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Charlie Aitken says the bear case for Australia is dead, expect synchronised growth for next 2 years; We could be in for a multi-year period where everything goes right for Australia
Topic Started: 10 Oct 2013, 11:15 AM (2,875 Views)
Dave
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Charlie Aitken (Managing Director of Bell Potter Wholesale) posted this spruik today, he reckons the bear case for Australia is dead..... what do you lot reckon?

Quote:
 
So what then remains the bear case on Australia?? Why does just about every global strategist recommend “underweight Australia” and just about every international fund manager is “underweight Australia??

Because they are wrong.

Look at the Australian cash rate to 10yr bond yield curve. It is steepening because Australia is going better. That yield curve is telling you Australian GDP growth has bottomed: it’s that simple.

There has been a change of management for the better in Australia. This has occurred right as Chinese GDP growth rates bottomed and East Coast Australian GDP growth rates bottomed. We had Federal management change right at the bottom of the “earnings cycle” for Australia Inc. and I genuinely don’t believe, despite what I type every day, that the global investment world appreciates yet what is truly going on down here and what they are missing.

Unemployment is 5.8%. .8% above what would be considered “full employment”. Australian household balance sheets are in great shape. Australian corporate balance sheets are in great shape. Relative to the developed world Australia’s federal balance sheet is in great shape despite the best efforts of previous management to waste taxpayer money. Australia’s central bank balance sheet is in great shape, with our cash rates 2.00% above the developed world average cash rate and no QE. We have the 4th largest retirement savings pool in the world.

Our banks are holding excess regulatory capital and competition for deposits is easing. Credit growth is accelerating, yet we have record amounts sitting in cash earning zero real.

House prices are rising, new home sales are up, building approvals are up, development and renovation applications are up.

Confidence readings are at multi year highs and when capacity meets confidence you know what comes next… spending.

At the same time the Federal government is going to embark on an ambitious nation building infrastructure upgrade cycle, potentially partially funded by Canberra lending its AAA credit rating to the private sector for the construction period.

If the government is spending and not moving regulatory goalposts then the business community starts spending. The multiplier effect of business spending is huge, which eventually leads to job creation. Unemployment is a lagging indicator.

So think about this scenario for Australia for the next few years.

1. Mineral and energy commodity prices remain firm and leading Australian miners deliver higher volumes into those prices

2. Mining investment slows but remains at elevated levels

3. Agricultural commodity prices remain firm and Australian farmers deliver higher volumes into those prices

4. Inbound tourism cycle accelerates

5. New home construction cycle accelerates

6. Home renovation cycle accelerates

7. Discretionary retail spending accelerates

8. Job creation accelerates

9. Savings rates revert to 0%

10. Money floods out of term deposits

11. Credit growth accelerates

12. Compulsory super flows into risk assets

13. AUD heads to 80usc as the Fed ends QE

I don’t want to put the #kissofdeath on it, but we could be in for a multi-year period where everything goes right for Australia. Could it be that mining, agriculture, banking, housing, tourism, transport, building/development, building materials, steel, retail, TMT, and finance sectors all see tailwinds at once??

Yes… and that is now my base case for Australia over the next 2 years. I believe in synchronised growth from the Australian economy.

If you subscribe to anything I write above your equity portfolio must have a major tilt towards cyclical stocks: both regional and domestic. If I am proven right you simply won’t get a dip to buy cyclicals in. As data evidence comes through you will see further consensus upgrades from cyclical analysts, chasing share prices.

I think it’s a major mistake to believe that Australian or regional cyclicals listed in Australia have “run ahead of fundamentals”. That is a misnomer. All cyclical share prices turn up and see spot P/E expansion ahead of an earnings and dividend recovery. That’s how it’s worked for decades. I don’t understand why cyclical sector analysts don’t understand that. Do they not understand how cyclical leverage works??

Do they think when the earnings uplift is confirmed that share prices will still be here?? I don’t.

That is why I think recent weakness in key Australian cyclicals (banks are also leveraged cyclicals), driven by US political shenanigans, is most likely your last chance to get set.

We are all underestimating the earnings, dividend, free cash generation from Australian cyclicals as we come out of 5 year “feels like East Coast recession”. Costs have been cut to the bone, nobody has invested in new capacity, and a demand uplift will see prices and volumes rise concurrently.

Similarly, we are all underestimating earnings, dividend and free cash generation from Australian listed regional cyclicals, particularly the big miners and big energy as we enter a new phase of the mining and energy production cycle.

At the strategy level I am maximum bullish Australia. I think my 6000 ASX200 Index call in the next 12 to 18 months isn’t a big ask. AUSTRALIAN EQUITIES ARE IN A CLEAR EARNINGS AND DIVIDENDS UPGRADE CYCLE.
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It's Obvious
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It's obvious isn't it?

Economics as a discipline is a pseudo science.

He also didn't mention as another poster here rightly pointed out that we are C hyn a's Whore or a whole bunch of other factors that are relevant.
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skamy
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It's Obvious
10 Oct 2013, 11:19 AM
It's obvious isn't it?

Economics as a discipline is a pseudo science.

He also didn't mention as another poster here rightly pointed out that we are C hyn a's Whore or a whole bunch of other factors that are relevant.
Oh for goodness sakes, we are growing and trading well with China, we complain about it and so does China, they think we have them by the throat with iron ore and we moan that we buy too much from them and on and on it goes.

The truth is we are in a great position for trade with all of Asia and it is up to us to make the most of it and believe me there are plenty of Ozzies gonna be doing just that as we move into the next cycle.

Thank goodness the negative moaners and groaners are getting less airplay as we move away from the GFC and move onto more positive times.
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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Dr Watson
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Without going into detail, I will just say this — if those 13 things happen, interest rates will be going up and house prices will start falling and confidence will fall with them. The only thing that's going right at the moment is the rally in the housing sector and that's entirely down to the heavy reduction in interest rates. The RBA has fired a lot of ammo this time.
Edited by Dr Watson, 10 Oct 2013, 11:33 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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Catweasel
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skamy
10 Oct 2013, 11:27 AM
Oh for goodness sakes, we are growing and trading well with China, we complain about it and so does China, they think we have them by the throat with iron ore and we moan that we buy too much from them and on and on it goes.

The truth is we are in a great position for trade with all of Asia and it is up to us to make the most of it and believe me there are plenty of Ozzies gonna be doing just that as we move into the next cycle.

Thank goodness the negative moaners and groaners are getting less airplay as we move away from the GFC and move onto more positive times.
Catweasel move into rapscall mind.

And ask it,

if a GF the C cannot tackle a Australia,

and it move further away from a GF the C,

is it not just "signals" of a return to a beauty?

Is its visions defined by its relationship with a China even though it claim to have iron bar raised at its head?

Does it think Chinese versions of the rapscall exist?

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stinkbug
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I've seen unpublished reports that suggest that China will no longer be our largest trading partner within 10 years, but that India will take over. After that there are other developing countries (like Indonesia) that will also want what we're selling.

Australia is unlikely to suddenly go gangbusters, but a steady improvement from a rough patch is a reasonable guess.

I don't think property will do well universally, as there are a few places (like Canberra) with other factors and where prices need to take a breather. That said, Sydney is bellwether for other major property markets in Australia and based on what's happening there I expect growth down the track a bit.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Will
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Quote:
 
I've seen unpublished reports that suggest that China will no longer be our largest trading partner within 10 years, but that India will take over. After that there are other developing countries (like Indonesia) that will also want what we're selling.


And the crazy part is we may. to have a mining tax to capture this wealth for all Australians.

Unlike the Saudis and Eremites who get to cruise around all day in the Bugatti's and Bentleys all day, hanging out in cafés and the like, I will have to f@#ken work 50 hours a week to put a roof over my head, and live in oppressive Queensland at that.
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peter fraser
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Will
10 Oct 2013, 12:00 PM
and live in oppressive Queensland at that.
Saudi Arabia isn't oppressive?

BTW Bentleys are overrated. A Bugatti might be nice though.
Any expressed market opinion is my own and is not to be taken as financial advice
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barns
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peter fraser
10 Oct 2013, 06:08 PM
Saudi Arabia isn't oppressive?

BTW Bentleys are overrated. A Bugatti might be nice though.
I saw a Bugatti Veyron when I was living in Tuscany in 2011. It was pretty cool and noisy and somehow suited being parked in a cobble stone courtyard of a small hill town. It was actually part of a ladies day sports car outing (all of the cars were driven (and maybe owned) by ladies. The Veyron really stood out among the 'normal' Ferraris and Porsches. Having said that I was more drawn to the 50s-60s silver gull wing Mercedes.
“You Keep Using That Word, I Do Not Think It Means What You Think It Means” - Inigo Montoya
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stinkbug
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barns
10 Oct 2013, 07:11 PM
I saw a Bugatti Veyron when I was living in Tuscany in 2011. It was pretty cool and noisy and somehow suited being parked in a cobble stone courtyard of a small hill town. It was actually part of a ladies day sports car outing (all of the cars were driven (and maybe owned) by ladies. The Veyron really stood out among the 'normal' Ferraris and Porsches. Having said that I was more drawn to the 50s-60s silver gull wing Mercedes.
I saw an orange Veyron parked on Rodeo drive in LA when I was there a couple of years ago.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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