Market Fever Index 2010 – and some thoughts on the mining industry

| May 5, 2010

In April, perhaps because of Easter or perhaps because the smart money is now moving towards real estate, the index fell back to cover only 908 items, which gives us a value of just under 47. The new, broader index gave us a total of 374,000 hits for the week in question, which became our baseline or 100. This month, I decided to use only the broader index, because there has been too much fluctuation in the results from the other sample. The number of hits has risen to 972,000 – which is a big change. The Easter week must really have had an impact.

I am beginning to think that we really need something a little more sophisticated to make this work. Does anyone have any suggestions?

Meanwhile, I am struck by another fever that has hit the Australian markets this week – mining panic! Billions of dollars are being wiped off the materials index because investors are selling mining shares, following the Government’s announcements of new tax regimes for the industry. It seems to me that people who should know better are making investment decisions with their gut, rather than their heads. Where is the evidence that what is being proposed in response to the Henry Review is going to damage the industry? So far, I have seen none, apart from screams by self-interested parties in the industry and populist politicians warning us that the sky will fall down if the Government sticks to its guns and makes the changes it has foreshadowed.

I own mining shares and I am not selling mine – in fact I might buy some more, because they are even better value now than they were a few weeks ago, thanks to panic selling by other investors. I am sure the shares will rebound when people give control to their heads again and realise that:

  • the new tax is on super-profits, which means no tax if there are no profits, whereas royalties have to be paid whether a company is making money or not;
  • companies will be given a credit for what they pay the states in the form of royalties, so there is no double-taxation;
  • new exploration will be boosted by generous new incentives;
  • infrastructure – ports, rail and so on – will finally be allocated the level of investment it needs – and did not get during the Howard years, when the profits of the book were squandered on middle class welfare;
  • China is not going to stop buying up all we can dig, just yet;
  • if the miners want to quit Australia, where are they going to go that offers the same level of stability, security and predictability?
  • if anyone does quit, I am sure someone else will step in – profits are still there to be made and this is how capitalism works;
  • oh, note for Messrs Palmer, Forrest et al – the minerals do not belong to you;
  • further note for Messrs Barnett et al – the minerals do not belong to you either.

__________________________________________

 Patrick Callioni is a former senior public servant, with the Queensland and Australian Governments, and is now the Managing Director of consulting company, Enterprise Intelligence Pty Ltd, which specialises in helping business to do business with government and vice-versa. His book Compliance Regulation and Financial Services is available at Amazon

www.enterpriseintelligence.net.au 

SHARE WITH: