China Is Coming for our Iron Ore — Looking at African Mines for Supply

Dear Reader,

After plunging yesterday, stocks are set to rebound today.

Using Tesla Inc [NASDAQ:TLSA] as our barometer, you can see just how wild things are getting.

On Tuesday in the US, the electric car manufacturer plunged 21%. Overnight, it rebounded 11%.

In my view, the (big) tech bubble is in its death throes. And these highly volatile moves are evidence of that.

The good news for Australia is that, apart from the impact on sentiment, this tech bubble bust shouldn’t cause too much damage. Sure, there are some local stocks that could take a big hit, but overall, the market won’t fare too badly.

For example, the ASX version of the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) is known as WAAAX (Wisetech, Afterpay, Appen, Altium, Xero).

The largest stock is Afterpay, with a market value of $21 billion. Apple, on the other hand, has a market value of US$2.1 trillion. Apple is the largest stock in the world. Afterpay comes in at number 17 on the ASX.

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While Aussie investors don’t have to worry too much about the potential unwinding of the tech bubble, there are some far greater challenges ahead.

One is the utter incompetence of the Andrews government in Victoria. Having failed in its responsibility to its citizens, its main aim now is to promote fear, to in turn promote unquestioning compliance.

Meanwhile, the economic and human cost grows by the day. Brian McNamee, Chairman of Australia’s largest listed company CSL Ltd [ASX:CSL] is scathing of Andrews, saying:

Our response is disproportionate to the medical challenge.

The Premier is saying his opinion won’t change because of anger, but the truth of the matter is that I don’t think he even understands the severity of what is occurring, both in the economy and also in the human consequences.

I don’t know anyone who supports this plan.

We are an absolute outlier internationally.

It’s the most crushing policy in a sophisticated modern country with a dynamic city like Melbourne.

When voices as respected as this pop their heads up, you know things are serious.

Victoria represents around one-quarter of the Aussie economy. It’s currently in a depression. The longer this insanity goes on, the greater the damage to the state’s capital, both physical and intellectual.

This will set Victoria back for years, and perhaps permanently.

It’s similar (but probably much worse) to when Victoria broke with NSW in colonial times. Radical liberals in the state, led by proprietor of The Age David Syme, waged a long and determined battle against free trade in favour of protectionism.

This eventually led to the rise of a tariff-protected manufacturing class in Melbourne. It’s why the nation’s manufacturing base emerged in Victoria rather than NSW. It’s probably also why Sydney moved ahead of Melbourne in terms of wealth and size in the 20th century.

History is rhyming again.

Victoria broke with NSW and will pay a long-term price for it.

Australia’s other great risk is the ongoing punch-up with China. I’ve been warning about this for months. From The Australian:

Australia-China relations have been plunged into their worst ­crisis since the 1989 Tiananmen massacre after two Australian journalists fled to safety under ­diplomatic protection and ­Australian broadcaster Cheng Lei, who works for the state-owned China Global Television Network, was charged with endangering China’s security.

Then there’s this from the Financial Review:

One of China’s most voracious property developers Poly Global is shedding staff in Australia and has suddenly abandoned a late-stage deal with Lendlease, as tensions between the two countries escalate.

This week, after lengthy and advanced negotiations, Poly Corp abandoned talks with Lendlease about buying Bingara Gorge, a 200-hectare residential development and golf course in Sydney’s south-west.

The deal was worth as much as $300 million and would have represented one of the biggest residential development land deals in the past few years.

A property industry source said people involved had been told it was a last-minute “directive from Beijing”. Another industry source said the advanced discussions suddenly went “dead cold” and “shut down in the last few days”.

If you don’t think China is intent on punishing us as much as they possibly can, you’re not paying attention. It’s like a formerly amicable break up gone wrong, and one partner in particular wants retribution.

To all but those directly affected, it feels like a phony war right now. But China is coming for the crown jewels. It has its eyes set on our iron ore exports. True, nothing is ready to replace the dominance of the Pilbara’s red dirt anytime soon. China’s gargantuan debt burden is a greater risk of blowing up in their face and reducing demand for our ore in the short term.

But the CCP is all over Africa, which has iron ore deposits that could replace a considerable portion of Australia’s supply.

As I said, it’s a long way off. But you can be certain that’s the direction China are moving.

What is Australia’s plan B? We’ve sold dirt to China and leveraged the gains into property for the past 20 years. That, plus population growth, has been our sole economic policy.

If that’s all we’ve got, we are indeed in trouble.


Greg Canavan Signature

Greg Canavan,
Editor, The Rum Rebellion

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Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.

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