rob zdravevski's blog

Vapour, Rays and Draft won’t pay the nation’s bills

“He {Labor federal Treasurer Jim Chalmers} has warned that the budget cannot rely on temporary revenue windfalls from high export prices for iron ore, coal and gas.”

https://www.afr.com/policy/economy/tax-revenue-near-limit-but-budget-is-still-in-deficit-20220915-p5biea

…..but Australia is heavily reliant on those commodities, their exports and the tax revenues.

This plays into the pragmatic comments Greg Sheridan made in his article titled “Our Climate Fantasy” dated July 30, 2022 (The Australian newspaper).

To paraphrase some of the article,

‘Australia has many projects set to go and it is important that Prime Minister Albanese rejects bans for the commencement of new gas and coal projects’.

“Resources and minerals are irreplaceable in our economy”

“moving to net zero will be expensive and reduce our living standards”

Australia needs to continue to develop its resources to help pay for the running a country this large (in area).

Whilst there is no capital gains garnered from the largest (subsidised) asset class in the country, being owner-occupied residential real estate, revenues from a dwindling individual tax paying base let alone the manufacturing or financial are not enough to cover the gap.

One needs to keep in mind that Australia can’t export solar, wind or hydro energy.

How reliant is Australia on ’these’ commodities?

Of the total credits of goods exported (FY 21-22) being $534 billion, metals ore and minerals ($172bn), coal $113bn), other metals ($14bn) and fuels ($87bn) accounted for $386 billion or 72% of all exports. (source: Australian Bureau of Statistics) 

And as reluctance to finance new project grows in lock step with shareholder ESG related pressures, the opportunities lie with the incumbents in those industries.

Climate activists are seemingly unaware of the financial and commercial reality behind notions such as government receipts, or being the lowest cost producer, the cost of building alternative power sources and the need for base load power for the modern world many enjoy.

I don’t think exporting fitness supplements, television programming, insurance or financial services adds up to much.

p.s. don’t bother replying to me using your laptop, mobile phone or internet connection let alone physical mail for it all requires some form of hydrocarbon, silver, silica, copper, chemical….in order for the message t0 be constructed and sent. If you are reading this, you are likely to be utilising many or all of those components.

Ahhhh…is carrier pigeon considered animal cruelty?

September 24, 2022

bv Rob Zdravevski

rob@karriasset.com.au

More about Natural Gas prices

I’ve received a host of correspondence about my Natural Gas views.

So here is one chart which narrows down my price and time target.

If I was to have stab, I see $5 in Natural Gas being reached in the last days of October or into the first 10 days of November 2022.

This is all coincides with a bunch of measures which I tabulate.

Then have a think of the economic and GDP positives this would low price and perhaps inflationary reprieve would have.

#Fed isn’t reading the prevailing market prices at all.

September 23, 2022

by Rob Zdravevski

rob@karriasset.com.au

Jon Bon Jovi said, ‘we’re half way there’

On August 24th, I wrote this note warning of a peak in Natural Gas prices.

Natural Gas peaked at $10.02 on August 23rd

A day later, this note cited a pending decline will affect certain stocks or the stockmarket in general.

Since August 25, the price of Natural Gas is 23% lower and the S&P 500 has declined 10%.

Commensurately, the share price of Oil & Gas companies have generally eased.

Some examples include Woodside and Exxon Mobil falling 9% while Occidental swooned 16%.

In that note, I called a $5 target for Natural Gas.

Well…….3 days ago NG traded down to $7.40.

To channel lyrics from a Bon Jovi song,

‘We’re half way there”.

I’m not sure if I want to insert the other half of that lyric being “Whoa, livin’ on a prayer” as my thesis seems to be based on more than a prayer.

But we are seeing deflationary news being presented right in front of our very eyes.

Gas, Oil and Gas (and derivative products such as Gasoline, Heating Oil and Distillate) prices have been falling for some months. So I remind myself that inflation reports publish lagging data and with the energy complex being both a large weighting of the inflation calculation and the last holdout in a broader decline amongst a host of commodity prices………

I’m amazed that the market pundits are ‘counting’ the rise in prices into their inflation argument but not acknowledging the subsequent decline in those prices as being plausible causes for an abating effect in future inflation readings.

Energy inputs are falling and this will have various positive effects on business and the consumer.

Time will tell.

September 22, 2022

by Rob Zdravevski

rob @karriasset.com.au