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EYE-BALL’s Herman on: Creative Destruction …

June 2, 2012
Herman O'Hermitage
Title:
Creative Destruction …
By: Herman O’Hermitage
Herman O'HermitageJoseph Schumpeter (1883 –1950) gave us the theory from his research of Karl Marx. See http://en.wikipedia.org/wiki/Joseph_Schumpeter

In most ways it is loosely what we term a bubble in the economic cycle. The capitalist system goes through a cycle of upturn, expansion (bull market), and downturn, plateau (bear market). It cannot be explained other than through excess production or consumption over hang. Where supply exceeds demand then prices must fall to clear surplus supply. If demand exceeds supply then we have an opposite shift.

In the ancient Taoist philosophy of I Ching (Yin and Yang) it is loosely in the cycle of accretion and decretion lie the seeds of one another. Night will follow day, as day will follow night. Boom will follow bust, as bust will follow boom.

People say that Communism is a broken model. I agree. The Boston School of Economics wants to say because Schumpeter says perfect competition is utopian and will not sustain proper research, then totally de-regulate markets. A bit of a stretch.

This leads to my disgust regarding Australia’s mining boom. Coal and iron ore prices have already turned down, yet we can’t increase supply fast enough. There are currently 39 mines in the Galilee basin extracting coal, and we are planning to construct another 37.  (Try searching Alpha Coal, or Kevin’s Corner). Similar is occuring in Pilbara iron ore. There are many other examples. During the week the ABS released retail sales, where WA was up over 12% and Victoria was down 1.1%.

Any well run extractive business needs to know that for each ton of production there is sufficient research done to replace that production with further geological proving up. Why doesn’t Australia see it’s natural bounty the same way. Bass Strait oil is now exhausted. It is thought that there is further oil to be had deeper under sea, more expensive to find and extract but when Bass Strait was in production did we spend enough on research to develop the whole concept. Largely no because there were easier sources of fossil energy like North West Shelf. Australia is totally at the mercy of international markets for petrol. At the same time we are constantly shipping LNG to Asia. We should be developing gas fuelled automobiles. We are but simply not enough.

See previous post: “A crappy new Year”

| Sep 13, 2011 | by Herman O’Hermitage| Linked Here |

In part it stated: …

“Early in the new year, the full picture of China’s issue will be in the markets. Where may they try to dump their excesses, particularly if they are condominiums in some Chinese satellite city? This will see demand for base metals collapse.

“Don’t over exaggerate this. Spot price will fall below contract price, for coal, iron ore, alumina, and bauxite.”

Yet our miners and our government continually tell us smile you have never had it so good. Smile while you watch avarice and greed sow the seeds of destruction. Creative destruction. I would advocate that in sensible economics if we can’t get the workers to build these new projects in WA, then maybe that is a warning that this boom has gone too far. Do we want to over inflate miners wages and other cost structures particularly as bases metal prices are falling.

We have far too many crazies running the show. An oligarchy of money and power. Gina Rinehart, Clive Palmer, BHP Billiton, Rio Tinto, McArthur Coal, Fortescue Metals, Julia Gillard, Wayne Swann. Rack off. Who owns those resources?

Our mining industry is an absolute disgrace.

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Click here to read more of Herman’s previous posts …

Herman …

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  1. June 2, 2012 at 3:37 pm

    An excellent post –

    The Government is as short-sighted as an elephant, has the brains trust of an ignoramus, and it is putting all its future plans in a mining boom already beginning to falter. The commodities index charts have already shown signs of a collapse. See chart below.

    The retracement on this chart hit the .618% Fibonacci number on the nose, and since then the fall in the index has gathered momentum. Purely on the back of this chart – the A$ v US$ has been a sell for some months, and the ‘mining boom’ is almost over in terms of the ‘great wealth’ it is going to generate for the Government via its MRRT.

    The miners know this, the Chinese know this, and the rest of the world is lumped in the ‘too hard’ basket trying to fight their way out of the GFC.

    Herman raises history – and in all things, we should learn from the mistakes of the past. This Government and the advisors they pay for the policies that come forth are woefully out of touch with reality. Gillard and her band of ‘Ali Barba’s’ are so far up the asses of those giving and receiving advices – one cannon shot would see them all tumble like nine-pins. There is not an independent thinker among them.

    The $500 billion ‘investment pipeline’ they trot out at every opportunity is monopoly money. It might happen if the A$ falls to near $A0.70c levels – see A$v$US chart below.

    On the strength of this chart you want to be short A$ … and the bloody stupid thing is that this is the best thing that could happen to the Australian economy and the bloody RBA and Government ‘fluked’ it. They were all set to change to whole of the Australian Industry sector based on the projected long term strength of the A$ – what fuckwits …

  2. June 2, 2012 at 3:43 pm

    People should fix home loan rates – the cost to borrow off shore is about to go up – flight of capital is about to happen as investors take profits expecting the A$ to fall – interest rates have about bottomed and if the offshore investment in the mining sector happens, that is about the only support for the A$ you will see. Look at the charts in the previous comments above and see what happened the last time the CRB index collapsed.

  3. Gerry Hatrick
    June 2, 2012 at 4:00 pm

    You have not mentioned the dutch disease, Should the AUD retrace to 70 to 80c to the USD will that recreate the wholesale desecration in B;uescope at Port Kembla or alumina, tourism and higher education. Most understand how in tourism we are isolated, one of the longest flights anywhere in the world, and so on, but do they understand Asia is developing their own higher education sector, and we compete against North America for those remaining students. What is lost will not come back. Gone forever. Only natural resources sustains us. We truly need some strategic thinking.

    So many years financing and diligence amounts to nothing. The recession in tourism wipes out the small entrepreneur. Only the massive can sustain the tsunami. Low inflation is expected with a consumption downturn.

  4. June 2, 2012 at 7:52 pm

    With so much hedging happening – and leveraged as well – who knows where the exposure is … the tourism operatior is burnt and won’t be back in any short time frame … the layed-off staff have moved on …

    Same with manafacturing, retail might see a spike … but imports will be come more expensive … tobe honest the economy will look like a dogs breakfast with forecasters having no idea about growth expectations … all the Governemmnt projections are off the table in any sustained downturn in the A$ …

    Th easy money that has been here for the last 4 off years will now become mor eexpensive … Australia won’t be seen as the safe-haven parking station – we will just become another in the crowd looking for the off-shore investors …

    The Sth Americans and African mine developers will become competitive and we need the lower A$ to compete …

    It’s a hard call on any matter at the moment – equity markets are about to tip off the edge as well – can we say that the Facebook float was the ‘death-knock’ …

  1. June 10, 2012 at 4:07 pm
  2. June 11, 2012 at 8:10 pm
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