Profiting From Australia’s Woes

It’s been a rough week for the Australian economy.  We’ve see a ‘surprisingly’ weak GDP print of just 0.2% for the last quarter or 2% for the year, but in nominal terms (with the effects of inflation excluded) GDP growth was just 1.8%, that’s the weakest figure since 1962 and it saw our AUD drop momentarily into the 60’s.  What makes this look even worse is our current account deficit blew out to $19billion for the same quarter.  To put that simply we had to borrow $19b to produce just 0.2% of economic growth.  Yesterday we saw retail figures fall for the first time in a year as well which is worrying as it is a sign we are ‘going to ground’ which will only worsen GDP.  This shouldn’t really come as too big a surprise as our real disposable income fell 1.2% per person for the same quarter (and is down 2.3% for the year!).  

This is our new post mining boom norm and its why we are seeing headlines like today’s AFR quoting Deutsche Bank predicting a 66c AUD by the end of this year and 50c next year.  That’s great for our exporters but will raise the cost of living for the rest as imported goods (and a $19b trade deficit highlights how much we do that…) go up in cost.  It’s also great news for gold and silver holders.  Most understand (and yes we’ve written of it many times) this relationship but few get the gravity of it.  So here is another example to highlight it.  Today we are at 70c, gold spot is at USD1126, and gold in AUD is $1605.  If the USD spot does not move an inch and if Deutsche (and they are certainly not alone) are correct, your gold will be worth A$1706 (up 6.3%) by Xmas and A$2252 (up 40.3%) next year!

On a final note, this week we saw both Canada and Brazil slip into outright recession.  Like us they are heavily reliant on the commodities at a time when commodities across the board are in the can.  At 0.2% we are not far off a negative print.  Let’s hope we keep it that way…