Salient to Investors:

William Pesek writes:

  • No country is more vulnerable to the dreaded slowdown in China than resource-rich Australia, as the mining boom that fueled nearly all of Australia’s recent growth is nearing a cliff of economic risk. Exporting natural resources led to the neglect and atrophying of other critical sectors.
  • Albert Edwards at Societe Generale says Australia is a leveraged time bomb waiting to blow, a credit bubble built upon a commodity boom dependent on an even greater credit bubble in China.
  • The unpopular Julia Gillard has been ousted by Kevin Rudd, the same unpopular lawmaker Gillard ejected from the prime minister job in 2010, but this won’t stop the opposition from winning the election scheduled for September.
  • Australia needs to focus intensely on increasing investments in infrastructure, education and training; to revamp a high-tax system that encourages many to seek opportunities abroad; to spread the vast wealth being amassed by mining companies.
  • China is ripe for a crash. Growth is likely to be closer to 5 percent than 10 percent. The 28 percent tumble in iron ore prices since February and the 11 percent drop in the Australian dollar in Q2 are harbingers of pain to come.
  • China’s central bank clamp down on credit will slow growth from Japan to Brazil and slam industries like autos, chemicals, heavy manufacturing, energy and steel.
  • If China needs to dump some of its $1.3 trillion of US Treasuries to bail out state-owned banks, markets everywhere will quake.
  • Australia boasts great exporting potential in agriculture, medical supplies and high-end machinery.


Ray Attrill at National Australia Bank says it is not obvious that neglected tourism, manufacturing and other trade-exposed sectors can quickly plug the hole in the deflating commodity bubble.

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