Random Analytica

Random thoughts, charts, infographics & analysis. Not in that order

Category: Economics

Random Analytica: Dow Jones Industrial Average closes down 1,032-points (-4.15%)

The Dow Jones Industrial Average closed down 1,032-points overnight. This marks the second time in history that Index has closed down more than 1,000-points in a single day and is the second worst point’s on record. Although not even close to the worst day historically it does signal a surge in volatility that is spooking investors. Here is the updated chart.


Some analysis via the Australian Broadcasting Corporation. Dow Jones plunges over 1,000 points as Wall Street and European sell-off deepens. Excerpt:

The blue-chip Dow Jones index closed 4.15 per cent lower at 23,860. In the final hour of trade, the S&P 500’s and Nasdaq’s losses deepened to 3.75 and 3.9 per cent respectively. The Dow and S&P are in correction territory, having fallen by more than 10 per cent since January 26, when they hit record highs.”

“The dust hasn’t settled yet, and I think both buyers and sellers are trying to figure out what this market really wants to do,” said Jonathan Corpina, Meridian Equity Partners’ senior managing partner. “I would think that this continues to happen for the next few trading sessions for everything to kind of get flushed out.”

Every S&P sector posted losses, with financials (-4.3pc), technology (-4.3pc) and consumer cyclicals (-3.9pc) being the worst performers. US market volatility jumped by 27 per cent overnight, with CBOE’S volatility index (VIX) rising to 35.17. The measure for market anxiety has more than doubled since last Friday — prior to the mass sell-off when the VIX index was at the relatively low 14.3

Furthermore, the London, Paris and Frankfurt indexes tumbled overnight, with falls between 1.5 and 2.5 per cent. During the European session, the Bank of England voted unanimously to keep British interest rates on hold. But the UK central bank warned rates may need to rise sooner, and by more than it had previously expected, due to an improving global economy.

Random Analytics: Mining the Economic and Labour Data

When it comes to Economics and Labour, Australia has more in common with countries such as Chile and Russia rather than the US, UK, or the more unfortunate economies of Spain and Greece.

Yet when it comes to political and business dialogue we are constantly swamped with examples of economies that have no resemblance to Australia’s. This is especially noticeable each month as the labour figures are released and anytime a politician or business group discusses the country’s finances.

Examples of this bias can be found in almost every aspect of political dialogue.

Federally, Labor will constantly compare any economic or labour data update against developed world. Most developed countries are service based or declining manufacturing based economies. Of the developed economies only Australia and Iceland have a greater than 40% mineral export exposure (using 2010 data). Although similar to Australia in many respects the next country in that group with high exposure to mineral exports is Canada with just a 11.9% exposure to the minerals sector.

The Liberal opposition will constantly emphasise saving economies such as Norway who consistently run budget surpluses. At the same time they won’t mention Norway’s prosperous welfare state including high levels of state ownership and high public service employment levels. In his most recent speech Tony Abbott was happy to disregard the bulk of the Global Financial Crisis, except where he could talk up the growth and prosperity of Australia which as he stated ‘happened for the last five or six years of the Howard Government’. Just to jog your memory this was the period 2002-2007, the crescendo of the pre-GFC boom times and mineral exports.

Business is not immune. One of Australia’s most prominent mineral exporters, Gina Rinehart recently stated “warned Australia risks becoming another ‘Greece, Spain or Portugal’ unless it cuts government debt and lifts its competitiveness”.

If you want to understand the Australian economy in a global context you are better served by looking at OECD level (or like) countries that are predominately commodity exporters (specifically minerals).

To that end I have listed five core countries plus Australia which I believe are better indicators of the Australian economy. They are Chile, Russia (non OECD), Canada and Sweden. I have also included the limited minerals exporter Norway (it is actually a prominent oil/LNG producer but a good comparison country all the same).

Table 1: Similar countries to Australia (ranked according to ICMM contribution)


To begin, let’s look at two Labour indicators.

Labour – Unemployment

While unemployment is constantly compared by Federal Labor against the developed world the Liberal opposition tends to avoid direct comparisons. The reason for the difference is that Australia’s official unemployment has been very strong, even amongst other commodity producers. Here are two different views of the global unemployment rates, the first showing the six core mineral producers over the past decade (Figure 1) and to show how bad it could have gone a comparison of my best three mineral exporters by unemployment rate against Greece and Spain (Figure 2).

Figure 1: Mineral Exporters Unemployment Rates 2003 – 2013 (as a %)


Figure 2: Unemployment Rates 2003 – 2013 (as a %). Norway, Australia and Canada against Greece and Spain


Labour – Participation Rate

Both sides of the political divide and almost all business sectors talk about increased productivity, yet when we talk about participation rates we don’t discuss similar commodity economies but emphasise disparities with the US, UK, Japan or Germany (outside of academia or relevant government departments of course). If we look at similar economies data we still better than a fast closing Chile but are under-par Canada by 1-2% and around 12-14% under the long-term average of European competitors. Here is a look at how Australia compares against similar mineral exporting economies.

Figure 3: Mineral Exporters Participation Rates 2003 – 2013 (as a %)


Now, let’s consider two economic indicators.

Economy – Balance of Payments

For a country that has done so well out of the Global Financial Crisis (in GDP terms at least) you don’t see that reflected in the political discussion or business surveys. Nor do you see it in the Balance of Payments data. Even with a positive once in a generation Terms-of-Trade position Australian has still outspent it’s earnings by a considerable factor. In fact, Australia has not been able to manage a positive Balance-of-Payment number since 1972-1973!

Figure 4: Mineral Exporters Balance of Payments 1991 – 2011 (in current $USD)


Another fact that is often not discussed is that, unlike Norway Australia is a debtor nation (that is, it spends more than it earns). To emphasise this point let’s look at how Australia compares against Norway (a commodity saving economy) and the USA (a debtor nation). Australia, in my view, does not compare favourably with the USA.

Figure 5: Mineral Exporters Balance of Payments 1991 – 2011 (as a % of GDP)


Economy – Debt

A lot of emphasis is made of the government debt positions, especially by the Liberal opposition and business. Yet, in Australia government debt is low in comparison to globally developed nations and even in relation to other commodity exporters. What is not talked about by both sides is the level of private indebtedness. In 2011 the Australia government was approximately 14% in debt (provisional) yet the private sector (mainly via housing and commercial debt) was 181.1%. Here is a look at the mineral exporter’s data plus Spain and Greece. A good word for Greece too, they were the only country represented in this graph with lesser private than government debt.

Figure 6: Mineral Exporters: Public & Private Debt (as a % of GDP)


Ruslan Kogan, CEO of Kogan, stated on a recent Q&A that ‘97.4% of people make up the own statistics’. In some respects he is right; many people make up facts to suit a purpose. The intent of this article is not to suggest that politicians or high-level business people make up facts. Rather they generally emphasise certain data and disregard other information which does not support their argument.

You will always gain more insight and a better understanding on the Australian economy if you concentrate on parallel economies, such as commodity (specifically mineral exporters) over manufacturing or service based economies.

What I am also suggesting, if you want to understand the Australian economy you are better served by looking a little harder at the arguments and the data presented.

Note: This is a feature article I wrote for the Australian Mining which was published on the 11 March 2013.

Random Analytics: A Story of two Economies: China vs. DRC

If you want to look at two economies who sit as far away from each other in terms of economic prosperity in the year 2012, then you need go no further than a comparison between the China and the Democratic Republic of Congo (DRC).

But it wasn’t always so…

Figure 1: GDP per Capita (PPP $) of China and the Democratic Republic of the Congo. Data sourced from the World Bank.

Just 30-odd years before,  Zaire (as the Democratic Republic of the Congo was then known) with its 35.6 million population actually boasted a GDP of $14.39Bn USD and a GDP per capita of $533. China on the other hand with its 1.139Bn citizens had a GDP of $189.4Bn which equalled a mere $193 per citizen.

Backed by the fastest industrial revolution in history by 2011 Chinese GDP would increase to $7.3Tn (the second largest for any country after the US) and per Capita income would explode from $193 to $5,430. For its 1.344Tn citizens, roughly a fifth of the world’s population that would be a 27-fold increase in GDP per Capita and an 84% decrease in those living on less than $1.25 per day. Living on less than $1.25 per day is a standard measurement of absolute poverty adopted by the United Nations as part of its Millennium Development Goals.

As for Zaire…

From being the second most industrialised African nation in 1960 and having rich agricultural and natural resource advantages Zaire would suffer throughout the 1980’s an exponential growth in corruption, known locally as le mal Zarois, or the Zairian sickness. According to Young, C. & Turner, T. (1985) by 1984 Mobuto Sese Seko had amassed $4Bn USD in personal wealth stolen from the state (effectively odious debt). Those billions of dollars stolen by the regime were not reinvested in the country’s infrastructure which had degraded significantly prior to the First and Second Congo Wars. These wars, aka Africa’s First World War, have cost the country and region more than 5-million lives since the commencement of bloodshed in 1996 along with enormous capital and infrastructure loss.

From an economic standpoint this has left DRC and it’s almost doubled population of 67.7 million a GDP in 2011 of just $15.64Bn. The additional $1.25Bn USD growth over the previous 32-years represents an 8.65% increase or just 0.27% per annum. From a GDP per Capita perspective the $231 for each citizen is only 43% of the 1980 figure.

For the DRC it is now a story of what could have been…