Red, White and Blue – or perhaps just Red will do.
THE CONFERENCE CALLER: At the end of another resources conference season, the question to be answered is no longer ‘Are we there yet?’, rather, ‘Who do we believe can lead us out of the mire?’
Leading off at the recent Brisbane Mining 2015 Conference, Westpac Institutional Bank director of Economics Justin Smirk took the gathered crowd on a journey back in time.
“I have been though the booms, the rise, the bust – I remember the denials when the boom first started that it would be anything other than wonderful,” he said as he opened his presentation.
“And I also remember the heads in the sand when it peaked and everyone said it was going to go on forever.”
It has been seven years since the effluent hit the fan (2008 for the mathematically challenged) and when it did happen, Smirk reminded us, expert commentary decided it would take the world economic community a good seven to eight years after the Global Financial Crisis (GFC) to show signs of recovery.
Their thinking it was based on research around at the time that said such calamities usually take seven to eight years to recover.
These predictions weren’t from the chronicles of Nostradamus, but were supposedly built on statistics from previous global banking crises, which did actually occur it’s just that when the good times roll we somehow manage to block them from personal anecdotal histories.
Of course, the impatient types amongst us have been trying to hasten the recovery, declaring at Christmases 2009 through to now that next year will definitely be the year we bounce back.
There are green shoots everywhere, we’ve been told, which come February have failed to take root leaving us waiting and wondering when the light we could see at the end of the tunnel wasn’t just a torch beam being reflected back at us by some ghoulish Ghost Train-like presence to taunt us.
While not totally predicting the end to all our woes, Smirk did suggest there was some relief ahead.
“The US is growing again,” he said
“We’re seven years now – the US is recovering.
“It has low levels of income and investment, it is a very fragile economy, but it is on a road to recovery nonetheless.
“Spending is occurring and investment is happening at a modest pace.
“Jobs are being created and the unemployment rate is falling.
“More importantly, the ratio of those working to total population is rising – that gives us a point of where the recovery is – it is a US-led global recovery.”
If Santa Claus had have been in the room there would have been a very long line of investors, mining company directors and financiers all willing to patiently sit on his knee to reveal the contents of their respective wish-lists, which would no doubt have been to, ‘please make Justin’s predictions closer to being right on the money than a touch off target’.
A global economic revival led by the United States may very well be on the cards, however it didn’t take long for the biggest kid in the emerging economy playground to take centre stage.
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“The Chinese economy is relatively weak – if you call six per cent growth weak,” Smirk ventured
“A lot of countries around the world would love to have half of that growth.”
Smirk declared the Chinese economy was not about to collapse and disputed media reports that might suggest the opposite saying that quite often the fourth estate runs ahead of reality.
“Yes, the Chinese economy is slowing down,” he acknowledged.
“It is not responding the same way in which is used to and they have to find a new growth mechanism base domestically, but it is not about to disappear.
“It still has a base built on urbanisation, industrialisation, productivity growth and income growth that every developing economy goes through.”
Smirk wasn’t the only one of the Conference presenters to highlight the effect the Chinese could have on the future.
CRU consultant Dr Allan Trench looked at the possible ups and downs of a number of commodities, however it was his outlook on gold that caught our attention.
“Predicting the gold price is one of the hardest things to ever try to do, and is the quickest way to lose any credibility as an economist,” Trench admitted.
“I think I can speak as an economist when I say there are only three things that could possibly happen to the gold price: it can either go up, stay the same or go down.”
Trench outlined a couple of possible scenarios that could results in either good or bad news for the shiniest of base metals.
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He said the consensus US-centric view is that as interest rates are lifted by the Federal Reserve it tends to be a bad result for gold.
However, there is also the Chinese-consumerism view, which he said hardly ever rates a mention in discussions regarding gold’s outlook.
“The Peoples’ Bank of China have been adding to its reserves at the rate of around 100 tonnes per annum,” he said.
“China is the number one gold producer in the world and in terms of consumption goes it is neck and neck with India – sometimes India wins, sometimes China wins.”
Trench said one possible scenario for the future gold price is that China could end up doing for the gold price what it did for the iron ore price in the past decade.
He suggested the gold price could find itself playing a highly-positive role should Chinese consumerism really develop a stronger interest, which has been happening to some degree.
“I do think the Chinese consumer scenario is very real,” he said.
“In any other commodity, other than gold, would you ever hear a market dialogue that doesn’t include a discussion of China?
“And yet in gold, all you hear about is US interest rates – nothing else – and China is the number one consumer of gold, the number one producer, and has the fastest growing consumer in the world.
“I think there is a potential Chinese consumption story for gold.”