# Entering 2008...



## BREND (23 December 2007)

*Review on 2007:* 

As we are approaching the end of 2007, let us review what has gone wrong in the financial market this year. Subprime loans going bad; US investment banks, hedge funds and insurance companies who had invested in those loans had suffered losses. Then Middle East and Asia companies (including Singapore's Temasek Holdings) come into rescue. And along the way, many economists, fund managers saying that the worse had occurred, housing problem in US has reached the peak. 

I begged to differ in this opinion. I believe more problem will occur in 2008, subprime problem is a contagious problem. With the huge investment banks losing so much money, their next step would be cutting labour cost to boost the bottomline, so we may see retrenchment coming up over the next few months. Hence unemployment rate in US will rise. 

And when the US consumers are facing the risk of losing their jobs, they will tighten up their wallets and relunctant to spend. Consumer spending slows down, resulting in US economy slowing down as well, and countries that export good and services to US will be affected. 


*Light at the end of the tunnel: *

Ops, I'm getting too gloomy. But there is light at the end of the tunnel. In my view all these problem will eventually be resolved when the source of the problem is resolved. The source of the problem is oversupply of US housing. When US property falls by another 10% - 30%, domestic and foreign investors will find value. And there will be buying interest in property market in America, reducing supply of unsold homes, and hence stablised the housing price in America. 

If you have friends in America, probably you would know that some of the houses in America are already much cheaper compared to those in Hong Kong and Singapore. Not sure if institutional investors will shift their attention back to US property then. 

But I believe all these will only happen at the end of 2008. 


*So what should we be investing in 2008? *

Slowing economy accompanied with high inflation resulted in an economic situation call Stagflation. In this environment, many companies will suffer. This is because revenue and profit growth will slow down, while costs are rising, many stocks will suffer, hence value stock selection will becoming more important. 

Since inflation will remain high as Federal Reserves is unlikely to raise interest rate to curb inflation; I'll be interested to invest in companies that benefit from high inflation, ie copper miners and agricultural industry. There are frequent talks about rising food cost in the newspapers these days, and rising cost is due to price appreciation of wheats, soy beans and corns (sugar will join in soon). Even in a slowing economy, demand for agricultural products will not slow down as those are staple food for people all over the world. Population of the world has been rising and will keep on rising, hence demand for food will still be healthy. 

The other sectors that I'll be interested in 2008 are precious metals and military industry. Credit problems had encouraged US government to keep cutting rates, printing more money to fund the credit crunch, this will continue to create a downward pressure on the USD. Falling USD will cause prices of precious metals to rise. I'll be looking to buy gold and silver ETFs next year. 

The world today is always at risk of another war. Tensions between US and Iran & Venesuela have become tense, US military companies will continue to win new weapons, warplanes and tanks contracts. 

And lastly the sector that I have been bullish for years is oil. Oil is not just a demand issue, it is a supply issue as well. About 53% of the proven oil wells come from Middle East. For the past 5 years, there has not been significant new oil reserves been added, and existing oil wells are in declining stage. 

Currently 1 person in China and India are consuming less than 2 barrels of oil a year. While 1 person in US and Japan are consuming more than 15 barrels of oil a year. As China and India economies continue to grow, more and more people in China and India will own cars, refrigerators, TV, air-conditions, and this will rise current 2 barrels of oil to 10 barrels of oil in the next 5 years. At that time, oil price could be priced at $180/barrels then. 


*Merry Christmas everybody! *
As we merry and party, let us not forget that Christmas is about celebrating the birth of Jesus Christ.


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## agro (23 December 2007)

G'day Brend

It was interesting reading what you had to say. 

I believe the market will see 7000 in Y08 fueled again by the resource boom.

The two commodities to watch are coking coal and iron both used in steel production with a booming Indian/Chinese economy. I recall the AFR suggesting these two commodities will increase ten fold. If BHP takes RIO I can guarantee you the small iron ore players will be eventually taken over by Chinese companies to secure competitive prices. 

Not so certain about other base metal esp after recent drops in Cu and Zn.

I also don't believe there will be a recession as many have been suggesting. 

Thats my 

and

*Merry Christmas and a Happy New Year *


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## ithatheekret (23 December 2007)

I think there will be some nice comebacks in 2008 . Especially given that Kev has to start spending on infrastructure , as time is running out on a project completion plan to meet out flowing export criteria .
The bottlenecks have already left their characteristic footprints on the GDP ledger , the rising AUD being the only saviour from higher petrol prices .

With all the needs in place , it has my ears pricked and eyes straining for engineering companies etc., that will benefit from the fiscal maintenance programme the government will have to put its stamp on .

No doubt they will be leaning on the mining industries wallets too .

All it will take is for a good rain season and a decent set of crops and the ports will be in havoc .


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## BREND (23 December 2007)

agro said:


> G'day Brend
> 
> It was interesting reading what you had to say.
> 
> ...




Totally agreed for iron ore. I was an investor for RIO for a long time, but took profit recently as market looks choppy.

Copper price rising back to $7000 level in the 1st quarter 2008 is very easy. Shanghai copper inventory had already fallen to very low level.


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## prs (2 January 2008)

G'Day Brend
Makes for very interesting reading and also makes a fair bit of sense. If you were to rate commodities from 1 to 100, where would you place uranium for 08?


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## BREND (3 January 2008)

prs said:


> G'Day Brend
> Makes for very interesting reading and also makes a fair bit of sense. If you were to rate commodities from 1 to 100, where would you place uranium for 08?




I believe nuclear power is the best source of alternative energy, but not really familar with uranium.


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