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Surprise rise in CAPEX
Topic Started: 28 Aug 2014, 01:53 PM (3,071 Views)
Balls
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Veritas
28 Aug 2014, 05:00 PM
And a time machine to go back 15 years and set up a Sovereign Wealth Fund.
We have one, it's called the Future Fund, set up in 2006 and it has over $100 billion in it
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Ollie
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The ABS data on capital expenditures (capex) for the June quarter of 2014, registered a surprise seasonally-adjusted 1.1% lift in capex over the quarter but a 4.0% decrease over the year. The result beat analyst’s expectations of a 0.9% fall over the quarter. The rise in total capex (+1.0%) was surprising driven by both mining (+0.4%) and other capex (+3.2%), which more than offset a sharp fall in manufacturing capex (-6.8%).

Manufacturing capex remains well and truly in the doldrums, with its share of total capex falling to an all time low 5.6% in June 2014. The rise in overall capex was driven by the Northern Teritory (+$628 million), Victoria (+$296 million), and South Australia (+$97 million), which more than offset falls in Western Australia (-$403 million), Queensland (-$235 million), New South Wales (-$51 million), Tasmania (-$50 million), and the ACT (-$30 million):

Looking ahead, the capex pipeline continues to trend lower, due to falling planned mining investment. Despite this quarter’s small rise in total capex, the longer-term outlook has not changed and remains poor. Mining capex is still facing a prolonged period of falls – although at least there are some offsets in other areas – and manufacturing capex remains terminally sick.
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skamy
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Balls
28 Aug 2014, 10:35 PM
We have one, it's called the Future Fund, set up in 2006 and it has over $100 billion in it
That is not a sovereign fund it is a fund to cover the government future pension liabilities
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Lef-tee
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Dr Watson
28 Aug 2014, 01:59 PM
What implications does this have for the MacroBusiness prediction of a "capex cliff"? Is the said cliff still looming?
Yes. The general outlook remains unchanged. Mining capex actually rose a little and did contribute to the positive result, telling you just how huge this investment boom has been and still is - it is so big it only needs a little uptick to push the thing up a bit. But it was good to see that the biggest contribution was from non-mining capex.

But the contribution currently being made by mining still towers over all else - it will inevitabley trend back down and as it does, non-mining capex is going to need to go gangbusters to fill the void (or the flow of spending must come from somewhere at least).

We know why mining capex exploded to such eye-popping levels, it was massive surge in demand for resources, principally China. What massive surge in demand might our non-mining capex be responding to? I see a small improvement of late but I can't yet see any big new demand drivers emerging. If demand for non-mining goods and services does not surge up strongly somewhere then I can't see any ongoing boom in that kind of investment emerging and this little uptick may prove short lived.
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Admin
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Quote:
 
Business investing in the economy we don't talk about

August 28, 2014 - 10:14PM
Michael Pascoe

It sometimes seems capital investment commentary in Australia concentrates on mining and manufacturing, perhaps because they are industries with unhappy outlooks – bad news is good news.

The reality is that the game has moved on, that the non-resources sector is substantially larger than mining and that manufacturing is but a small part of that non-resources story.

So while the immediate headline for the June quarter private fixed capital investment statistics is that capex was "less worse" than expected, it missed the real story: the outlook for non-resources capex is positive.

As usual, the most interesting part of the Australian Bureau of Statistics quarterly capex survey is what the nation's chief financial officers are saying about what they will invest over the year ahead, not the historical scorecard of how much they invested over the past financial year.

There is no news at all in mining capex shrinking as the second phase of the three-phase resources boom falls away. Phase one was prices rising, phase two was building mines which naturally and healthily gives way to phase three – mining and exporting more stuff.

There's also little surprise in manufacturing capex continuing to slide, although it is interesting and perhaps even encouraging that the slide is slowing. More about that a little later.

What matters much more for this year's economic outlook and the big bet being made on our economy's transition is that non-resources capex is continuing to grow – and grow nicely.

The ABS' "other selected industries" definition is an imperfect guide to what is happening, but it's the best we have at present. On that score, the final count for the past financial year showed capex of $58.3 billion, up 3.5 per cent on the previous year.

The good news is that the other selected industries' CFOs are saying in their June quarter "estimate 3" that they'll invest $55.7 billion this year, a hefty 12.2 per cent more than last year's "estimate 3".

The way the game tends to work is that the estimates grow as the year grows older. In the past five years, the final count in this category finished about $15 billion to $20 billion higher than the first estimate.

Read more: http://www.smh.com.au/business/comment-and-analysis/business-investing-in-the-economy-we-dont-talk-about-20140828-109lb6.html
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peter fraser
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Lef-tee
29 Aug 2014, 07:06 AM
Yes. The general outlook remains unchanged. Mining capex actually rose a little and did contribute to the positive result, telling you just how huge this investment boom has been and still is - it is so big it only needs a little uptick to push the thing up a bit. But it was good to see that the biggest contribution was from non-mining capex.

But the contribution currently being made by mining still towers over all else - it will inevitabley trend back down and as it does, non-mining capex is going to need to go gangbusters to fill the void (or the flow of spending must come from somewhere at least).

We know why mining capex exploded to such eye-popping levels, it was massive surge in demand for resources, principally China. What massive surge in demand might our non-mining capex be responding to? I see a small improvement of late but I can't yet see any big new demand drivers emerging. If demand for non-mining goods and services does not surge up strongly somewhere then I can't see any ongoing boom in that kind of investment emerging and this little uptick may prove short lived.
Pete Wargent posted some informative graphs here - http://petewargent.blogspot.com.au/2014/08/capex-rises-again-showing-rebalancing.html

I don't have time to post them just now.

Naturally investment in mining will slow down, it can't stay at a high forever, but it really doesn't feed much into the populated centres anyway.
Any expressed market opinion is my own and is not to be taken as financial advice
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Dr Watson
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David Llewellyn-Smith has woken to a dark vision today:
Quote:
 
Sigh. The moment has come to call a spade a spade. The Chinese property bust is smashing iron ore. Thermal and coking coal are still falling and/or catching up to past falls in contract prices.
He sees a big fall in the terms-of-trade:
Quote:
 
Gold and oil/LNG are also down sharply in the past few months. In short, Australia’s terms of trade (ToT) are getting smashed to the extent that it’s rapidly assuming the proportions of an external shock, especially since the Australian dollar has totally detached itself from the economy.

I can only estimate the ToT falls in train but can say with confidence that they are much bigger than forecast by Treasury or the RBA.
He thinks the dollar is too high:
Quote:
 
Mercifully, thanks to a decent developed economy recovery, we’re being spared the equity debt shocks that usually transpire at the same time and income shock is not as big as the GFC hit (yet!) but it’s big enough to cause all sorts of economic fallout including:

- hitting nominal growth hard and triggering more major Budget revenue misses by the time of MYEFO and then again in Q1 and Q2 next year
- accelerating the mining bust and pushing up unemployment
- deepening falls in per capita income and wage weakness

All of these are being made worse by the Australian dollar, which is now trading exclusively upon the state of European and US monetary policy. It should be at 80 cents and sinking.
Rate cuts are coming and next year — it's always next year, isn't it? — the faeces will hit the fan:
Quote:
 
The next move is definitely down, as soon as housing slows. 2015 is going to be rough.
Edited by Dr Watson, 29 Aug 2014, 10:12 AM.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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John Frum
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peter fraser
29 Aug 2014, 09:45 AM
it really doesn't feed much into the populated centres anyway.
Simply not true.

It's a mining boom. A climate of prosperity that feeds into the entire economy, whether through bigger wages or cheaper imports, or banks' willingness to extend credit to individuals and governments.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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b_b
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peter fraser
29 Aug 2014, 09:45 AM
Pete Wargent posted some informative graphs here - http://petewargent.blogspot.com.au/2014/08/capex-rises-again-showing-rebalancing.html

I don't have time to post them just now.

Naturally investment in mining will slow down, it can't stay at a high forever, but it really doesn't feed much into the populated centres anyway.
I think that is an important point. Mining capex has a very narrow multiplier for two reasons;

1 we import a lot of capital items to support mining construction
2. Not many people live in the desert
(S – I) + (T - G) + (M - X) = 0
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John Frum
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Dr Watson
29 Aug 2014, 10:06 AM
David Llewellyn-Smith has had a dark vision:

He sees a big fall in the terms-of-trade:
He thinks the dollar is too high:
Rate cuts are coming and next year — it's always next year, isn't it? — is when the faeces will hit the fan:
This generally fits my view.

The WA economy is cratering. This is causing bulls to up sticks and shift capital to the East coast, where asset prices will surge. In around a year's time everyone will realise that the syd/mel/bris economies were built on top of WA's and aforementioned bulls will have the minsky moment where they realise they've spent the last dozen or so months shuffling deck chairs on the Titanic.

Then the fun starts in earnest.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness.
"Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
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