Future of the Australian Economy: Both Sides of the Aussie Coin

In today’s Money Morning…the two sectors Australians can’t get enough of…you can get rich selling dirt, and house prices never fall, but is it really that simple?…and more…

If you listen to most mainstream financial analysts, there are only two ways to make money in this country. Sell dirt, or buy a house. And it seems like they’re always screaming from the rooftops about one of them.

It’s the same story every time. Either house prices never go down, so buy now and forget everything else… Or Australia’s foreign buyers will never lose their appetite for Aussie resources, so buy shares in any company digging holes, and forget everything else.

Reality, of course, is a little more complicated than that.

This week in Money Morning, your editors look at both sides of the Aussie economy.

Good news continues to roll in for the big Aussie resource stocks. But where can the really big gains be found? How long can this rally last? And when it does end, will it end as disastrously as the last Australian resources rally did?

And, on the other side of the kangaroo-emblazoned coin, housing. That classic Australian favourite, which has risen and risen in spite of probability, logic, and some would say sanity. Can housing keep going up forever? Are prices rising for solid economic reasons, or based on hype and hysteria? What are the dangers that could pop this bubble? And if a crash is coming, is there still time to profit before it hits?

Read on for your editors’ take on Australia’s two favourite sectors…

Australian Economy Recap

Greg opened the week with a warning for gold bugs. The yellow metal has been on a good run so far this year, but Greg argues that won’t last. Could this be one commodity that won’t recover along with the rest of the sector? To read why Greg expects a correction to hit gold and gold stocks soon, click here for Monday’s Money Morning.

On Tuesday Greg declared that the Australian economy is built on ‘debt and dirt’. Everything else is just details, utterly dependent on natural resources and the debt-fuelled housing market. That may leave us vulnerable long term.

We’ve already seen how badly Australia suffered when the last resources boom ended. And even a small adjustment in interest rates could send shockwaves through our housing market…and our banks.

But for now, lay those concerns aside. As good results roll in for reporting season, there are only two things you need to look at. If banks and resource companies are doing well, it’s bullish for Australian stocks. There may be risks long term. But there are gains to be made today. And Greg argues that, so long as this continues, both faces of Australia’s economy won’t fall. To read why Greg thinks you should keep your inner bear muzzled, you can find Tuesday’s Money Morning here.

Reporting season continues, and the results are mostly good. On Wednesday, Greg looked at the strong performance of mining giant BHP. The bear market in commodities was hard on resource investors. But the companies that have emerged from the other side are leaner, more efficient, and ready to profit from the rebound. Greg explained why these strong results aren’t just good news for BHP shareholders. They’re a positive sign for Australia’s economy in general. To read why, check out Wednesday’s article here.

On Thursday Sam looked at the other side of Australia’s dominant resources and housing duo. And he believes the outlook for the housing sector is much grimmer than it is for resources. You can find Sam’s Thursday article, with a look at why the housing dream is out of reach for so many, here.

Then on Friday, Sam explained why a crash for the Aussie housing market is inevitable. With so many retiring Aussies asset rich but cash poor, something has to give. Selling to fund retirements could soon be a much larger drag on housing. And even a small correction would leave many younger Australians who have just bought into the market holding more debt than the value of their homes. That’s a recipe for a crash. For Sam’s argument on why buying a house today could be the worst financial decision you ever make, click here.

And this week in the Financial Anarchists podcast we’re joined by an old Port Phillip Publishing veteran, who finds himself back in Australia. If you’ve been reading Money Morning for years, you’ll remember Nick Hubble’s irreverent take on markets, money, central banking and financial policy.
That was all from the Money Morning team for this week. The dance continues, with Australia’s two big sectors — real estate and the banks that profit from it, and resources — continuing to compete for Aussie investors’ attention.

Based on what we’ve heard this week, resources seem to be the current favourite.

But remember, the devil is in the details. You can’t just buy any company digging holes in the Outback and hope to profit. You need to find the best stocks, if you want a chance to ride the biggest gains from a renewed resources boom. To read Resources Analyst Jason Stevenson’s case for a few small Aussie companies that could lead the market this year, click here.

Thanks for tuning in. You’ll hear from us again on Monday!


Tyler Jefferson,
Editor, Money Weekend

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Numbers of Interest, as of Friday’s Close

Aussie Dollar to US Dollar: 77.12

Gold: US$1,249.85 (AU$1,620.63) per troy ounce

Silver: US$18.19 (AU$23.58) per troy ounce

West Texas Intermediate Crude Oil: US$54.34 per barrel

ASX 200: 5,739.00

Tyler Jefferson joined Port Phillip Publishing in 2012. With a background in publishing, he started out as part of the team working behind the scenes with your Editors to bring you Money Morning each day.

When he joined, Tyler was Port Phillip Publishing’s 12th employee. Today that number has grown to over 50, as more and more readers turn to Money Morning as their source for independent financial analysis and ideas.

Today as Managing Editor, Tyler still edits the articles you read each day. Along with that, he occasionally contributes to Money Morning with his own irreverent take on the most interesting news and opportunities for you.

Money Morning Australia