We are all getting nicely distracted by debate over the Carbon Tax but let's talk about something far more important. Firstly, some facts:
- The majority of the world's developed economies are either in recession or teetering on it.
- Yet the price of oil is currently over $100USD/ barrel. Apart from a brief sojourn in that range a year ago, it hasn't been so high since before the GFC, to which it is widely believed to have been a major contributor / trigger.
- The price of new gas in volume on the west coast of Australia is now well over $10/GJ, up from a fifth of that amount 10 years ago. People are talking about parity with liquids.
- The east coast price of gas is heading in the same direction with the Gladstone terminals dragging the domestic price up to international parity (which is why they are being built). Large amounts of the new supply that has been mooted need that price to be brought to the market. We are eating through the lower cost stuff pretty quickly.
- The price of newly contracted thermal (energy) coal on the east coast of Australia is now over $100USD/tonne, up from a fifth of that amount less than a decade ago.
- It is likely that new coal supply on the west coast would be in a similar range.
- There is a massive catch up of investment required in electricity networks across all mainland states of Australia following decades of under investment following de-regulation. This has only just commenced and is the major contributor to higher electricity prices already.
- As for the price trajectory of mining commodities, well we all know about that. This makes the cost of new power and energy infrastructure that much more expensive to build, due to the higher costs of steel, concrete, etc etc etc.
- Not to mention the price of food commodities is now also testing new highs globally since the GFC - e.g. the price of soyabeans more than double 2006 levels.
That'll do for now. Am I the only one concerned about all this? Relatively small movements in these prices make the impact of the Carbon Tax look puny. And yet this is all happening while the world is still in the grip of the "Great Recession". What happens to energy / food prices if we somehow stage a recovery? We have inflationary pressures from massive money supply stimulus as well as high energy prices in the face of effectively zero (being kind) economic growth globally in the developed economies - not a good look.
It's hard for me to see a way out of the global economic situation while the drag of massive govt debt and high energy / commodity prices is so strong. This drag could last for well over a decade or more from where I sit and there are no cheap sources of energy to turn to - renewables, nuclear etc are all more expensive than the status quo although the gap is closing fast and almost breached in some locations. The amount of concrete and steel required for new nuclear build means that it is likely to continue to be an expensive option well into the future.
Sure Australia gets some upside through commodity prices for export, our economy is still growing well and I'm certainly not saying "don't buy property". I guess what I am saying is that cash flow will remain king for me for some time to come - speculative capital growth in property in the face of these facts still looks very risky... even if some get excited about interest rate drops.
Thoughts anyone?
- The majority of the world's developed economies are either in recession or teetering on it.
- Yet the price of oil is currently over $100USD/ barrel. Apart from a brief sojourn in that range a year ago, it hasn't been so high since before the GFC, to which it is widely believed to have been a major contributor / trigger.
- The price of new gas in volume on the west coast of Australia is now well over $10/GJ, up from a fifth of that amount 10 years ago. People are talking about parity with liquids.
- The east coast price of gas is heading in the same direction with the Gladstone terminals dragging the domestic price up to international parity (which is why they are being built). Large amounts of the new supply that has been mooted need that price to be brought to the market. We are eating through the lower cost stuff pretty quickly.
- The price of newly contracted thermal (energy) coal on the east coast of Australia is now over $100USD/tonne, up from a fifth of that amount less than a decade ago.
- It is likely that new coal supply on the west coast would be in a similar range.
- There is a massive catch up of investment required in electricity networks across all mainland states of Australia following decades of under investment following de-regulation. This has only just commenced and is the major contributor to higher electricity prices already.
- As for the price trajectory of mining commodities, well we all know about that. This makes the cost of new power and energy infrastructure that much more expensive to build, due to the higher costs of steel, concrete, etc etc etc.
- Not to mention the price of food commodities is now also testing new highs globally since the GFC - e.g. the price of soyabeans more than double 2006 levels.
That'll do for now. Am I the only one concerned about all this? Relatively small movements in these prices make the impact of the Carbon Tax look puny. And yet this is all happening while the world is still in the grip of the "Great Recession". What happens to energy / food prices if we somehow stage a recovery? We have inflationary pressures from massive money supply stimulus as well as high energy prices in the face of effectively zero (being kind) economic growth globally in the developed economies - not a good look.
It's hard for me to see a way out of the global economic situation while the drag of massive govt debt and high energy / commodity prices is so strong. This drag could last for well over a decade or more from where I sit and there are no cheap sources of energy to turn to - renewables, nuclear etc are all more expensive than the status quo although the gap is closing fast and almost breached in some locations. The amount of concrete and steel required for new nuclear build means that it is likely to continue to be an expensive option well into the future.
Sure Australia gets some upside through commodity prices for export, our economy is still growing well and I'm certainly not saying "don't buy property". I guess what I am saying is that cash flow will remain king for me for some time to come - speculative capital growth in property in the face of these facts still looks very risky... even if some get excited about interest rate drops.
Thoughts anyone?