Media controlled by the Chinese government are threatening Australia again.
They are waiting for you at the school gate after the last bell, as the bullies tell you at lunchtime.
After former Prime Minister Tony Abbott accused Beijing of bullying Taiwan, they are now threatening to build more trade strikes.
‘Australia, which relies heavily on trade with China, has constantly insisted on its largest trading partner, the most sensitive nerves.‘ Said China Daily last week.
‘Canberra politicians continue to act and sound more and more hostile to China, but the worst has probably not yet come.‘
China’s anger at all of Australia will only intensify in 2022, even if it has recently been forced to succumb to Australia’s coal imports.
So far, the Australian economy has remained surprisingly strong against the rattling of economic sabers from the largest export markets.
But that can change quickly, according to our principal investigator, Greg Canavan.
And with iron ore prices already falling sharply this year, next year’s results could be immeasurable.
As an Australian investor, you may not understand how much you are personally at risk on this one issue. Therefore, you should read Greg’s extensive new research report.
What is clear is that in a very short amount of time, our greatest financial partner has become our greatest enemy.
You now need to understand and plan for this changing dynamics.
To be honest, we are proud that Australia has tackled COVID and human rights issues. I have the most to lose. Still, we faced bullies more than any other country.
But morality and investment are not the best combination …
Prior to this geopolitical change, or in other words, rifts, are not easy. Economic partnerships with China have brought Australia extreme prosperity. Escape from the recession during the global financial crisis is just one example.
But if Greg is right, consider that Australia’s decades of use of the world’s largest economic tailwind is becoming more headwind than any other country. The shape of our economy itself will change radically. Not to mention the direction of the stock market …
ASX is not a common blob. Some parts are for China. Others are not. Part of our economy may even benefit from future changes in the manufacturing, defense and technology sectors. The important thing is that you need to choose wisely as the world changes.
And that’s why I think you need to Check out Greg’s work.. He is a master of making such a distinction. Understand what the financial statements really mean, what drives the company, and what determines their success … or failure. So we need to see how he divides the Australian market between winners and losers.
Investors also need to understand that the rift with China may have just begun. There are a lot of flashpoints left that can cause problems …
But this is what I don’t understand about the Chinese story. What was I wondering and secretly optimistic about the future of Australian commodity exports …
As you can see, commodity prices fluctuate cyclically. We know that. And we also know that we are approaching the bottom of such a cycle. Given the recent drama of the energy market, it may have already changed.
So how do you square the slowing Chinese economy, China’s demographic nightmares, and the bearish outlook that Greg gives? In his report, With the periodic nature of commodity prices?
The answer is inflation. Or stagflation.
Anyway, during the inflationary period, commodities are a relatively good investment. That’s because most investments are vague promises to pay cash that may or may not be realized, whereas they are tangible things of constant value. These promises may or may not adjust for inflation, but they are relatively unaffected because the goods are of constant value.
Therefore, on a relative basis, it is where the goods are. But this doesn’t have to mean they actually boomed and adjusted inflation … at least not in terms of quantity, and therefore not in terms of the prosperity of Australian investors. The commodity boom may be like the energy crisis we are seeing today, with supply disruptions, rising costs and general disruptions.
There is another difference to draw. Just as ASX is not a general blob, but a group of sub-sectors or individual companies whose fate is significantly different from the next sub-sector, so is the product.
Over the past few months, we’ve seen strange booms and busts like lumber, iron ore, uranium and other commodities. Their prices soared and then plummeted again. Investors looking to take advantage of soaring gas prices by buying gas stocks should keep this in mind.
What does this correspond to? When you ask me, there is a lot of confusion. This is what you expect when the government controls the economy and the central bank controls the financial system. They make no sense.
At least Greg Canavan does, here..
Until next time,
Editor, Daily Reckoning Australia Weekend
PS: Our publication The Daily Reckoning is a great place to start your investment journey. Let’s talk about the big trends that drive the most innovative stocks in ASX. Learn all about it here.
Chinese fate and Australian fatalism
https://www.dailyreckoning.com.au/chinas-fate-and-australias-fatalism/2021/10/16/ Chinese fate and Australian fatalism