Commodities tipped to collapse

[rederob]

Being a store of 'real value' could easily apply to copper, nickel or oil too.

Maybe.
But "trading" these items of real value would be interesting to see.
The value of gold is largely a function of its rarity and (virtual) indestructibility.
The fact that it can look good is just a bonus.

Don't be too hard on ducati. At least now he cuts and pastes with due acknowledgement. In time he may learn to divine the future from a more balanced appreciation of key drivers of demand. Of course if he reads more of our posts he will get a heads-up!

 

[wayneL]

Anybody notice that the copper forward curve is in contango out to May next year?

I was talking of the backwardation reducing recently - the view of the future for metals investors has now improved to the point of forward prices are exceeding spot.

Up we go!

I doubt that contango/backwardation has any predictive qualities in and of itself. About as predictive as MACD.

Buuutttt..... Nicely supported at 3 bucks a lb. Bears will have another shot at support I reckon.

...and US is still on track for a recession.

 

[rederob]

I doubt that contango/backwardation has any predictive qualities in and of itself. About as predictive as MACD.

I did note your previous similar comment.
The trend towards or away from either these points, if consistent, provides a strong measure of confidence as a predictive tool, at particular points of a commodity's cycle.
However, like any "indicator", looking at it in isolation is fraught with danger.

 

[ducati916]

BSD

Prices are half of the riddle for BHP - volume growth has been and continues to be strong. See slides 18 and 25 of the recent BHP AGM Presentation for examples.

Prices are half the riddle, and currently they are the half that carry a disproportionate weighting in the share price of BHP common. Investors paying current premiums for the common will be sorely disappointed should prices fall in the future, as the leveraged contribution of prices can cut both ways.

AS for debt I will quote directly from Macquarie Equities BHP note dated 25/10/2006 because you wont believe me:
"BHP will generate US$35billion of free cashflow to the end of the decade and will be net debt free by the end of FY2008"

Well that's probably because you keep getting your facts wrong. As regards Macquarie, this is simply a forward prediction, they may be spot on, or horribly amiss, time will tell.

Your unit price analysis is completely useless and a waste of time:

Not at all.
That you do not understand the implications however is quite clear. In fact I'll repost it; it is that good!

Revenues = 15.1% compounded growth [5yrs]
Net Profits = 50.9% compounded growth [5yrs]
Leverage = 6.2% thus the leverage apparent is not due to Capital Structure.
Profit Margins have increased from 22.6% to 31.5%

The analysis highlights the fact that;
*profit margins increased by 8.9%
Profit margins increase by either; price increases, and/or falling cost of production. Cost of production has risen by 12.3% compounded, thus a 15% increase in revenues, less 12.3% in Costs = 2.8% increase in gross margin.

Therefore, the 8.9% net profit margins are produced in one of two ways;
Increasing leverage [reducing the cost of capital]
Or, benefiting from increased prices.
BHP has for it's Capitalization, an insignificant amount of debt, therefore through a process of elimination we can conclude, increasing prices are responsible for the increased margins.

Therefore, should gross margins contract, this will have a leveraged effect upon Net Profits, and they will shrink by the similar multiples as by which they have grown.............what would the effect of falling Net Profits have on the share price? And god forbid, what if falling prices are accompanied by falling unit sales.......then we have the double whammy, falling revenues & falling margins.

The answer of course being that the share price would fall.
Therefore, current buyers at the inflated level today, are paying a steep premium for a speculation that China etc can maintain their current meteoric growth......hmmmmmmm.

If copper falls 10% per annum for the next five years in a row - long futures punters will lose but BHP will beat every analyst in the world and will make investors bucket loads

How naive.

Get some broker research mate. They have teams of sharp guys focussing solely on the analysis of one business.

I am far more intelligent.

An appreciating RMB wont kill China. The Yen has strengthed four-fold against the USD and take a look at their CAD

You seem to forget your previous post, and contradict yourself;

Gold bugs have called for the end of the USD/US Consumer/US borrower etc for as long as I have known what a current account deficit is.

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.

Remember the effect the Banana Republic comments from PJK had on the AUD in the 90s? Australian foreign debt and CAD is a mess in comparison to those doom filled days, but nobody is callng for the demise of the AUD.

So linking your two arguments just results in nonsense.
An appreciating RMB will damage China.
Because China understands this, they artificially manipulate the RMB to keep the exchange rate low against the US$.

If the RMB were to revalue instantly, inflation would go to the moon and so would interest rates. I dont think any consumer nation is wanting this to happen

Such a shallow analysis, indicitative of the qualitative analysis based on opinion.

The banking system and the bad debt situation is the dodgy system I talk of. The trillion is in the Government coffers - but who do you think bails out banking systems when they implode?

And what effect would that have on Chinese economic growth?
Do you think it would be a positive?
Or a negative?
I would argue that it would have a negative effect on economic growth. That it is already starting to happen, is an early warning that down the road, rather than continued double digit growth in GDP, there lies trouble ahead.

The Chinese will do what they wish with their trillion. What other government manipulates the metals markets for the benefit of their industry?

And, for the sake of playing devils advocate, China has ASX resouce stocks at the top of their "to help" list?

As for demographics - forget the birthrate etc. Keep contemplating the effect of 400million people adding to their per capita production/spending at a multiple of 10.

Just a further example of an embedded bias.
Forget the data, and what that implies.
Don't think, pay some analyst to think for you, and go with their recommendation, after all, by a process of elimination, we can conclude that you believe them to be more intelligent than yourself.

rederob

The value of gold is largely a function of its rarity and (virtual) indestructibility.
The fact that it can look good is just a bonus.

The value of gold, is psychological.
It possesses no intrinsic value.

Don't be too hard on ducati. At least now he cuts and pastes with due acknowledgement. In time he may learn to divine the future from a more balanced appreciation of key drivers of demand. Of course if he reads more of our posts he will get a heads-up!

I always read your posts.
They are of great interest, and highly illustrative of trader sentiment.

jog on
d998

 

[BSD]

Wayne I never really responded to the backwardation/contango point.

I don't see the slope of the curve as being predictive as much as MACD(!) or the bond yield curve for that matter.

I do see it as an insight into market player's views of the future and in copper this view has gone from being very negative (40% discounts over 27mths) to 10% discounts over the same timeframe.

The predictive abilities of the forward curve have been rubbish in the last 2 years at picking the prices on the way up and stangingn stronger - so we can happily discount the accuracy of current forward prices also. But it is a view on current sentiment.

I got a shock to find some out-months in contango after the barrage of bear talk around the red metal in the last month or so.

I use a number below $3.00 for my Cu forecasts beyond end of this year, so I tend to agree with your assumptions.

Recession in the next 12 months, being two 1/4s of negative growth, could happen. As a betting man I would be happy to lay odds of 25% or 4/1.

But recoveries also occur and I cant see any such downturn being a protracted affair.

DUC
I give up.

You are too intelligent and me too naive and shallow to carry on.

Your ability to avoid 'forecasting' by looking in the rear view mirror will ensure you continue to have a portfolio that doesnt beat the cash rate on a mark to maket basis.

Is there an ignore function on the site?

 

[ducati916]

BSD

DUC
I give up.
You are too intelligent and me too naive and shallow to carry on.

I understand.

Your ability to avoid 'forecasting' by looking in the rear view mirror will ensure you continue to have a portfolio that doesnt beat the cash rate on a mark to maket basis.

Well of course that may be the case. But then again maybe not.
My success or failure will be easily followed on the public portfolio.

Is there an ignore function on the site?

Love me/hate me, I am irresistible!

jog on
d998

 

[rederob]

Love me/hate me, I am irresistible!
jog on
d998

Baaaaaa

..... where men are men and sheep run scared!

 

[ducati916]

Baaaaaa

..... where men are men and sheep run scared!

You seem to be in the habit of re-using the same old insults, can you not at least be a little more imaginative?

Why do namby pamby ducati types

I emailed ducati’s reply to a mining engineer I am in contact with and he’s probably still laughing. He wants to know if ducati is available to ferret around a few of his prospective tenements for a couple of years, or if he can just cheat and put something on the resource inventory that meets his theory about time frames and ability to replace reserves. He also said if ducati can get his hands on a drilling rig (better still a crew that has a clue), he can name his price.

Looks like ducati fell off his bike!

You can pontificate over valuation theory till the cows come home, or sheep, or whatever else comes home where you are.

jog on
d998

ps; how's that $800 Gold target looking for Dec.31 2006?

 

[rederob]

ps; how's that $800 Gold target looking for Dec.31 2006?

Pretty good:

 

[ducati916]

Well someone is telling porkie pies then aren't they;

 

[rederob]

Well someone is telling porkie pies then aren't they;

Perspective is important.
That gold chart does not look bearish.
The "gold" thread can wait another year for US$800 - maybe less, maybe more.
I will return there "after" the number is breached, and then go for a "double or nothing".

I believe it is important for you to feel you can have one victory over me: We could make it an annual event.

Merry Christmas

 

[rederob]

Sometimes a picture tells.....

 

[Knobby22]

Amazing, never realised the US use 1/4 of the worlds oil consumption in a year.

 

[noirua]

Merrill Lynch have downgraded RIO, BHP and Xstrata to neutral.

 

[ducati916]

And the story is misleading should you end your analysis at the pretty picture. As of course China consumes commodities in large part to manufacture for export.

Domestic consumption is estimated at 42% which is very low.
The remainder is exported to the rest of the world, and the US is China's largest customer.

Therefore, if US consumption falls for any reason [if they have a recession] China's consumption of raw materials will fall, thus, demand for raw materials falls proportionately. Add in falling US demand [from same potential recession,] and further demand weakness.

What signals a recession?
A prolonged yield curve inversion. Something like this;

 

[rederob]

Domestic consumption is estimated at 42% which is very low.
The remainder is exported to the rest of the world, and the US is China's largest customer.

Perhaps the US has an important role, but China has a more significant dependence on other nations than the US for the bulk of its exports.
In fact, the European Union accounts for a greater value of exports than the US.
This was not the case 5 years ago, but China has consistently weaned itself off the US and nowadays is also a major financial backer of projects in countries the US openly shuns.

ducati
You can throw up every economic indicator in the world, but you need to get some credibility by putting some of it in place and adopting time frames to complement your thesis.
For example, what's your best estimate of inevitable collapse of global markets based on the yield curve inversion?

 

[ducati916]

Perhaps the US has an important role, but China has a more significant dependence on other nations than the US for the bulk of its exports.
In fact, the European Union accounts for a greater value of exports than the US.
This was not the case 5 years ago, but China has consistently weaned itself off the US and nowadays is also a major financial backer of projects in countries the US openly shuns.

ducati
You can throw up every economic indicator in the world, but you need to get some credibility by putting some of it in place and adopting time frames to complement your thesis.
For example, what's your best estimate of inevitable collapse of global markets based on the yield curve inversion?

I think a good starting place might be in actually ensuring that your *facts* are accurate, and not just an opinion off the top of your head.

Exports, are not FOREIGN INVESTMENT.
I would have thought that this basic difference would not need clarification.

If you understood the implications of the yield curve, a timeframe would suggest itself.

Data;

Exports:
$752.2 billion f.o.b. (2005 est.)

Exports - commodities:
machinery and equipment, plastics, optical and medical equipment, iron and steel

Exports - partners:
US 21.4%, Hong Kong 16.3%, Japan 11%, South Korea 4.6%, Germany 4.3% (2005)

Imports:
$631.8 billion f.o.b. (2005 est.)

Imports - commodities:
machinery and equipment, oil and mineral fuels, plastics, optical and medical equipment, organic chemicals, iron and steel

Imports - partners:
Japan 15.2%, South Korea 11.6%, Taiwan 11.2%, US 7.4%, Germany 4.6% (2005)

jog on
d998

 

[Freeballinginawetsuit]

Amazing, never realised the US use 1/4 of the worlds oil consumption in a year.

The US dont use a quarter of the worlds oil consumption , surely not!.

 

[nizar]

The US dont use a quarter of the worlds oil consumption , surely not!.

Yes they do.
They use roughly 20million barrels a day.
Global consumption is 84million barrels/day.

Dont have any links sorry but iv read it in a number of sources (many of which are hard-copy).

 

[Freeballinginawetsuit]

It was a bit of sarcasm Nizar!, as well as Invading Iraq twice for the good of world security , or vesting arms in Iraq for a decade prior again for world security or constraining Japan and forcing their hand to go south before we were both born . The US have a long history of being the worlds 'oil police' under the guise of nuances and yes their consumption of oil is disproportionate to the rest of the global community!.