# Hot resource stocks won't last



## kr1zh (21 April 2006)

*It won't last, Costello warns*

AUSTRALIA'S longest serving Treasurer, Peter Costello, took the rare step of dispensing investment advice to local investors yesterday. He warned them not to rely too heavily on hot resource stocks because the minerals boom would inevitably come to an end.

This comes just weeks before the Government decides if the market can stomach the sale of its 52 per cent stake in Telstra - which Mr Costello labelled a "shocking investment" just two weeks ago.

The Government will be relying heavily on Australian investors to front up and buy more of the stock they acquired at $7.40 a share in the T2 selldown - nearly double its current price.

Mr Costello told a Committee for Economic and Development of Australia lunch in Sydney yesterday that the surge in commodities prices driving the Australian sharemarket to record highs may only have a couple of years left to run.

He said Chinese economic growth would ensure demand for commodities remained strong for an extended period but the supply of raw materials from exporters across the world would grow quickly. This will eventually hit resources prices and the profitability of resources firms.

"This boom has been going already for about two or three years … we think there is a couple of years left in it but it will not be permanent," he said.

If his minerals boom speech was an attempt to entice small shareholders away from the latest hot stocks and warm up enthusiasm for T3, it appears to have worked.

Telstra shares jumped more than 2 per cent yesterday, gaining 8c to close at $3.75, with 62 million shares traded.

Goldman Sachs JB Were, one of the banks planning the T3 sale, attributed the jump to bargain hunters.

Mr Costello may be hoping for more of the same following yesterday's cautionary speech.

Those investing in resources stocks could end up being burnt, like those who invested heavily during the global information technology boom in the late 1990s, he said.

"When you get into the middle of these booms - the property boom, the tech boom, the resource boom - the tendency is always to think it will last forever, but none of them do," he said.

"This boom, like all booms, will come to an end. If you put all your eggs into resource companies you will be in as bad a situation in a couple of years' time as people who put all their eggs in the tech basket."

Mr Costello said that at the peak of the global tech boom in 2000, the Australian dollar slumped because of a perception that Australia relied too heavily on "old economy" industries like mining.

"Now some people are saying reverse that and put all your eggs in the mining basket," he said. "It's not the time to do it. You have got to resist these fads.

"As you all know a balanced portfolio, a balanced economy, is the best way to go."

Goldman Sachs JBWere does not appear to be as cautious as Mr Costello when it comes to predicting an end to the latest boom market. "Movements in the market … only confirm that this [minerals boom] is not running out of steam in a hurry," the broker said.

Source 

Why is he trying to direct us not to invest in natural resources?


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## excalibur (21 April 2006)

Hello krzih,
Welcome to ASF. Nice article upon resources there. I do hope you are right about the surging prices in commodities.
Just as many other investors, I thought that commodites just as coal, silver and gold are the places where you can get some good wins. Gazing at the stockmarket, I feared as well that prices of these commodities are exagerated and sooner or later the bubbles would soon explode , but then I started thinking about money.
Yes money, for example the US Dollar.
Since Nixon in 1971 decided for the fall of the Gold-standard, our dollars are worthless. The goverment can, since then, no longer guarantee the worth of money. They are worthless pieces of paper that are used as exchange. The worth of the dollar is not equivalent to gold but to how much is being produced.  Greenspan mentioned in a speech a few years ago that there should  be a correction in the price of the dollar and that a so-called euro-dollar could be the best solution.
In order to do so, there would have to be a change in the Feds politics.
The last of what I desire is a return to the old gold-standard. There has been to much manipulation in the 30`s & 40`s , which led to financial crisises.
Although a new currency that would be accepted as a world currency, would be the best solution.
That is where I think the chinese are mostly interested in.
There is no other country in the world that posesses so much of the bright metal. Not only gold, but silver as well.
Which in my opinion is the reason for the soaring prices of these commodities.
If the FED or anyother country has been trying to get there hands on everything they can can , in order to value again there money, there would be eventualy a shortage of the commodity resulting in higher prices.
Next question : why did Hin Ju recently go visit Bill Gates ( the richest man on earth)in stead of Bush in the US recently. What is going on????
Are we on the verge of a transaction???
Food for thought.


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## dutchie (21 April 2006)

Mr Costello is very foolish...

1. For giving out advice.

2. For predicting what will happen in two years time.

3. For stating when the resources boom will end.

For a treasurer (and hopefull PM) his comments are unprofessional and will come back to bight him.


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## tech/a (21 April 2006)

As Radge points out on his site.
"Unlike the Tech Bubble,rescourse companies are actually making money"

Big Money with an insatiable client demand!
When BHP and RIO have P/E's of 60+ then you'll get a bubble.

This bubbles full of pay dirt not hot air!

Things must be bullish even politicians are being seen as credible.
His timeframe is 2007 thats 52 weeks in which to alter his veiw.
I give him half that.


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## professor_frink (21 April 2006)

he'll probably deny ever saying it when he's wrong  
He probably doesn't want to see things get out of hand- interest rates may have to rise and he doesn't want to piss off all of the overextended home buyers in sydney.


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## pussycat2005 (21 April 2006)

He just wants to scare people into buying Telstra shares

Big Downramper he is !


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## bullmarket (21 April 2006)

Good morning all 

If someone genuinely believes that demand will never ever be met by supply from hereon then obviously they will most likely think the current resources boom will go on indefinitely.

But imo there will come a time where supply will meet demand or even exceed it due to global consumer requirements being met, suppliers gradually increasing capacity, lowering of consumer demand due to higher prices (inflation) etc or a combination of these.

Now whether supply starts catching up to demand in say 6 months, 12 months, 2 years, 5 years or whatever is open to debate and everyone can assign their own probabilities on supply catching up with demand in whatever time frame they like.

Anyway, just food for thought if considering to jump on the resources band wagon now.

cheers

bullmarket


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## ctp6360 (21 April 2006)

Ha ha ha! Its funny how fickle people are, they hear some scary news on the radio then sell the **** out of their valuable shares! Today is a BUYING day for me, when they bounce back next week I'll put back what the sweat takes out! OH YEAH!


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## wavepicker (21 April 2006)

tech/a said:
			
		

> As Radge points out on his site.
> "Unlike the Tech Bubble,rescourse companies are actually making money"
> 
> Big Money with an insatiable client demand!
> ...




Maybe so tech/a, you have a credible argument on the fundementals and everything looks like it should keep on rolling along nicely.

Fundematals aside for now, we as traders need to be looking at trading the market and not the fundementals. Fundementals have been great before in other booms and then the market turns on it's head for no apparent reason.

Why? It's simple because the trend  changed, simple as that. As traders we have to trade "what we see" and not what we want to see or expect to see. Well what I see, is that we are going to gave one wicked correction, that is obvious if you study your market well. Just look at a weekly chart of the CRB Index and you have divergances appearing as we speak. 

After that, well who knows if we will have a bull or bear, for now all I am worried about is being on the right side of the market rather than buying, holding, and _hoping_ things come good again

Good Trading to all


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## tech/a (21 April 2006)

Totally agree.

Certainly wont be holding if and when trend alters.
But will run with the bulls for as long as the bears stay in the forest.


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## Knobby22 (21 April 2006)

It will take time to get all the new mines running and it's not as if metals like zinc and iron are not around. I would say supply will catch up but it depends on how long the world economies boom. Could be two years, could be four.


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## twojacks28 (21 April 2006)

pussycat2005 said:
			
		

> He just wants to scare people into buying Telstra shares
> 
> Big Downramper he is !




what a load of cr*p pussycat!!!! he does know what hes talking about considering he is the best treasurer we have ever seen in aus. maybe hes just sceptical about the resources sector as all good things come to an end!


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## pussycat2005 (21 April 2006)

twojacks28 said:
			
		

> what a load of cr*p pussycat!!!! he does know what hes talking about considering he is the best treasurer we have ever seen in aus. maybe hes just sceptical about the resources sector as all good things come to an end!




lol what ever 

Peter Costello sure is  the best treasurer at privatising profits and socialising costs! get real! 

He's a politician and that makes him a liar! 

need I say more

lets just agree to disagree

he wants a nice price for the telstra sell off ! so the govt doesn't look like its got egg on its face! 

why wouldn't he try to put a lid on a booming sector for now! doesn't take to much to influence a fickle market! 

imho


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## twojacks28 (21 April 2006)

ok cat believe what you want!! maybe next time if you understood the issue more then you could have an opinion about it


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## crackaton (21 April 2006)

pussycat2005 said:
			
		

> lol what ever
> 
> Peter Costello sure is  the best treasurer at privatising profits and socialising costs! get real!
> 
> ...





I agree. The guy is a weasel. He maybe right he maybe wrong. Regardless I wouldn't trust one word that comes from his mouth.


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## twojacks28 (21 April 2006)

can u explain to me why you think he is a weasel and a response besides hes a "politician"!


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## pussycat2005 (21 April 2006)

twojacks28 said:
			
		

> can u explain to me why you think he is a weasel and a response besides hes a "politician"!




1 + 1 = 2

read the following carefully especially the inbetween the lines bit !

"It won't last, Costello warns

AUSTRALIA'S longest serving Treasurer, Peter Costello, took the rare step of dispensing investment advice to local investors yesterday. He warned them not to rely too heavily on hot resource stocks because the minerals boom would inevitably come to an end.

This comes just weeks before the Government decides if the market can stomach the sale of its 52 per cent stake in Telstra - which Mr Costello labelled a "shocking investment" just two weeks ago.

The Government will be relying heavily on Australian investors to front up and buy more of the stock they acquired at $7.40 a share in the T2 selldown - nearly double its current price."


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## nizar (21 April 2006)

pussycat2005 said:
			
		

> "It won't last, Costello warns




Maybe he's saying this becoz he (thinks he) missed the boat!


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## kr1zh (22 April 2006)

nizar said:
			
		

> Maybe he's saying this becoz he (thinks he) missed the boat!





I agree. He should have waited or allocated capital to energy resources.

I also guess investing in Telstra would have result realised in next couple years as Telstra is now investing and rolling out 3GSM operating at 850 MHz.
I believe 3GSM network would give telstra pretty hugh profit.

However, I doubt Telstra could gain more profit from customers using their land line as customer starts looking at VOIP services.

What do you think ?


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## crackaton (22 April 2006)

nizar said:
			
		

> Maybe he's saying this becoz he (thinks he) missed the boat!



Maybe he's just saying it because he's full of it. Perhaps he will be wearing expensive Italian suits like the last joker.


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## powwww (24 April 2006)

the resource boom is justified. The issue here is not going to be a total market collapse - not soon anyway as demand is much greater than supply.The issue is that some stocks are upto almost ridiculous market caps with no reason so but on pure speculation.  The only stocks who are actually benefiting from a high commodity price are companies which are CURRENTLY mining and selling the stuff or who have large resource pools which means that they are a takeover target.  Everything else is speculation .  BUT REMEMBER who dares wins................or loses


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## rub92me (27 April 2006)

The accuracy of Costello's predictions will like any prediction on trends be tested by the future facts. He certainly has an agenda though, which isn't well hidden. Disappointing from a seasoned treasurer like him. But hey, being a PR, I can't vote...


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## bullmarket (27 April 2006)

I'm not sure what all the fuss is about about Costello's warning.

It sounded to me like nothing more than common sense general advice.  Whether he had an agenda we don't know with certainty but it would be very hard for anyone to convince me that his motives were to encourage investors to jump off resources atm and into TLS now or if/when T3 comes around.

My guess he was basically just looking out for the inexperienced mug punters jumping on resources and putting all their eggs in them without fully understanding the risks or implications.

_I don't see his comments anywhere near as ill-informed, deliberately misleading and ramped as some of the blatant unsubstantiated ramping of stocks you could see in various chatrooms (but obviously not on ASF _ )

cheers

bullmarket


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