Eight Charts on the Australian Economy

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The Australian economy is one of the largest among the developed countries. With a GDP of about $1.5 Trillion the economy is smaller than the Canadian economy. Similar to Canada, Australia is also a resource-based economy. To put it another way, Australia mostly depends on simply digging up what’s under the ground and exporting to resource hungry countries such as China. The Reserve Bank of Australia published an excellent chart pack each month on the economy and financial markets. The following are select charts from the September edition of the report.

1.Cash Target Rate:

Similar to other developed countries, the Central Bank of Australia has increased interest many times from almost 0% and the cash rate has reached 4.10%.

2.Central Bank Total Assets:

3.Consumer Price Inflation:

The official rate has started to decline from a peak 7.8% and has reached 6%.

4.Employment and Participation Rates:

After dramatic declines during the covid-19 pandemic, labor participation rates have picked up strongly.

5.Employment growth by Industry:

6.Exports by Destination:

China is the largest export destination for many Australian resources particularly iron ore. As China’s economy has stagnated, the demand for commodities has declined leading to the sharp decline in Australian exports to China.

7.Housing Prices and Household Debt:

8.Australian Share Prices vs. US and World Share Prices:

Australian equities as represented by the ASX 200 has underperformed US stocks for many years now. Global decline in commodity prices and demand could lead to further underperformance in the future.

Source: The Australian Economy and Financial Markets Chart Pack | August 2023, Reserve Bank of Australia

The Top 100 Auto Parts Suppliers To North America 2023

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Auto parts suppliers form a critical part of the automotive industry eco-system. Without the parts suppliers major auto makers would grind their operations to a halt. The auto parts suppliers make everything from electronic systems to seats and everything in between. The importance of the parts makers cannot be understated. For instance, airbag makers are vital to safety of passengers in any vehicle. From an investment point of view, I have always stated that parts suppliers are better than the auto makers themselves. Unlike auto makers, parts makers are not burdened with many legacy issues such as healthcare costs, pensions, etc. In addition, parts have to be replaced on a regular basis as part of maintenance and also consumers depend on new parts in times of recession as they tend to repair their cars and hold on to them longer.

With that brief intro, let’s take a look at the top 100 auto parts suppliers to North America based on sales in 2022. Canada-based Magna International (MGA) ranked as the top player followed by ZF North America and Denso International America. Lear(LEA) took the 4th spot followed by Germany-based Bosch.

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Source: Diminished Value of Georgia

Semiconductor giant Nvidia (NVDA) is the only chip company in the list above and was ranked 100th.

Disclosure: ADNT, ALV, MGA and CTTAY

On The Performance of Nasdaq-100 vs. S&P 500

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The NASDAQ-100 index represents the largest 101 non-financial companies listed on the NASDAQ exchange. It is a modified capitalization-weighted index. The S&P 500 index on the other hand is a free-float capitalization-weighted index is composed of the largest 500 companies trading on the US markets. The S&P 500 is more representative of the US economy while the NASDAQ index is heavily focused on technology. Since the tech sector has performed very well in the past few years, the NASDAQ-100 has outperformed the S&P 500 by a wide margin as shown in the chart below:

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Source: NASDAQ

The following chart shows the sector composition of the NASDAQ-100:

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Source: NASDAQ

The the sector breakdown of the S&P 500 index:

Source: S&P

At the end of second quarter, tech sector accounted for about 62% of the NASDAQ-100. If we add Telecommunications the weightage increases further to 66%. In the S&P 500, tech’s weightage is 28%. Even with the addition of Telecom the total comes to just 37%. Thus the high allocation of tech in the NASDAQ index is helping fuel the huge rally.

Financials account for over 12% of the S&P 500 while it has no allocation in the NASDAQ-100. The crash in bank stocks this year has adversely impacted the S&P 500 while NASDAQ-100 remains unscathed.

Consumer Discretionary has a high allocation in the NASDAQ-100 at 20%. If the US economy goes into a recession this sector is bound to get crushed. In the S&P 500 it accounts for about 10%.

Overall though NASDAQ-100 is soaring this year relative to the S&P 500, risk remains high for NASDAQ stocks. So investors need to take that into consideration when making investment decisions.

Related ETFs:

  • SPDR S&P 500 ETF (SPY)
  • Invesco QQQ Trust Series (QQQ)

Disclosure: No positions

Comparing Amtrak & Freight Railroads: Infographic

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Amtrak is the national passenger railroad company is the US. Unlike other countries Amtrak does not own most of the tracks its trains run on. Most of the tracks are owned by the freight railroad companies. So it is not uncommon Amtrak trains and freight trains compete for the same track at the same time. Since freight companies are the owners in many cases Amtrak trains would wait for clearance of the tracks. Below is brief excerpt from Wikipedia:

Amtrak’s network includes over 500 stations along 21,400 miles (34,000 km) of track. It directly owns approximately 623 miles (1,003 km) of this track and operates an additional 132 miles of track; the remaining mileage is over rail lines owned by other railroad companies. Some track sections allow trains to run as fast as 150 mph (240 km/h).

In fiscal year 2022, Amtrak served 22.9 million passengers and had $2.1 billion in revenue, with more than 17,100 employees as of fiscal year 2021. Nearly 87,000 passengers ride more than 300 Amtrak trains daily. Nearly two-thirds of passengers come from the 10 largest metropolitan areas; 83% of passengers travel on routes shorter than 400 miles (645 km).

Source: Wikipedia

Last year I posted an infographic on the differences between Amtrak and Freight Railroads. The following is another take on the topic:

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Source: AAR

Related Stocks:

  1. CSX Corp (CSX)
  2. Union Pacific(UNP)
  3. Norfolk Southern Corp(NSC)

Disclosure: Long CSX, NSC and UNP

On The US Energy Consumption Mix

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Oil and natural gas is the largest part of the US energy consumption mix. In 2021, it accounted for 70% according to EIA data. Though renewal energy is pickup in the past few years oil and gas will continue to play a major role in years to come. EIA projects the share of oil & gas in the energy mix would still be over 60% by 2050 though renewals gain share. Renewables alone are not possible to meet America’s energy needs. The 2021 Texas Energy Crisis is a classic example of this scenario.

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Source: Canada is the solution

From an investment point of view, the US is a long way from abandoning fossil fuels. Unlike some smaller countries the country and the current political system and infrastructure is not made for major adoption of renewable energy sources. Hence investors in oil and gas producers and related companies need not worry about the country becoming a renewable energy leader anytime soon.

Related ETF:

  • United States Oil ETF (USO)

Disclosure: No positions