A comment on WA
Lynne Fraser recently posted an interesting observation about business conditions in WA on our Facebook page. While the nation permits itself to be distracted by the You’re-Voting-For-Me-Kevin-Rudd-not-Labour campaign, it is worth remembering what is really going on in the Australian economy.
Lynne summarises thus:
“Roger, you asked a while ago about the situation in WA, and you may know all this by now but I thought I’d pass it on. I caught up with a friend who’s in executive placement in the mining industry and she said the job situation is dire. Those on visa’s being laid off are having to go home because they can’t get another position within the 90 days, as the few vacancies are given to locals. The recruitment firms are also culling. She said it’s worse than it was during the GFC and the full extent of it hasn’t shown up in the job stats yet but will soon :/”
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Jo-Anne Hildebrand
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Hi Roger & the Montgomery Team,
We listen carefully to your commentary and we know now that Skaffold will guide our investment decisions (or we will ask the Montgomery Fund to do that for us, sooner than later) for the rest of our lives. We therefore understand why you do not consider mining stocks at the top of your value investments and why we do not now either.
I am though, glad to be able to contribute our view of it all, considering you have asked. Yes we have both been involved in mine and services closures in the past 6 or 7 months in WA and witnessed company executives striving so very hard to place staff and personnel to avoid redundancies often to no avail. It’s a little long but I hope you will indulge me by publishing it.
My Husband has been in senior mine management both principal and contract (ie service) for his entire career of over 40 years both on and off shore and we have seen booms bust and busts boom many times now. No one can ever get used to how quickly it all happens and for those who lose their positions, how ruthless it is.. It is something we still believe none of us who know it and have experienced it, prepare those who don’t, well enough for on the day that new starter – no matter their position – embarks on a mining career. Prepare, Prepare, Prepare as it may all halt tomorrow – that’s the nature of the game in mining but don’t venture too far away as will most likely be back on again before you know it.
What we see now though ‘from the ore face’ had the potential to be a wonderful thing and it is only our opinion and not one from more than observation from within the industry:
We see a range of resource related companies and their related services will start rolling again just as quickly as they cooled (perhaps as soon as the next quarter… or two), but only when it sees stability through China reaching the equilibrium they are so definitively striving for ( has it just happened…or perhaps not, but that huge pendulum seems to be coming to a less volatile swing) and most importantly…. Australia has stable governance again as that will govern hugely and always has governed hugely, the investment into the sector.
This boom/bust though will (should) have the most sustained outcome that we have seen in Australian mining history as the planned capex’s of the individual companies are met to reflect China’s moderating growth; always a planned thing for whenever it was going to happen, if one reads back on the beginning of this cycle from the annual reports and directorships’ points of view of all major and informed mining companies. The reactions to a nation such as China who can change policy overnight was always going to be a hard hitting when it did happen to those who have never experienced it before. The upside to the levelling off pain though should be the sensible growth trajectories going forward as a reflection of China doing just that and potentially the longest and most informed supply and demand cycle – with many smaller ones within it – we have ever experienced as a nation, although I’m sure China will keep us guessing so as to maintain its side of the control on the price of commodities.
If we could all step back for a moment: It is a wonderful thing that the ‘breathing of the resources industry’ as I have always visualised it will be much less volatile and therefore more sustained. If Australians stay informed by its nature and don’ t overindulge in the heights (albeit mini heights now) they CAN coast through the lows. Large companies will absorb (takeover) smaller ones to control supply as they see the oversupply being a danger to their own profits just as they always have done and China within their super nation will always ‘pull back’ and ‘let go’ growth now that they are rapidly learning how to do it, to create stability and control costs and then India and other emerging nations should follow suit if they are smart enough.
We need to educate each other of the wonderful legacy our nation’s lands gives us and use the plentiful times to innovate and plan for when we have technology that will not need natural resources at all, so our children do not inherit an impoverished nation. These technologies are in science fields right now – we have witnessed them – and Australia needs to be and stay at the forefront of their innovation for our childrens’ sakes.
Roger Montgomery
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Great work Jo-ANne. Thank you for your insights and thoughts. I am not sure that capitalism can co-exist with the kind of stablisation in commodities that you allude to. You really might need a benevolent dictator for that to occur…
xiao fang xu
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Australia is A welfare state; no mater who wins we are on the road to socialism.
With Labour we are going there faster than with liberals.
Unfortunately there is no Ron Paul In Australia.
Tim S
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The ABS stats have a similar relevance to Chinese GDP. I prefer the Roy Morgan numbers which appear to give a better reflection of what is happening in the economy. It showed an increase in unemployment from 9.7% (June) to 10.1% (July). The ANZ job ads also painted a similarly bleak picture.
Serious structural reforms are needed – not just lower rates to encourage people to further increase their exposure to an overpriced asset class (Aust. residential property).
Roger Montgomery
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You are bang on Tim. Structural reforms are exactly what is need. Not more of the same. Its funny listening to the government during the election campaign banging on about how their wonderful policies are going to improve everything. WHy didn’t they implement them last year or the year before. STructural reform is simple good management in practice and it is something you should engage in like breathing – it should be constant and automatic.
Dragon Tucic
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Yep! I was in a similar field in Newcastle but dealing with tradesmen. 12 months ago I could not find a fitter, they were the movie stars – prima donnas of the recruiting world. I left 3 months ago and I had over 30 on my books.
Roger Montgomery
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AMazing Dragon. Did someone ask “Have you checked the wheel nuts?”
Andrew Legget
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Yes we have the you-are-voting-for-kevin-rudd-not-ALP vs you-are-voting-for-our-tema-not-tony-abbott election. I fail to be inspired regardless fo what happens.
As for WA and Australia as a whole, i thought the stories about Detroit were quite interesting and show the dangers of what can happen when you align your whole economy to a single (and declining) industry.
If only two major parties actually came out with a vision and plan for making Australia more competitive and encouraging new enterprises and industries to call Australia home.
Roger Montgomery
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Make your vote count Andrew. Do you want more of the same?
Andrew Legget
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I plan too and already know who i am going to vote for. However, i am also practical enough to know that it would take some type of armageddon type event to change the hold that the elected members party has over my electorate.
I am at least thinking i can use the way the senate works to throw a spanner in the works.
Roger Montgomery
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What seat ANdrew…
craig.cory.54
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The flip side is my accountant there says he has never been busier.