When the boom goes bust: The impact for Australians

Trying to catch a falling knife is going to end badly. The end of a boom can have similar consequences

Trying to catch a falling knife is going to end badly. The end of a boom can have similar consequences

Yesterday we highlighted a report by advisory firm Variant Perception. The three conclusions from that report weren’t pretty:

  • Chinese demand will slow
  • The Australian dollar will fall
  • The house price bubble will burst

That’s a pretty ugly trio. So what does that mean for Australians?

Home owners and buyers

If the report’s conclusions are right, house prices are likely to be low – or lower – for a while to come. That’s not pretty for a country used to rising house prices making us feel richer.

On the flipside, it’s pretty good news for Generation Y who have been struggling to buy their first homes.

Consumers

A falling dollar is bad news for consumers used to getting cheaper electronics from overseas. The combination of rising demand and a higher dollar has made computers and televisions cheaper over the past few years, but that’s at risk if the Australian dollar drops.

It’ll also make overseas trips and products bought on overseas websites more expensive – perhaps 10 – 20% moreso, depending on how far it falls!

Jobs

Much of our recent economic prosperity – yes, despite what some may say, we’re the envy of the world – has come from the mining industry soaking up the jobs that have been lost elsewhere. If that trend reverses – because demand for our minerals falls, or because some mines become unprofitable if prices fall too far – we’ll have job losses from the mining sector.

Without a sudden upswing in other parts of the economy, that might mean a jump in the unemployment rate in the medium term – and that’ll make economic recovery just that little bit harder, as well as putting more pressure on retailers that are already suffering from low consumer confidence.

Investors

If Chinese economic growth does slow, resources – particularly minerals – prices will fall. Falling resources prices are obviously bad news for miners, as their profit margins get crunched. The likes of Fortescue Metals Group (ASX: FMG), Rio Tinto (ASX: RIO) and Atlas Iron (ASX: AGO) are in the firing line as iron ore prices fall.

Fortescue CEO Nev Power yesterday called the recent price fall (iron ore has fallen by around one-third in the last month!) an aberration. Whether the current fall is an aberration or not, the report suggests it could well turn into a longer term problem.

Ouch.

The good news

A falling dollar would be good news for our exporters, who will get higher prices for their goods or who will simply be able to be more profitable at the prevailing global price.

It’ll also be good news for local companies who are competing with importers. Steel manufacturers will relish the higher price of imported steel, and local tourism will get a boost from Australians spending more of their leisure time (and money!) at home. That’s good news for tourism operators, including Flight Centre (ASX: FLT).

Foolish takeaway

By definition, a boom is an unusually prosperous period (after all, if it wasn’t unusual, it wouldn’t be a boom).

Some end with a bang, others slowly deflate. Economies more easily adjust to changes when those changes happen slowly. We can only hope that’s the case.

For investors, buying (or holding) shares in mining companies at these prices requires faith that the boom will continue – and that prices will stay high.

Now might not be the time to have a portfolio full of mining stocks – or large debts!

If you’re in the market for some high yielding ASX shares, look no further than our Secure Your Future with 3 Rock-Solid Dividend Stocks report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Scott Phillips is an investment analyst with The Motley Fool. He’s very happy not to own shares in any iron ore miners (including those in this article) at the moment. You can follow Scott on Twitter @TMFGillaThe Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »