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Currency Devaluation: While Europe Gets Sinned, Australia Sins

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Hans-Werner Sinn is a German economist. He’s famous for legally challenging the European politicians’ efforts to save the euro. And he recently gave one of the funniest interviews we’ve ever seen.

Here’s the highlight reel straight from Der Spiegel newspaper:


Spiegel: Mr. Sinn, Chancellor Angela Merkel feels as though economists have left her in the lurch. She once said that the advice that she receives from economists is “about as diverse as it gets.” Can you see where she is coming from?

Sinn: No.

Spiegel: Excuse me?

We’ve always wanted to see what a one word answer would do to an interviewer. But Der Spiegel had the last laugh. This is how Sinn is depicted in the article:

Spot the German Economist

Spot the German Economist

 

Source: Der Spiegel
Now onto some more meaningful banter between the newspaper and Sinn: To Read More Click Here

The Pyramid of Real Wealth

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‘All real wealth is in the ground and societies become prosperous only by exploiting that wealth,’ once wrote the King of the Pilbara, the great Lang Hancock. We keep coming back to that quote every few years to see how it holds up. It holds up pretty well. But what does it mean in the context of today’s Australia?

Well first off, there are very few commodities in the world that get more valuable if you leave them in the ground. The exception might be gold or oil. Producers with known reserves of scarce resources may prefer to manage the extraction of those resources in order to get the right price. Leaving it the ground when prices are cheap is a better financial decision.

But most commodities are just smaller parts of a bigger whole. You extract them, process them, and then ship them off to someone who turns them into a finished good. If you’re in the extraction industry – and quite a few Aussie stocks are of course – you don’t create value by turning the commodity into a finished good. You create value by getting it out of the ground as cheaply as possible.

A company can be a low-cost producer for a lot of reasons. It may have an easily accessible resource like BHP and Rio Tinto have had for many years. It may be close to infrastructure and have access to skilled but competitively priced labour. That helps too. Or it could just have ruthless cost-cutting management.

But despite the claims by politicians that a nation’s resource wealth belongs to everyone, it takes a really well-run company to pull things out of the ground and make enough on the venture to pay everyone a wage and shareholders a profit. People don’t do it for free. The politicians should keep that in mind next time they take the resources industry for granted.  To Read More Click Here


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