Are We There Yet?

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Are we there yet?

 

My kids ask this on every road trip. It starts when we get about 20 minutes from the house and about one hour before we get “there”…. The thing is, they don’t really know where we’re going and they don’t know what “there” looks like. They know where they started from, they know what they have to distract themselves over the trip, and they even know how many snacks there are to eat–they just don’t know the destination.

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In 2001, everyone knew that technology investing was over, everything that was ever going to be needed was invented, Windows was as good as it was going to get, and nothing was ever going to change again. Then mobile happened, then Google happened, then things changed.

In 2013, we know some things: we know that China is not going to double its consumption again, we know that Europe is not going to fix its mess in the next six months or maybe the next six years, and we also know that Obama (and the rest of the U.S. government) is hell-bent on bankrupting the U.S. by giving everyone everything (with no concept of balancing budgets). 

We also know that nothing is going to change. 

In 2013, we know that the resource boom is over, dead, done, but we’re focusing on the wrong metric. First off, I agree the growth of the last ten years of global consumption cannot continue to grow; it is way harder to maintain growth rates if your GDP is already ten times larger than when you started. Five percent growth now would equal 50% growth from the original year in total consumption.

What people are forgetting is that just because growth is not happening does not mean consumption is going away. Just because you have a cell phone now does not mean you are not going to have one for every family member in one year. China is still going to be a cookie monster eating everything it can. Once a girl in Manila understands the freedom of a scooter, try to pry it from her hands. 

People are also forgetting something else: we have USED up all the easy growth in the sector–all the projects that were marginal from 1980 – 2000 are now in production. We are now looking at the super-marginal projects, or new projects. The old rule of one percent copper or higher…dream on. New mines are coming out with Capex that are going to require high copper prices or they are just not going to turn on. 

We are going to have investment into resources, we are going to need grassroots exploration, and we are going to need this industry. 

Will there be a resource sector in five years? I can answer YES. Will we have recovered? YES. Will we remember this pain? For better or worse, NO.

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