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Surprise rise in CAPEX
Topic Started: 28 Aug 2014, 01:53 PM (3,070 Views)
Dr Watson
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John Frum
29 Aug 2014, 10:18 AM
Then the fun starts in earnest.
Which might involve you losing your job?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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peter fraser
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John Frum
29 Aug 2014, 10:18 AM
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.
So I need to buy an M60 and a truck load of 7.62mm NATO Round ammo then?
Any expressed market opinion is my own and is not to be taken as financial advice
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John Frum
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peter fraser
29 Aug 2014, 10:42 AM
So I need to buy an M60 and a truck load of 7.62mm NATO Round ammo then?
Peter, I might like to spice up my ramblings with a bit of ominous rhetoric, but you can't put me in the same league as the end-of-the-worlder Peter Schiff fanboys.

I'm not suggesting we'll go third world and start looting and pillaging. Just a prolonged period of economic malaise.

Dr Watson
29 Aug 2014, 10:35 AM
Which might involve you losing your job?
That's a possible outcome in the 'hedge' I previously described to you.
Edited by John Frum, 29 Aug 2014, 12:42 PM.
"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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peter fraser
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John Frum
29 Aug 2014, 12:41 PM
Peter, I might like to spice up my ramblings with a bit of ominous rhetoric, but you can't put me in the same league as the end-of-the-worlder Peter Schiff fanboys.

I'm not suggesting we'll go third world and start looting and pillaging. Just a prolonged period of economic malaise.
Oh I don't put you in that category, you are remarkably sane for a bear, but I can have a little joke occasionally can't I?

It also gave me an occasion to air my limited knowledge on military hardware at the grunt level. I'm a bit out of date but I'm sure that I saw some recent footage showing troops still carrying that faithful old M60.

Did you see the video of that idiot instructor who was killed teaching a child to shoot a blow back action sub-machine gun. That's happened before - instructors should stand behind shooters not beside them. Those guns always pull one way or the other. Usually up and to the right, and the pull could be quite savage for a child to control. A gun like that would empty a 30 shot mag in under 3 seconds.

Only an idiot would train a child to handle a weapon with that much short range firepower.
Any expressed market opinion is my own and is not to be taken as financial advice
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Lef-tee
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b_b
29 Aug 2014, 10:14 AM
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
I would be cautious of underestimating the multiplier b_b, though I could be overestimating it as well. To assume little negative impact (I'm not saying that you necessarily are) you have to assume that the majority of mining investment spending flows straight out of the economy, ie spent on ready-to-drive "big boys toys".

I'm not certain how it's strictly defined but the way I see it, it's not just imported mining trucks and excavators. If you take Curtis island for instance - how much of that mammoth project is capital equipment that requires an army of workers to assemble and an army of service industries to support them as they do? I have regularly been stuck on the highway behind huge oversized loads consisting of massive pumps, turbines, generators, gantry parts and all manner of such things. Is a piece of a giant conveyor bridge not capital equipment. If you've ever been to a mining/resource processing site, you would probably say that most of the man-made structures are capital equipment.

Massive pieces of industrial capital equipment - imported or otherwise - do not just roll up and assemble themselves. This is what the mining investment boom largely is - a construction boom.

Quote:
 
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'm not sure I agree Peter - Gladstone airport had to be greatly extended in order to take the huge influx in FIFO workers from Brisbane, Sydney and elsewhere. It's slowed down now a bit but last year the place was like Heathrow - trust me I know, I work under the approach path!
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b_b
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Lef-tee
29 Aug 2014, 02:06 PM
I would be cautious of underestimating the multiplier b_b, though I could be overestimating it as well. To assume little negative impact (I'm not saying that you necessarily are) you have to assume that the majority of mining investment spending flows straight out of the economy, ie spent on ready-to-drive "big boys toys".

I'm not certain how it's strictly defined but the way I see it, it's not just imported mining trucks and excavators. If you take Curtis island for instance - how much of that mammoth project is capital equipment that requires an army of workers to assemble and an army of service industries to support them as they do? I have regularly been stuck on the highway behind huge oversized loads consisting of massive pumps, turbines, generators, gantry parts and all manner of such things. Is a piece of a giant conveyor bridge not capital equipment. If you've ever been to a mining/resource processing site, you would probably say that most of the man-made structures are capital equipment.

Massive pieces of industrial capital equipment - imported or otherwise - do not just roll up and assemble themselves. This is what the mining investment boom largely is - a construction boom.




I'm not sure I agree Peter - Gladstone airport had to be greatly extended in order to take the huge influx in FIFO workers from Brisbane, Sydney and elsewhere. It's slowed down now a bit but last year the place was like Heathrow - trust me I know, I work under the approach path!
Some fair points Leftee.

I will say, when we look at the overall mining capex number of c$140bn or 7-8% of GDP, the downside scenario is generally painted as "CAPEX will fall back to 2% of GDP (historic average), and therefore there is 5-6% decline in GDP which has to be made up somewhere else..."

But if we import less capital items the CAD falls (adding to growth) so already we know we do not have to make up the 5-6% difference.

Also, to the extent residential construction takes up the slack, we know the multiplier for housing construction is higher than just about anything else. So overall investment may fall, but consumption takes up some slack. Check out Harvey Norman profit and share price today as a case in point.

Having said all that, I am not bullish on the economy - I think we are "muddle through" for 2 years with elevated levels of unemployment. All self inflicted of course.

Next rate movement is likely to be down.
(S – I) + (T - G) + (M - X) = 0
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Dr Watson
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John Frum
29 Aug 2014, 12:41 PM
I'm not suggesting we'll go third world and start looting and pillaging. Just a prolonged period of economic malaise.
Welcome to the club. I've been calling it an extended period of malaise for some time. It won't mean lower house prices though. If you want cheaper real estate, you'll need an economic boom accompanied by an inflationary breakout and higher interest rates resulting in a bust.
Edited by Dr Watson, 29 Aug 2014, 02:52 PM.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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skamy
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b_b
29 Aug 2014, 10:14 AM
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
3. A lot of the profits on construction go back overseas eg Chevron KBR etc

Some Australian construction companies lost a lot of money on these jobs eg Leightons.
The mining construction boom was not a bed of roses. The mainstream construction industry providing the rest of the economy suffered enormously, people forget the headlines of collapsing construction companies:
Quote:
 
Construction carnage: More than 80 firms collapse in a month as building industries suffer through 2012

http://www.smartcompany.com.au/growth/economy/24934-suburban-tradies-collapse-as-construction-and-building-industries-suffer-through-2012.html#

This is the part of the construction economy that is returning to health and this will have a much more significant multiplier effect on the economy than the mining investment ever did IMO.
Edited by skamy, 29 Aug 2014, 04:54 PM.
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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Jimbo
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skamy
29 Aug 2014, 03:48 PM
3. A lot of the profits on construction go back overseas eg Chevron etc

Chevron don't make profits from construction. Construction is their overhead. Company profits don't buy houses anyway unless you happen to be a shareholder.

Mining construction is labour intensive and workers are very well paid.

It is the well paid labour that buys the houses.

When the construction is finished, those workers have to find positions in the normal economy on normal (lower) wages. Lower paid workers don't have as much money for housing as higher paid workers.



Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Dr Watson
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Jimbo
29 Aug 2014, 04:04 PM
When the construction is finished
When will the construction be finished?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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