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CanOz said:
DR Doom said:I would say that there is a gen...Copper Iron Ore Oil Nickel Shorts: USD
rederob said:I believe your long term valuations of copper are off the mark (low) principally because the cost of production has now increased to such a level that there is no "margin" in $1.40 and producers would be mostly going backwards.
Those that do not follow the fundamentals are generally unaware that "head grades" (that is the percentage of payable metal in a given quantity) have declined substantially, on average, in recent years.
In other words, most of the "best" copper mines have been mined out, and high quality new finds are few and far between.
Dr Doom said:BSD - "You will find many economists who do not care anymore about CADs. Too many have hung their hat on an assumption that did not prove true for three decades and many have given up worrying."
Amazing how 3 decades coincides with the demise of that barbarous relic, the gold standard. Who's to say that what we have been living with since 1971 is one enormous capitalist experiment that nobody knows for sure how it will end and continues to defy accepted economic theories. For example, is it ok to add liquidity to a financial system in excess of that needed to expand through proportionate advances in productivity?. Is it ok to allow that liquidity to go into areas that do not contribute to the productive capacity of a country, rather than into creating speculative bubbles?. Is it ok to live beyond your means, that is, to spend more than you earn?. Is it ok to buy more from other countries than you sell to other countries?.
If you answer yes to all of the above then there is a high probability that sometime soon that one of those so called economic theories will be proven right in a big way, that is someone or some country is going to ask you to start living within your means, paying back your debts or going bankrupt.
Applying these questions at a national level, how does the US stack up?. If the US was a company would you invest in it?
Who's to say that the 36 year experiment in central banking irresponsibility won't come home to roost in a big way a la depression.
BSD - "People losing their shirts on residential property in a few states in the US is noise. It is not something to worry the long term trend."
This is concerning if this is what you think of the US housing market. The facts are out there, all pointing to a sizable downturn in this market, and all of the flow-on domino effects down the line. The downturn that was once thought to have been confined to the residential market is now showing up in other sectors of construction. This is not noise, it is a secular contraction in the latest bubble financed with excess US dollars.
How this plays out will have the biggest impact on commodities, maybe even breaking some of the commodity cycle theories that dictate the lifespan of commodity cycles in decades. On the one hand saying economic theories have been thrown out the door while saying that in the past commodity cycles usually run for many years.
The bottom line - the world is flooded with various currencies and derivative products. Together they make what seems to be unlimited continuance of our current lifestyles & bullmarket bubbles. The bursting of the US housing bubble may just be the X factor that brings rationality to the exuberance.
For consumption commodities people are willing to pay more to consume today than consume sometime in the future, that's pretty natural unless there's an abundance and big inventories etc. Especially if the commodity is non-storable (power), or there's a shortage of storage (natgas in the uk), people will pay up since they need to consume it now. If you're not tight on supply this will change though. If you for example in the summer get a lot of rain and melting water in a country with a lot of hydro power you can get more power than you need (assume you can't export to other regions), so close month power is dirt cheap, but there's no reason for next winter to have these conditions so you'll switch to contango in the front of the curve, but most likely remain in backwardation behind the range of impact of the current conditions.
Another example could be a shiping firm that needs fuel oil for operating its ships. If they have obligations to send a ship from Rotterdam to Singapore next week it's not a great idea to sell fuel oil inventory and buy futures delivering next month. Even though you may make good money it's not going to get your ship to asia, and you'll have to pay damages and will lose customers if doing it repetedly.
Another factor at play here is transportation - the harder it is to transport the more you appreciate actually having it available in your warehouse.
Expectations about future prices are definitly part of the picture as well. Going back to power as an example the curve will definitly react if someone comes and says he's building a new 3000MW nuke that goes online in 3y. That's a lot of supply coming to the market so the curve out after 3y will most likely move down (but not the front). Another example would be if someone came and said they had a gigantic gas storage facility that will be finished in 2y - that would definitly smooth out the seasonality in the gas forward curve.
kennas said:Doom, what's your take on gold with the possibility of recession/depression triggered by US housing collapse? I'm a gold bull but only because of theories, research and knowledge that someone like yourself has articulated. The reports I have read leading from your premise all point to very bullish cases for gold. However, you are calling it a relic? Or, are you talking about something else there? Cheers.
So, you're in the soft landing camp Noirua?noirua said:The US property market is in recession but the falling value of the greenback will benefit the US as imports become more expensive and exports cheaper. I expect a fairly quick reversal of the property and associated markets.
noirua said:The US property market is in recession but the falling value of the greenback will benefit the US as imports become more expensive and exports cheaper. I expect a fairly quick reversal of the property and associated markets.
Aren't commercial developments on the rise?kennas said:So, you're in the soft landing camp Noirua?
And while the economic data is not a total disaster, it has not been good this week. Yet the response of investors everywhere is defiance, or at the very least serious nonchalance.
Recession possibilities? "What recession? I spit on your talk of recession." They continue to assume that things will turn out much better than merely OK. All manner of investments are priced for perfection, perfection being defined as growth slowing enough to take out inflation risk yet not enough to hurt the ever upward rise of corporate profits. Goldilocks is the name of the game.
The stock market did close down somewhat today, yet as trading came to the end of the session, it rose over 100 points from its low of the previous few hours. All you can do is just marvel at the amazing capacity of investors to embrace risk in the face of this week's economic data, which we will look at in some detail today.
Cheers,But if I am right, the stock market is going to be under considerable pressure next year. The average drop of the markets is about 40% before and in a recession. There are reasons to think it will not drop that much this time, but it is hard to imagine it not dropping by some significant amount. Dow 9,000 is a real possibility, if not probability. Yet the market is unconcerned, with volatility as measured by the VIX at close to all-time lows.
kennas said:Doom, what's your take on gold with the possibility of recession/depression triggered by US housing collapse? I'm a gold bull but only because of theories, research and knowledge that someone like yourself has articulated. The reports I have read leading from your premise all point to very bullish cases for gold. However, you are calling it a relic? Or, are you talking about something else there? Cheers.
I remain uneasy about 2007 from April onwards, markets-wise.Dr Doom said:So, commodities to collapse within 12 months I reckon.
rederob said:I remain uneasy about 2007 from April onwards, markets-wise.
However, Fed reserve Governors have more rabbits up their sleeve than is comfortable for a myxomatosis pandemic, so the "soft landing" scenario must be contemplated.
I also see China's US dollar holdings as a double-edged sword. I do not believe China will draw this sword unless the US first sabre-rattle: China has a sword of Damocles precariously perched over Bush's head and has the capacity to release it if the US try to play hard ball with its currency. By maintaining an artificially low value on the yuan, Western nations will continue to buy its abundantly cheap products.
Little by little, however, China can raise the value of the yuan to symbolically show its willingness to play the game (without really ever getting wholly into it).
Having been an exceptional bear several years ago, I am now a cautious bear, looking more closely for the first signs of winter than ever before. I have certainly learned that early snows are not necessarily indicative of winter, and global warming is moving the seasons beyond our reasonable limits.
I trade equities, my bull case is for equities alone.
*I do not need/expect prices to continue upward vertically - I dont even need them to go up. Sustained prices would be marvellous.
*My argument is premised on base metals and energy continuing to beat the bearish analysts forecasts for prices in the next three years.
*The existing valuations for the majors and many of the mids and emerging players are premised on the 'collapse' of prices.
Duc
You will need to do better to convince me of the overvaluation and lack of quality in the balance sheets and operational performance of the majors.
Originally Posted by BSD
Simply not true.
BHP and RIO are set to be free of all debt in coming years
They are buying back billions of dollars worth of shares.
Mining company balance sheets have not been stronger
BHP according to their Balance Sheet 09/25/06
Carry $7.648 billion in LT Debt
Notes Payable, $1.368 billion
Rio Tinto; 06/30/06
$1.686 billion LT Debt
$2.305 billion Notes Payable
So according to their filings, they are carrying debt.
You note that BHP and RIO carry $9bn and $4bn of debt respectively.
You should also note that forecast free cashflow from BHP for this year (after investing in new projects) is well in excess of $9bn.
A value punter like yourself should get excited at the ROEs and ROAs at multiples of any other companies trading at 9 times next year earnings wth no debt.
If China floats the RMB - a big piece of inflation is going to be exported into the consumer countries and we should be careful what we wish for.
Perhaps the slow change advocated by the Chinese makes sense in this regard. Better to have a potentially massive inflation effect leaked into the market than jammed in one day on a new trading floor.
The accumulated USD position in China gives plenty of dough for bailing-out the dodgy financial system.
Never forget that the Trillon USD held by the government is essentially held by Chinese enterprise - the two remain closely linked. Hence the use of government money and jawboning to manipulate the copper and iron ore markets.
Steel in oversupply? Then why are prices staying so strong and rising?
I do agree that a lot of Chinese business practice is silly and many bad debts will have been accumulated.
In my view however, the Chinese have the biggest pile of USD and the biggest demographic shift the world has ever seen pushing behind them and these effects will right many of the wrongs.
A 5% rise in steel ore prices? The world's major steel makers and iron-ore producers are now starting to talk about ore prices for next year. The industry consensus is that prices will rise between 5% and 10% and that the nearly 20% increase of this year won't be repeated, The Wall Street Journal reports today. Chinese steel makers, who failed in their attempt to resist iron-ore producers' demands this year, are intent on leading the talks and setting an industry pattern. Brazil's Companhia Vale do Rio Doce (RIO, news, msgs), the world's largest iron-ore miner, and Shanghai Baosteel Group, one of the largest steel makers in China, have been in early talks about the contracts, according to people familiar with the matter.
Just in time means just too much. Just-in-time inventories are turning into just-too-much at companies around the world, Bloomberg News says. From Dodge Ram pickups to Sanyo mobile telephones, unsold goods are piling up around the world. That may become a drag on global economic growth as companies idle workers and production lines to clear out the excess. Factory inventories worldwide rose faster than sales last quarter for the first time since 2001, according to economists at UBS in London. Behind the buildup: an unexpected slowdown in demand, especially in the U.S., brought on by the midyear surge in energy prices and a housing slump.
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