Investing in Australia?

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Travlin's picture
Travlin
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Posts: 1322
Investing in Australia?

I am a US citizen and resident who is considering investing in Australia.  I’ve done some research, but before I go further I’d like to get other people’s thoughts, especially members living in Australia.

My primary purpose is to diversify out of the US dollar and the US economy, to preserve the value of my assets.  Making a real return above that would be nice.  I think Australian dollars would hold value better than the US variety, but probably still decline in absolute terms, so I think access to equities is important.

First question – Is Australia a good place to invest?  Here are my impressions, which may not be accurate.

Pro

Rich in natural resources

Huge market nearby from Asian manufacturers

Relatively stable economy

Relatively stable currency

     It is not a target for currency speculators

     It is appreciating against the US dollar, about 5% since November

Relatively stable government

     Fiscal policy better than most

Speak English

 

Con

Little oil and natural gas, but close to Asian sources so not dependent on the Middle East

Still forming a bubble in housing and maybe other sectors

Government debt is growing

     High taxes

     Socialist tendencies, recent fiasco of new tax on mineral extraction

Banking system has a long history of failures  http://en.wikipedia.org/wiki/Australian_banks

     Concentrated in four banks, so they are “too big to fail” and would get bailed out at everyone’s expense

     I don’t know about deposit insurance

Dry climate and unstable long term weather patterns make food production difficult

On balance, after Canada, my impression is that Australia may be the best alternative for investments out of the US.  As a bonus, its economy is not as closely tied to the US as Canada.  However, my knowledge is superficial and I really want critical opinions from others with knowledge and experience.

Second question – How can I invest?  Here is what I’ve found so far, but I welcome corrections and other thoughts.

EverBank in Florida supposedly offers the Australian dollar, and many other currencies, but they are really just futures contracts, and they won’t even quote exchange rates.  Not appealing.  https://www.everbank.com/personal/foreign-currencies.aspx?referid=11966

The Perth Mint in Australia is a cumbersome and expensive government sponsored bureaucracy.  I can do much better elsewhere for precious metals.

I can open a brokerage account with Peter Schiff.  I read his book, Crash Proof, and watched his videos.  I don’t trust him.  Anyone who sells through the Perth Mint is looking to make a buck at my expense.  He knows it’s a dog.  Besides, I want my cash balance out of US dollars, and securities out of the US system.

HSBC (a bank) offers Australian dollar accounts to US citizens with online service.  I would guess they offer brokerage accounts for equities and bonds as well.  This is a fairly straightforward way to gain the access I seek.  My main reservation is this is one of the world’s largest banks, and one of the most geographically diversified.  To me this means it is also very vulnerable to shocks to the global financial system.  If it collapsed I could lose my whole investment.  I recently learned that even though it has its headquarters is in London it was originally based in Asia, which is a plus.  HSBC = Hongkong and Shanghai Banking Corporation  http://en.wikipedia.org/wiki/HSBC  http://en.wikipedia.org/wiki/The_Hongkong_and_Shanghai_Banking_Corporation

The scenario – How this might work for me

If the dollar was crashing I would have assets in a currency that is likely to be relatively strong.  As world equity and bond markets crash, I would be able to buy Australian stocks or bonds at good prices, in an economy that should fair better than nearly any other country because of its strong base in natural resources.  I am aware that demand for those resource would decline, but they are still a solid base for the economy and a trade surplus.

That’s my theory anyway.  Of course it is all relative.  If the global financial system totally collapses then all fiat currencies are at risk.  Peak Oil could bring the Australian economy to it’s knees.  China could decide to annex Australia.  Anything is possible.

I would greatly appreciate anyone’s thoughts or knowledge about any part of this.  You don’t need to tackle the whole thing.  Poke it full of holes.  Do NOT be kind or gentle.

Thanks for considering this.

Travlin 

nigel's picture
nigel
Status: Silver Member (Offline)
Joined: Apr 15 2009
Posts: 138
1st thoughts
  1. I read an article about 4 years ago that suggested the Australian dollar was in the top 5 for frequently traded and speculated on.
  2. We have not yet had our housing collapse, it will come very soon, I believe that we have 5 of the top ten most unaffordable cities in the world.
  3. Steve Keen has a website called debt watch that is worth looking at for long term trends, Australian Economist, predicted the gfc.
  4. Your con is wrong, huge reserves of natural gas, however we reached peak oil in the last few years and that will become a problem soon.
  5. You are correct about the big four banks, in the GFC they were guaranteed by the government.
  6. Most people would suggest using the ASX (australian stock exchange) to invest.
  7. Heavy Government regulation, in all areas.
  8. Perth Mint was too expensive for me, I got all my bullion through ABC (Australian Bullion company).
  9. We are on an economic upswing drivn by resources at the moment, as long as asian nations are still growing so will AU, that is something to watch.
  10. We are a nation of farmers, miners, and city dwellers (can't figure out why anyone would want to live there).
  11. We have long term electricity, huge coal and uranium reserves. I would invest in australian power companies in the next 3-5 years.
nigel's picture
nigel
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Posts: 138
Oh, and the australian

Oh, and the australian dollar hasn't appreciated against the us dollar, the us dollar has lost about 40% of it's value relative to other nations, due to I assume QE. Picky I know, but it's not a case of significant strength in the australian dollar, it's a case of other nations debasing thir curreny or manipulating the value of it.

Travlin's picture
Travlin
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Posts: 1322
Thanks Nigel.  That is

Thanks Nigel.  That is exactly the kind of response I am looking for.  More are welcome.

Travlin 

SteveW's picture
SteveW
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Posts: 490
Second question – How can I invest?

Travlin, perhaps the easiest way to invest in Australia is EWA (NYSE). While the ETF is USD denominated the underlying assets are AUD so you should be completely exposed to foreign exchange risk (gain).

HSBC offers online brokerage for several major world markets. Trading the Australian market is by telephone, at least for Canada, and minimum commission is AUD200.

Some Australian mines are listed on the TSX and if you are interested in PMs then the Central Fund's offerings are dual listed on TSX/NYSE so you could buy in USD and sell in CAD using the two exchanges.

nigel's picture
nigel
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Posts: 138
Lihr Gold - excellent

Lihr Gold - excellent company to invest in

Australia has significant "Rare earths. " The mines whilse not currently active will be online faster than most of the ones in planning today. Australia should pick up the chinese shortfall in rare earths, and as such in the next 1-3 years represents an excellent buy, from memory there already was a thread in the cm forums about investing in rare earths in australia.

Damnthematrix's picture
Damnthematrix
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Posts: 3998
Little oil?

Australia will be totally out of oil by 2020.  Then it's curtains. http://damnthematrix.wordpress.com/

There are only three things to invest in:

Water
Food
Shelter.

Everything else is bling.  So I would invest in getting self sufficient and debt free in all three.  If you have wealth left over after you've done that, good luck to you.......

After Easter, we are going to check out Tasmania.  As soon as we are able to, we're heading South, as far away from the madding crowd as possible.  If there exist any CMdotcom lurkers out there who'd like to meet us, send me a PM.....  I'd like to know what others are doing to prepare for the looming lunacy..

Mike

ao's picture
ao
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Posts: 2220
thumbs down on Oz

Travlin,

I'm not sure if you've read Collapse or not but it describes how poor the soil is in Australia.  It currently requires an unsustainable input in terms of irrigation, fertilizer, etc. to keep things going because of the low fertility of the soil.  They will have problems because of this issue.  Also, what other natural resources does Australia have other than mineral ores?  They don't have good soil, they don't have readily available fresh water, they don't have good rangeland and pasture, they don't have vast forests, they don't have abundant fossil fuels, etc.  I don't have much greater confidence in the long term prospects of the Australian economy than I do in the American economy.  I don't like EWA either.  I was invested in it at one time but when I dug deeper, I decided to exit my position.  It currently is invested over 35% in financial services, significantly more than in basic materials.

If I'd pick any other country to put my money, it might, might, be Canada just as a fallback position and because it's over the border (about a 3 1/2 hour drive for me) and a commodity based economy.  I'm not too thrilled about them though either.  I don't know how much you're planning on investing but if it's sizeable and you just want to have some wealth offshore, why not some bullion in Switzerland or a similar type of non-fiat currency based investment in a secure and stable locale?

Personally, other than cash, precious metals, and arable land, I don't see anything that I would want to invest larger sums of money in now.  I've run through the same scenarios that you're considering and, quite frankly, eventually, I don't think there will be a safe haven on the planet, either in terms of geographical location or in terms of  "investments".  That, in fact, is one part of what is unfolding ... to strip us of our materialism and covetousness and shift our reliance out of the physical.     

  

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Damnthematrix
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Posts: 3998
Tasmania
ao wrote:

Travlin,

I'm not sure if you've read Collapse or not but it describes how poor the soil is in Australia.

That's why we're heading to Tasmania....  after years of battling to make the soil here any good (and succeeding to a large extent), I'm watching it all getting washed away in the wettest summer on record.  Having said that, Tasmania has just suffered some of the worst flooding ever too!  But I know people there who practice Permaculture and they tell me it's the only place to be, the soil is great, and there are still great forests there, but no oil and no coal, loads of hydro.

Best of all.......  it's almost uninhabited, by western standards at least!  And the price of real estate is half what it is here in QLD, so we should be well cashed up to buy when we land there.  http://www.taspr.com.au/36493/

And look what this guy's doing there.. http://www.sbs.com.au/food/blog/111942/Gourmet-Farmer

I just wish I was ten years younger.  Actually, make that twenty!

Mike

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Tasmania
Damnthematrix wrote:
ao wrote:

Travlin,

I'm not sure if you've read Collapse or not but it describes how poor the soil is in Australia.

That's why we're heading to Tasmania....  after years of battling to make the soil here any good (and succeeding to a large extent), I'm watching it all getting washed away in the wettest summer on record.  Having said that, Tasmania has just suffered some of the worst flooding ever too!  But I know people there who practice Permaculture and they tell me it's the only place to be, the soil is great, and there are still great forests there, but no oil and no coal, loads of hydro.

Best of all.......  it's almost uninhabited, by western standards at least!  And the price of real estate is half what it is here in QLD, so we should be well cashed up to buy when we land there.  http://www.taspr.com.au/36493/

And look what this guy's doing there.. http://www.sbs.com.au/food/blog/111942/Gourmet-Farmer

I just wish I was ten years younger.  Actually, make that twenty!

Mike

Sorry to hear of your struggles Mike.  I know how hard you've worked on that place.  I checked into Tasmania when Logan's Run mentioned it and it looks interesting but visually, it has strange feng shui.  Heavily forested areas (especially with eucalyptus type trees) would be a concern from the standpoint of fire and mining would be a concern from the standpoint of groundwater contamination.  Also, soil fertility seems to be highly variable but the abundance and diversity of vegetation in a number of areas would seem to be a plus.  I don't know how seismically active it is but, given what we've seen recently, I'd check that out carefully.  Check into wind too.  Being in the Roaring Forties, it could be an issue.  Locals don't usually talk about that but in some areas, the constant winds can drive one buggy.  Good luck. 

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3998
ao wrote: Sorry to hear of
ao wrote:

Sorry to hear of your struggles Mike.  I know how hard you've worked on that place.  I checked into Tasmania when Logan's Run mentioned it and it looks interesting but visually, it has strange feng shui.  Heavily forested areas (especially with eucalyptus type trees) would be a concern from the standpoint of fire and mining would be a concern from the standpoint of groundwater contamination.  Also, soil fertility seems to be highly variable but the abundance and diversity of vegetation in a number of areas would seem to be a plus.  I don't know how seismically active it is but, given what we've seen recently, I'd check that out carefully.  Check into wind too.  Being in the Roaring Forties, it could be an issue.  Locals don't usually talk about that but in some areas, the constant winds can drive one buggy.  Good luck. 

Ah well, you know what they say....  "life's a bitch and then you die!"  Absolutely everyone I know is bitching about the rain....

Of course if I move two and half thousand miles, I'm not compromising ANYTHING.  Unlike here...  where I built a long narrow house facing N on a W facing block!  NEVER AGAIN....  this time I'm getting land facing the Equator.  A bit of a hard ask in S Tas where most of the land runs to the sea, ie facing S!  And we're heading for the Huon Valley (done lots of homework) where it appears anyone with my kind of wishlist goes to.

Earthquakes are extremely rare in Australia, even rarer in Tas.  They had one the other day that made the news:  M2.8.  Big deal.

Wind is a plus AFAIC.....  we'll almost certainly have a wind turbine there (the solar resource is substantially lower than where we currently live), and Permaculture being a DESIGN SYSTEM, well you design to suit you, so windbreaks wherever appropriate etc.......  In any case, there's a huge widerness area between the Huon Valley and the roaring forties (which come from the W).

Don't worry about me........  I have learned a lot from what we did here, and I'm not into repeating mistakes!

Mike

SteveW's picture
SteveW
Status: Gold Member (Offline)
Joined: Jan 21 2010
Posts: 490
Damnthematrix wrote: And
Damnthematrix wrote:

And look what this guy's doing there.. http://www.sbs.com.au/food/blog/111942/Gourmet-Farmer

Wow Bramleys, haven't seen any of those since I left England over 45 years ago.

Good luck with the move Mike.

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