Hot Profits as Aussie Economy Cools Down

One of the regular themes that I’ve been preaching in this column for years is that, if you want to make some memorable (and ongoing) returns, you want to get long whatever China is buying.

As my subscribers have found time and again, the best way to do that is to invest in companies that get a growing percentage of their overall revenues from China and its Asian neighbors.

At the same time, you want to avoid U.S. companies that don’t stand a chance against their low-cost Asian competitors and also those that are seeing their Asian business shrink thanks to other global-focused companies giving them an impressive run for their money.

The same warning isn’t just limited to companies … the same is true for countries themselves. And one country that is seeing its Asian business shrivel up like a prune in Australia.

Chinese Business is Booming …
Just Not for Australia Anymore

China simply isn’t buying as many natural resources from Australia as it used to. That’s because it is transforming from a manufacturing, export-dependent economy into an economy that’s fueled by internal, domestic consumption.

Australia has enjoyed a decade-long economic boom thanks to its rich natural resource base and proximity to China … to the point that it is now dependent on China as an export market for its raw materials.

The Chinese juggernaut isn’t what it used to be, as the nation has been transforming from a manufacturing to an internal-demand, domestic-consumption-based economy.

Australia, as a raw materials exporter, is seeing its economy roll over as slumping commodity demand and falling commodity prices are punching it in the economic breadbasket.

More Bad News for Australia

Iron ore is Australia’s most-important export and accounts for roughly 20% of Australia’s total exports. The price of iron ore dropped by almost 17% in the month of May and fell another 9.4% in the first week of June.

I don’t think that too many investors are surprised that China’s slowdown has affected Australia’s natural-resource business, but the slowdown is spreading to other parts of the Australian economy.

  • The manufacturing sector has contracted for the 23 months in a row. In fact, Ford (F) just announced that it was closing its Australian plant and discontinuing its Australian operations that had been running since 1925.
  • The Australian Bureau of Statistics reported that imports — cars, electronics, clothes — have declined by 4.4% in the first three months of 2013.
  • Australian shoppers are feeling pinched; retail sales fell by 0.8% in April.
  • The number of classified advertisements for jobs in Australian newspapers fell 7.6% in May and are 45% below the same period last year.
  • Australian real estate prices are falling; the average home price saw a year-over-year drop of 1.2% in May, after a 0.5% decline in April.

Just last week, the Australian Bureau of Statistics reported that Q1 GDP came in at an annualized +2.5% rate. That was:

  • Below the 2.7% expectation.
  • The slowest pace in almost two years.
  • The first time GDP has been below 3% since the last quarter of 2011.

The culprit was the slowdown in the natural-resource industry. Western Australia, which is the hub of Australia’s natural-resource riches, saw its economy shrink by 3.9%.

Other resource-rich parts of Australia suffered similar contractions. The Northern Territory contracted by 10.2%, Tasmania by 1.1%, and South Australia by 0.3%.

An even more ominous sign for the future is that final domestic demand fell by 0.3% in Q1. Australian consumers aren’t feeling prosperous and they are appropriately cutting back on consumption.

The Australian stock market’s main index, the S&P/ASX 200, has already rolled over but I expect the damage to get even worse.

I need to disclose that my Blue Chip Options Alert subscribers owned put options on the Australian stock market and cashed out with a cool 20%-plus return in just four trading days by betting against the S&P/ASX 200.

That doesn’t mean that you should rush out and short the Australian stock market tomorrow morning. As always, timing is everything so I suggest that you wait for my next buy signal in Blue Chip Options Alert.

However, you'd better have a strategy for protecting — if not profiting — from falling stock markets. 2013 started off with a bang, but the rest of the year is shaping up to be difficult, if not outright painful.

My little-known but highly accurate "ABR Indicator" tells me exactly which stocks are positioned to catapult or plummet, and my subscribers had the chance to nab gains of 100%, 72.58%, 33.33%, 22.8% and 14.9% on their last five trades.

And it didn't take long to reach these kinds of returns — these trades ranged anywhere from three days to 40 days in duration, with the bulk of the gains being generated in just a week's time.

To discover how you can use this secret stock signal to juice up your own returns, you can click here to watch my video about it now.

Best wishes,
Tony


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Posted 06-17-2013 4:02 PM by Tony Sagami
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