Why is Australia So Expensive?

We caught up with an old friend from the United States last night. He was last in Australia in 2001. He couldn’t believe how expensive things in Australia had become. Even taking the massive swing in exchange rates into account, on a one-for-one basis the price difference is huge.

We were drinking beer, so that’s where the comparisons started. A six-pack of decent beer in Australia costs anywhere from $15-17 dollars. In the States – where you can buy beer from just about any convenience store without a 1000 per cent mark-up – you’re looking at a price of US$9-10.

To borrow an American saying – you do the math. (For you lazy types, beer’s up to 70 per cent more expensive here in the lucky country.)

He’d been to Perth, where the price of just about everything blew him away. The east coast was merely ‘outrageous’.

The strong Australian dollar is only part of the problem for the tourism industry (and many others). It’s Australia’s vastly inflated cost structure that is the real issue. Australia is simply an expensive place to visit and do business.

The only big investments happening at the moment are those designed to exploit our vast mineral wealth. And a good proportion of that investment is due to the false price signal sent out by China’s massive credit boom – which is now slowly subsiding.

A big contributor to Australia’s cost structure is housing. The more than a decade-long housing boom provided a ‘wealth’ boost for many. But the creation of this wealth depends on a constant and growing flow of credit into the sector to maintain high prices.

Each new marginal borrower and buyer of property has a much higher household ‘cost structure’ than someone who bought 10 years ago. To pay for ridiculously priced property, people demand higher wages. To pay for higher wages, businesses increase their prices.

The result? A higher cost of living. While not evident in the massaged inflation numbers released by the statisticians, it hits a returning tourist in the head with the force of a baseball bat.

So where to from here for Australia? Satyajit Das attempts to answer that question in his follow-up analysis from yesterday. Das’s essay appears below. If you want to join Das, the Port Phillip Publishing editors and others at our inaugural investment conference in March, do so now because we’ve just opened it up to the public.

Regards,

Greg Canavan
for Markets and Money


Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money