rates according to various papers I read. Uniformly they agree on iron ore and steel .... just ask yourself what its used for and what will it be used for ? With 100 million new Chinese cars on the road ... I always thought they each had 40lbs of copper wiring in them, new construction wont they need copper wiring ? To make the steels I thought the ingredients were Iron ore, coking coal, zinc, Nickel and various other speciality metals like molly. So when I see say iron ore demand going up by 21% and copper projected demand going up by 6% or Nickel by 10% it just makes me wonder. wonder what the new cars will run on because certainly the oil demand numbers don't seem to reflect it.

 

Basically the basket is all tied together. Whilst copper not used in steel manufacture or oil, its the end products that will be using it.

 

Everyone agrees Iron ore demand will go this way, and remain firm yet when I look at projections for demand even in products used directly in steel manufacture like coking coal or nickel they seem shall we say interesting. Coking coal with new PCI ... pulverized coal injection methods into the blast furnace will require less of the product than before but still the overall numbers do not add up at all. One cannot make steel without coking coal, its impossible frankly.

 

So with all this in mind I cant see the prices going backwards too far. That's in USD.

 

Went though our own cash-flows and projects coming on line with this before ..... a few posts ago. For Australia a lot depends on the LNG projects post 2011 coming on line how black our surplus looks out there. When does Browse from WPL or Sunrise WPL or Scarbourough Exxon/BHP or Gorgon Chevron/Exxon/Shell finally become producers ?

The shameful record of the operators all foreign controlled mind you is absurd.

Gorgon the largest development projects with enough oil equivalent was discovered in 1981 and was planned to come on line in 2003 ... that was the scheduled date in 1999. So 8years later Chevron is now talking 2017 .... 14 years later yet only 9 years has passed.

In the last 4 years the price on LNG has tripled ... and a new record just set at US$11- MBTU was set weeks ago.

 

Anyhow .... they will happen either way .... eventually and are all very long term projects with an average of 25 years of reserves on them.

 

The one thing and release valve I have felt for a long time has been the currency. Right now I read the paper and all they talk about is interest rates and that's why the ozzie was here. Two weeks ago at 78 cents not a single person interviewed was of the view it went up and all talking it being at or near the peak. Still the same.

 

I disagree and will spell it out .... and have been for some time on this thread. Our current account deficit which has been running at minus 50 billion per annum will correct by 2011 as long as commodity prices remain roughly where we are. The expansion projects already nearly completed and coming on line at a furious pace in 2008 and beyond will take care of this. Even last week BHP announced another expansion in its iron ore capacity, its well aware of the demand outlook and its a race to keep up with things. Whilst ignored and yawned at by most a 25 million ton capacity increase is around 1.7% addition to our total export side for the nation. That's including everything ..... in one stroke up goes the export side 1.7% and it already looks bloody rosy unless you are from ABARE and predict oil will be US$48 in 2012 or Zinc and Nickle will halve in price and virtually every other commodity will be a blanket 30% lower in 4 years.

 

Just ask yourself if demand goes up by 60% on the export side which by the way global commodity prices are set off, would you call a 30% fall in prices ? Remeber whilst gloabl steel production is only going up 21% the export side to supply it needs to expand at 3 times the rate. Personally its the most idiotic thing I have ever seen in my life. I am NOT suggesting we see massive further advances from levels right now, we I suspect have seen the bulk of the rises already with prices here and now .... but I cannot see what ABARE is calling and doubt even the market economists calls of 15-20%. Honestly think its like jumping in front of a freight train going 160 km an hour and going stop !!

 

Now here is the contradiction, unlike virtually all forecasters I see something else happening with the currency as we go forward. Being a naughty old FX boy from the 1980's and having an economics's degree I am well aware of the dogma taught in universities about forecasting future prices. In the case of FX whilst I spent 12 hours in the office and then doing it part time I was forced to parrot this view if I wanted to pass. It if anything was worse with the masters course this was drummed in parrot like even harder. The forward rate is where everyone expects the currency to be in the future. Its why one virtually without exception will never see an analyst calling higher prices because he bases his view off one thing which has nothing to do with the other.

 

In the case of any commodity its usually a 3 year average or for my mates at ABARE with their US$50- 2010 oil call its a 5 or 7 year average. Since oil futures are US$67- for 2010 delivery hence we see the idiotic call being 34% below where the actual forward market is trading. It may go there but calling copper at 84 cents verses a spot of US$3- right now and even a forward well above this ... you get the idea.

 

Some economist not like this but the lazy ones are and rarely will one ever see the price estimation being higher than the current price rather than lower. Its just not done.

Apologies to the very few decent forecasting economist's ... but there are few around.

 

With the currency same thing. Always and I mean always its lower than the current spot price when taken as a group with the exception of the really lazy ones who use 5 year or 7 year averages like ABARE. The reason is a very simple one. Australia having a net foreign debt for 35 odd years has needed to attract foreign capital to the country and as such has needed to have an interest rate higher than the US to attract it. As such our rates being higher than the US... the interest rate differential has always with a few short lived exceptions ... has meant one could buy AUD at a discount forward against the US.

As such economists either traditional or lazy ones where we sit now will always call the exchange rate looking forward lower. Right now the interest rate differential is 2% so our rates are 2% higher than the USD and as such we can buy Ozzie at a 2% discount looking forward for each and every year. Just roughly if the spot rate is 80 cents the one year exchange rate would be 160 points lower at 7840 the two year at 7680 and so on.

 

This obviously has zero to do with anything. I am sure some will talk about cash and carry or some such stuff but it only becomes really attractive at higher differentials and sometimes as we saw the differential at 5% or MORE since float even that didn't stop the slide.

 

So here we are with a seemingly low differential on historic standards since float. Its certainly been lower but the average I suspect is somewhat higher.

 

My view on the currency based on commodity exports and projects coming on line has exports by volume out to 2011 growing by 31%. Not much can topple this. As such demands to attract capital which are at a rate of 50 billion per annum will fall to near zero by then. On a pure cash-flow basis the costs incurred in AUD and income mainly in USD also a factor. Not one hope in hell the ozzie goes down UNLESS China stops and commodity prices moderate by 30% in the next 4 years. Do you really see this happening ? ABARE does ....

 

My own view of the world is the currency keeps going up and whilst I totally disagree with the prices in USD falling for commodities and especially with India basically charging a royalty on iron ore exports to protect domestic reserves this now appears even less likely as time goes on.

 

As such all the cash-flows are heading one way, and whilst the current short term focus is on an interest rate rise, the RBA is going to have problems from the opposite direction I suspect within 12 months. How the hell to stop the currency going up ? Commodity prices if they don't fall which I don't think is a very big call given Chinese demand for steel will account for 66% of the projected rises is worked out already on the Chinese economy at 8% in 2008 and 7% 2009 .... with the Olympics I am not even sure of this.

 

For me 90 cents is the first stop. I suspect late 2008 we are there.

I suspect the release valve as per normal will be the currency and a $1- exchange rate post 2010 is not out of the question and even a 1970's sort of $1.10.

 

So right now every economist I am sure when asked calls for lower commodity prices, a lower ozzie and higher interest rates for Australia.

 

Me thinking this out ... short term agree on rates but as the currency goes higher we will in effect be just like China but in reverse. China exporting very cheap products for the last 10 years and likely the next 10 has in effect being exporting deflation. Us as a large importer of finished goods with a rising currency will be importing deflation.

 

So the next few months the focus will be on rates going up, but in the meantime the fact is with the currency 5% higher than a few months ago price pressures are heading the other direction at 100 miles an hour. As time goes on .... just like China's thirst for Iron ore and everything associated directly and indirectly with it .... up will creep the ozzie.

 

Having worked the time-lines the big year is not 2007 but 2008 with a lot of the larger commodity exports coming fully on line then.

 

Its a one way street I feel.

 

As such another big call is that the interest rate differential we have been forced to pay over US rates will disappear by 2010 as the RBA is forced into a war against the currency rises eroding export income and the deflationary effect of every single import becoming even cheaper. Your car price will fall 15% if the ozzie is at 90 cents, our exporters will cry blue murder. Certainly the pegging of commodity producers at low P/E's because the view USD prices will moderate will turn out correct but for all the wrong reasons. USD commodity prices remain here but the AUD going up deadens the impact. Suppose the analysts 15% fall in AUD prices are correct but for totally the wrong reasons.

 

Anyhow ..... a few big calls

 

AUD at 90 cents late 2008

 

AUD possibly $1- and beyond 2011

 

AUD interest rates lowered below USD rates and the 30 plus year interest rate differential disappears by 2010.

 

We import deflation and ultra low overall inflation for the foreseeable future.

 

Not sure what to do with all this ... importers making massive profits as the currency creeps up and they do not pass it on ... or slowly. Large exporters already pegged at low P/E's on the view commodity prices fall so no real change there they have already been priced all be for the wrong reasons ......

 

Enuf rambling from me ...

 

good luck .... just a very long held view of things ... AUD higher ... AUD rates eventually very very much lower .... and stronger for longer on the commodity side.

 

Not sure what that does to asset prices but its not another boom despite lower rates.

 

Cheers

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this is one of the most interesting areas you have written on K.

 

 

i like simplifying things so my feeble brain can cope with all the info posted....so here goes .

 

LCD panels are gonna get much cheaper!!! http://www.sharescene.com/html/emoticons/lmaosmiley.gif (have i got it right?)

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In reply to: wolverine on Tuesday 27/03/07 01:12pm

Yep.

 

Its a big call .... as big as the one about the forward oil market which was in deep discount for 30 years ... changing and forward oil actually being more expensive than spot oil .... this call very much the same ... a very long and traditional interest rate relationship is going to be thrown out the window.

 

Our interest rate differential will disappear I suspect 3-4 years ... the currency goes up and up and then up some more.

 

We import deflation as a result ... and your plasma TV gets cheaper :}

 

Have a far longer paper with links I wrote to myself ... before I had to present something for a few people who pay me to talk to them. Its just as rambling and convoluted but does have the backup numbers/links behind it.

 

Find the view of the govt, ABARE which on one side has China slowing down but still their demand for Iron ore imports growing at 300 million tons till 2011 ... about 100% of what we export by the way ... yet they see prices going down ... by 30% ... for it and every other thing I could find. What would I call this view ? Interesting I suppose ... being nice.

 

Similar views by even the very best market economists. Don't disagree their 15% might happen but seems unlikely especially in light of India's actions on the Iron ore front.

China actually did import 22% of it from there prior to the royalty hike and calls inside India for even steeper hikes in the national interest. Us .... gee having spent some time in the Pilbara region ... there is just a little bit of reserves left ... 100 years or is it 200 years ... that's at 100% global demand. The size of the reserves is immense.

 

We shall see how the cookie crumbles and it will be slow and gradual and the RBA fighting it every step of the way I suspect above ... 87 or 88 cents ...

 

cash-flows don't lie and they are crystal clear.

 

Added to this I feel the USD 20% overvalued .... and twin deficits ... yes we have one of those now on the external accounts/trade deficit but unlikely post 2011 .... and a gradual revaluation of the Chinese Yuan say 3-5% a year will only make our commodity exports cheaper as time goes on in relative terms even to the Chinese. Of course they are going to go down 30% as an average in 4 years :}

 

Cheers

 

Just a view ....

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  • 2 months later...

No kahuna1 - there is even a worse "caller" than that: Check this out:

 

 

Economist predicts Aust dollar will take another dip

 

The chief economist with Bank for International Settlements (BIS) Shrapnel has forecast the Australian dollar will fall to 65 cents per $US1 in the next two years.

The Australian dollar is at a 10 year high and was today trading as high as 80.6 US cents.

 

Economist Frank Gelber says the mineral investment boom is keeping the dollar up, but he does not expect that to last.

 

"We think that within the next two years the dollar will fall, that it's being held up now by high minerals prices and when minerals prices turn down, we'll see a weakening of the Australian dollar," he said.

 

 

But looking at the archives:

 

2000-02 ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚» Forecast for housing and construction

abc.net.au - Aug 21, 2000 Their chief economist, Frank Gelber, spoke to Trevor Bormann. Frank Gelber: we're looking at a setback next year. This year stays strong, ...

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Hi all

My guess is the aussie is more likely to go up than down.

 

1) The fact that it finally broke and held above 80c was huge.

2) Aus economy remains strong

3) USD weakness in the future. Their twin deficits will start to hit home.They will have to print money at some stage - its not going to be pleasant.

USD public sector debt is massive.

 

The US has a similar problem to us - unfunded govt employee super annuation contributions.We got ours funded in time (future fund). They might not be able to with the massive budget deficits they keep running.

 

 

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  • 4 months later...

Look Mum ....

 

 

We are there.

 

As silly as the post may have appeared and the thread back 18 months ago .... we are there ..... 90 cents.

 

Hard to be correct on the very long crystal ball in times like this. Often I cop a lot of stick for poking fun at economists and journalists for some of the bunkum posted. Virtually every estimate from early 2006 from the currency to commodity prices was totally wrong.

 

In the end I suppose they are patting themselves on the back for the fact that they were so totally wrong on both fronts, the currency and commodity prices that one compensated for the other. On the currency side every single estimation was for the currency to fall back 18 months ago and the worst callers had the spot for this time right now at 65 cents and the majority had a 70 cent ozzie ..... and as such as predictors of any future outcome they were and are totally useless. This is not about me or getting it right .... its an attempt to make people to look outside the square for answers and not to follow the dogma of the widely read and accepted views of the economists or forcasters who despite being absolutely wrong time and time again are taken at face value and even gospel for what is going to happen yet as a group they have a less than 50% track record of being correct.

 

As a group 18 months ago they were predicting the currency at 68 cents right now. It is impossible to get it much further wrong. Or so one might think.

 

If you look at their commodity price predictions from 18 months ago it makes the call on the currency even better. They is anything were far worse. Oil calls for this point in time back then were US$45- for the worst to US$60- . In fact if one casts their mind back then the Forbes economic summit and the twirp from Forbes was going on about the price of oil falling back to US$40 and below by then I sometime have to giggle. Oil at US$80 and they have scooped the pot. Not going to visit Uranium predictions since this was all changed by a one off event when the Cigar lake flooded and took 8% supply off the table so it was an unforeseen event. Nickel as well basically cornered by two investment banks and squeezed up to US$25- until the London metals exchange realized they were colluding, the two investment banks and the LME had to change its rules so this sort of collusion could not continue.

 

But other metals beyond this the predictions from 18 months ago compared to the reality right now yet again fell woefully behind the actual reality. Copper most were calling a US$1.80 sort of price for now .... with a very wide range of expectations for the price from US$2.40 for the very bullish to the absurd US$1.50 ones and the classic US$1.25 for 2009 from the very worst. Reality is right now US$3.70 per lb. Similar and just as pathetic calls for the price of Zinc and every other commodity under the sun.

 

So how do they arrive at these prices estimates? How do they get it so completely wrong and still have jobs is probably more to the point ?

 

I have no answers on either ..... how can one get a metal price 100% wrong ? A currency movement 100% wrong ? Its pretty hard I have to say.

 

Most I suspect use a long term average price to arrive at where they estimate the forward or future price will be. With the currency and having done post-grad courses in Economics it was annoying to be taught the forward price of the currency is actually where people expect the currency to be at a certain point in time. Since the AUD interest rates are higher than the US rates and the interest rate differential is around 1.5% one is able to buy AUD at a discount forward the 12 month forward rate for the exchange rate will always be lower than the spot whilst our rates are higher than the USA. So every 12 months it implies we will fall vs the US by roughly 1.5 cents and as such the estimates without exception fall into this lazy style of estimation.

 

Commodities same sort of thing and most use a 5 year average price to estimate where the long term price will be and their 3-4 year long term price is usually the 5 year average and the spot price is tapered down to meet this long term average and the spot price being 100% higher is seen as an aberration until the reality catches up. Since having watched the groups estimates for the price of oil trickle slowly upwards from a long term price of US$20- in 2004 to around the US$50- mark right now using these sorts of estimates as analysts do in their bible called a spreadsheet to work out NPV of DCF valuations I have to scratch my head and wonder why they even bother employing the lot of them at times like this.

 

I suppose they are being ultra conservative with their calls but to get it wrong by a factor of 100% time and time again if you are a serious value investor makes me shudder.

Since they got both sides so terribly wrong the currency by around 30% and the price of most commodities in USD wrong the other way by around 80% to some extent one canceled out the other. Still its no excuse.

 

Anyhow ... stronger for longer commodity side seems to have been very correct. So too the AUD/USD side and its impact on the AUD exchange rate. So where now ?

 

On the commodity side I am no longer much of a bull on the USD side gains and see them as a group trading in a band with slightly every increasing tops. On the main they have well and truly done their dash. No calls by me unless something drastic happens for oil at US$100- short term or even medium term. The high just keeps creeping higher by US$2/3/4/5 every year and yep eventually we will reach the US$100- mark but not for a while. Copper/ Zinc/ Nickel supply still tight especially for Nickel but the US$25- on the squeeze was certainly it and whilst supply struggle to keep pace with demand and dont expect it to catch it till post 2010 the high may well be back in the over US$20- region but longer term the cost of production even of the high cost laterite deposits to produce will come in the US$4- to US$5- per lb region and despite the massive capex needed up front for HPAL I suspect most of these commodities to settle into a price range of 2-3 times the cost of the most expensive form of production so Nickel very long term 2015 I suspect an US$8-10 mark but in the meantime whilst supply is short they can and will do anything. Same sort of thing for copper ... still think US$4- is toppish and calling it the new fools gold when it hit there the last time I suspect stands. Lot of recycling of old copper and ever more as the price shoots up as well so a cost bast of US$1.25 per lb for the less efficient producers long term i arrive at US$2.50 .... maybe US $3- long term price.

 

Most commodities fall into this sort of outlook for me and the current prices in USD are pretty fully priced right now.

 

Currency going forward ?

have been a bull on the ozzie for some time and covered it on this thread and China the monster thread more so. A couple of years ago had two main factors for this reasoning and at this stage only one of them has hit. USD back then was overvalued and we certainly have seen stage one of this with the demise of the US dollar. Some right now have and are talking the total collapse of the USD and it becoming a peso. Doubt this happens personally .... for the US dollar to say go down another 10% or 20% is called the Nuclear option with MAD ... mutually assured destruction on both sides of the coin. The US with the largest debt both domestic and govt with a trade hole that is the size of Texas and the govt overspending having proportions so vast they are almost insane. The likes of Japan and China and OPEC nations are holding literally trillions in US denominated debt and a devaluation of 10-20% further will see them loose this sort of proportion of their funds which is why i doubt it goes on too much further and the MAD option does not become a reality. it is of course possible as with most things .... but I rate the continuation from here of a quickly falling US dollar to the same sort of extent in the next 12 months as unlikely as the fall say vs the Euro from US$1.24 to US$1.41 or 14% in the last 12 months.

I think it stops somewhere fairly soon and possibly even the next few weeks ...... but another 14% in 12 months ? I dont think so.

 

So we have two things in my books which have happened and I dont expect them to go much further ... commodity prices in USD not too much higher and the demise of the US dollar boosting the ozzie up where we are now.

 

That said with the USD dollar having done its dash on the main and the commodity prices vs USD also up there ... I still remain bullish on the AUD.

 

Why ?

Well the stronger for longer is still intact and I dont expect the outlook to change from China and the robust demand to continue at least till 2010 if not far longer. Demand in the meantime from India picking up along with a few other high population nations around the globe with similar very high growth numbers and demand reaching the cusp where they are getting enough per capita income to start buying western style and becoming Western style consumers of goods and more importantly resources.

 

With Australia one factor I was hoping had changed and sadly has not is the drought and the failure of the grain crops yet again continues to be a drag on our export side along with other agriculture commodities of around $10- billion or so. Another thing which is taking some time to come through is the actual expansion of the export commodity side especially some of the bulks on the Eastern seaboard namely coal. As such our balance of payments and trade numbers are only inching into better than awful. This will change and change in such a massive way over the next 5-7 years its scary. we have been running a negative trade number for so long its almost like a changing of the guard when TV went from black and white to color or 8 track tapes to MP3's ... no I dont remember either not that old :}

 

Twist my arm and I suspect the currency all of US$1.00 in 2011 is in serious danger in 2008 .... and 2014 I suspect a $1.10 plus number might be in trouble. Reason being as it was back 18 months ago is we are about to undergo a change not seen in 40 years where our export side is about to explode by 100% in 7 years. It is taking its time and being fustigated and clouded by two very large factors. One is the old Plasma TV and retail side with appreciating ozzie and full employment we are buying these ever cheaper imports more and more ... the other side is the importation especially of mining and oil equipment to make the expansion in this capacity a reality is biting with out a corresponding increase in exports at this stage to compensate enough for all the new machinery being ordered.

A LNG train costs 500 mio or more .... Massive dump trucks at 3 mio a pop for 100 new projects and on and on it goes.

 

When the export side takes off I suspect it will do so with a vengeance and the turnaround will be quite stunning. If the drought breaks and we see a full grain crop as well the currency could go for quite a spike if both happened at the same time.

 

The announced and planned expansions in exports from 18 months ago are frankly something even being an ultra bull back then have left me a little shocked as to their real potential size. Biggest I suppose is the iron ore size and announced to date or suspected planned expansion by 2015 will see I suspect something close to another 500 million tons of iron ore export capacity added to the mix. So in one shot our trade deficit will totally disappear. Oh it gets better ..... LNG with Pluto NWS expansion Gorgon , Browse and maybe a few others Sunrise and BHP mumbling another one .... 30 million tons of LNG exports ? maybe closer to 40 ? or 300 million barrels of oil equiv . Coal side lessor but still impressive .... 10 billion or so worth minimum. Nickel with Ravenshorpe now going and likely at least one of the laterite nickel deposits getting up if not two 100k tons per annum is conservative or 220 million lbs around the 4 billion mark ... Olympic dam likely 2014 adding another 500k tons of copper and 15k tons of uranium plus gold and silver another 7 billion.

 

The story despite the rise of the ozzie and total of all these expansions will see Australia going from a large deficit on the balance of payments numbers to a very large credit side and actually repaying the debt !!

 

Tempering this i suspect the US dollar finds a base but the size of the export expansion which is yet to really hit the bottom line is likely to take us to a plus 40 or 50 million number by 2015 and suggestions the AUD will fall to any great extent even from here given this scenario I suspect is wishful thinking at best. The LNG announced expansions are a reality ... as too are the Iron ore side and the coal side. Olympic dam ? Who knows ... when and how much ... the drought eventually will break.

 

Very long term beyond the short term considerations and despite the RBA leaning very much towards raising rates short term to try and squish things down .... we will be importing deflation via a higher currency and with a trade surplus and BOP surplus we will not need the interest rate differential higher than the USD to attract capital so I suspect beyond the next 12 months our interest rate side to fall irrespective of what happens elsewhere around the globe.

 

The top ? I dont know. Suspect the USD stops somewhere around here and unlikely another currency rout like the last 12 months.

 

Depending on how the export side hits and the drought we may see the currency when we turn the corner put on 5 cents in a very short time. Key I suspect short term is the breaking of the drought and NSW/VIC/Qld crops .... maybe they get a winter crop and it happens in 12 months as the exports hit ? Or its a slow recovery for them and we all wait as the projects come on line 2008/9/10.

 

Anyhow enuf of a ramble even from me ....

 

All the best

 

 

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As always, thanks for the "ramble"

 

Your posts certainly stir the grey matter http://www.sharescene.com/html/emoticons/smile.gif

 

I agree with your comments on the economists,

 

"never have so few, been paid so much, to be so wrong "

 

Their only redeeming factor is at least they are consistent.

 

Macca

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