Could Australia’s Luck Run Out?

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Australia is known as the lucky country. It is rich in natural resources, has a small population and has a stable democratic government. The country hasn’t had a recent in recent years. In addition, Australia have never had bank collapses like in other developed countries such as the US in recent memory. The lucky country also came off the Global Financial Crisis of 2008-09 relatively unscathed. However Australia’s may run out with a possible recession looming in the horizon.

Below is a short note on Australia’s economy at the MoneyWeek:

“The last time Australia suffered a recession, the Soviet Union still existed and the internet did not,” The Economist points out. Around 27 years of uninterrupted growth is a record for a developed country. But how much longer can the “wonder down under” last? One of the key drivers of growth was a housing bubble that allowed people to borrow against the rising value of their houses and thus spend more than their income. Throw in mortgages and household debt increased from 45% of GDP in 1996 to an eye-watering 120% at the end of last year. The housing bubble is now hissing air, which, along with overstretched household balance sheets will reduce the impetus from consumption.

Source: Chart of the week: Australia, the wonder down under, MoneyWeek

The Australian equity market is under-performing the US market so far this year. Compared to the S&P 500’s 7.40% rise in terms of price year-to-date, the Australian All Ordinaries index is down 2.5%.

It should be noted that unlike US mortgages, Australian mortgages are recourse loans meaning the lender go after the assets of a borrower. So in some ways the housing collapse may not happen like in the U.S. However heavy dependence on resource exports to China is one of the key Achilles heel of the economy. Volatile commodity markets have also adversely impacted the financial services sector. Hence investors need to be cautious of Australia in the near future.After years of avoiding recessions the country may fall into a recession.

Related ETFs:

  • iShares MSCI Australia Index Fund (EWA)

Disclosure: No Positiosn

Knowledge is Power: FIRE, US Stock Valuations, Retirement Edition

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Before the Global Financial Crisis(GFC) of 2008-09, FIRE used to mean Financial Services, Insurance and Real Estate(FIRE) to define the US economy. FIRE sectors used to the hottest to be in. Then the FIRE burned out economy. Nowdays millennials have redefined FIRE to be Financial Independence Retire Early where people extreme measures to retire as early as 30 or 40 to escape the daily grind of crazy corporate life in the US.

Butter Cow

The Lithium Triangle: Maps

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The Lithium Triangle contains over 70% of the world’s lithium reserves. The below map shows the location of this resource-rich area:

Click to enlarge

Source: gxy.com

From The Absolute Return Letter by Niels Clemen Jensen:

Lithium can be found on all continents. China has significant reserves and so does Australia, but South America holds the biggest reserves and produces the most lithium – the majority of it in an area called the Lithium Triangle, which is where Argentina, Chile and Bolivia meet (Exhibit 3). The Lithium Triangle accounts for well over 50% of global lithium production.

The Lithium Triangle is known for its high quality salt flats, including Bolivia’s Salar de Uyuni, Chile’s Salar de Atacama, and Argentina’s Salar de Arizaro. The Lithium Triangle is believed to contain over 75% of existing known lithium reserves with Bolivia alone accounting for about half of global reserves.

Source: The Absolute Return Letter – Nov 2018, Absolute Return Partners

Updates (9/17/23):

World GDP by Country 1960 to 2017: Chart

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The GDP growth by select countries of the world since 1960 is shown in the cool animated graphic below. China’s growth since 2000 is astonishing.

Click to enlarge

Source: Ramiro Marra