How many of you have been stopped out of trades these past 2 days?

[CanOz]

What iron ore alternative? What copper alternative? What uranium alternative?

China is right now, striking deals with African nations, Saudi Arabia, and Russia to supply resources. Some of these include:

Uranium from various parts of the African continent

Oil from Russia and Venezuela

Alumina (Bauxite) from Saudi Arabia

Copper from Sth. America.

Its all out there, and when your the biggest buyer, with the biggest chip on your shoulder, you'll get what you want.

 

[Freeballinginawetsuit]

China is right now, striking deals with African nations, Saudi Arabia, and Russia to supply resources. Some of these include:

Uranium from various parts of the African continent

Oil from Russia and Venezuela

Alumina (Bauxite) from Saudi Arabia

Copper from Sth. America.

Its all out there, and when your the biggest buyer, with the biggest chip on your shoulder, you'll get what you want.

Not exactly reliable suppliers, you quoted. BHP & RIO will swallow up the Russian miners in the not to distant future.

BHP & RIO are reliable suppliers.
They are also cashed up and prime to swallow any competitor. They are efficient at screwing every cent out of their negotiations as well. China needs guaranteed growth at least past the Olympics and India as well.
The Chinese will pay what they have to to guarantee their supply, India is the next sleeping customer as well.


As for past this period, I wouldn't hold LONG the specky materials explorers in west oz, by the time their up and going the bubble may well have burst.
The companies that produce now, especially the low cost small ones have a bright short term future to capitilize on the current materials prices.

As for 2 years from now, who really cares!, money is still to be made in trading the materials sector at present.

 

[Jay-684]

base metals up on NY Futures market, all by between 1-3% except aluminium

buying into RIO and ZFX tomorrow. Already hold alot of BHP otherwise would get in on that aswell

 

[dj_420]

i agree, base metals prices seemed to have bounced a bit, perhaps our market has overreacted???

i think the market has been overreacting to a lot of news from media and analysts. our market gets punished when there is concerns for global growth (last two days), now just tonight there are media reports of copper supply concerns (kitco), tomorrow copper will be back up lifting all base metals. ppl who were stopped out or sold down will try and buy back in to low prices before we resume our seesaw which seems to react only on media articles and speculation.

only time will tell, as far as supply and demand goes, zinc is still flying out the window, we have copper supply concerns again, i am a firm believer in the stronger for longer theory.

we are still yet to see india awake and begin industrialisation era, are there any analyists predictions as to when that will begin?

IMO the ppl who may have gone short on BHP today on media speculation that the world has stopped growing will be sorry and the ones who went long will pocket some profit.

Just my two cents anyway

 

[Realist]

If I had spare money I'd buy more BHP and RIO for what it is today!

It is a bargain I reckon...

Would not be surprised to see it bounce back heavily tomorrow.

Do your own research though, I know nothing, nothing at all.

 

[wayneL]

If I had spare money I'd buy more BHP and RIO for what it is today!

It is a bargain I reckon...

Would not be surprised to see it bounce back heavily tomorrow.

Probably. But...............

 

[ggmaximus]

I hope you're right about the BHP bounce realist, I hope it is huge..
having 7000 shares long bought @ $28ish hurts, small amount of prem selling calls on em this month is not going to cover the loss.

what trades you got open wayne?

 

[wayneL]

I hope you're right about the BHP bounce realist, I hope it is huge..
having 7000 shares long bought @ $28ish hurts, small amount of prem selling calls on em this month is not going to cover the loss.

what trades you got open wayne?

I am short delta on the SP500... probably going delta neutral this evening... maybe.

Long delta Wheat and Corn, short delta soybean complex and sugar.

Out of metals and oil atm, wishing I was short.

No stocks at the moment.

 

[wayneL]

If I had spare money I'd buy more BHP and RIO for what it is today!

It is a bargain I reckon...

Would not be surprised to see it bounce back heavily tomorrow.

Not much of a bounce on the NYSE so far

 

[Magdoran]

Wayne, I agree with Realist, BHP will be at $35 at some point in this financial year.
However I would have had a trailing stop on it in the present climate, Risk measures are necessary.
Wayne its absolute rubbish to think BHP will crash to $12 in the short term, Absolute rubbish!.

Hello Freeballinginawetsuit,

Re Wayne’s $12 forecast - How do you know for sure it’s wrong? You must have one hell of a crystal ball!

$12 is quite possible. Sure, it’s not likely, but there have been real crash scenarios in the past - look at 1929, and 1987 for example – just look at the way commodities are trading now, and bond markets, interest rates, etc. Have you looked at crude oil, unleaded futures, copper and other base metals recently? Imagine the bottom fell out of them and what the effect it might have?

Try this on for size ala Douglas: Anything can happen, and every moment in the market is unique. The biggest crime many commit is not realising this. This is what risk management is all about, being prepared for any eventuality.

Wayne is illustrating this point. BHP may never make $12 this financial year, but it is conceivable, and on a par with your projection of $35. The question is, if the indications show the probability of one or other eventuality becoming a reality, do you have a plan of action to take advantage of these opportunities? Maybe BHP range trades around the current levels for the remainder of the year too – all possible.

Me, I just don’t know what will happen, but I can tell you that I will be looking for clues, and use my analysis and rules to trade the market whatever it does… maybe you may consider adopting a more open minded approach to the future, it may help you to avoid the negative effects of bearish moves, what do you think?


Regards


Magdoran

 

[ducati916]

The US & China are symbiotic economies currently.

China can only consume 42% of their own output [this is a very small consumption]
They thus rely on the rest of the OECD bloc to take the surplus production.
The US accounts for some 68% of the 58% surplus.
Walmart alone accounts for 30% of the US 68%

Now supposing China did not cycle the FX surplus back to the US via the purchase of Treasuries? Could, would the US continue to purchase Chinese manufacturing output?
Protectionism is very strongly on the rise through Congress & Senate working parties, you need only look at various mergers that were blocked recently.

Trade tarriffs, etc are again a fact of global trade, thus, should China NOT support the US consumer, the US consumer would possibly be denied the opportunity to purchase from China just in case they would still wish to, or could afford to.

China is still a managed economy.
It is managed locally with great inefficiencies and wasted capital.
In China, it has led to massive overinvestment in manufacturing assets in sectors already suffering from oversupply. Investment in fixed assets -- everything from steel mills to cement plants to oil refineries to highways -- grew by 30% in the first half of 2006.

Although the reported profits of China's largest industrial enterprises climbed 28% in the first half of 2006 over the same period in 2005, companies in some sectors have seen profits squeezed, sometimes to the vanishing point. According to government numbers, 80% of the profits in the Chinese economy went to companies in the oil, power, coal and nonferrous metals sectors. The other 30 sectors of the economy shared just 20% of corporate profits.

Profits in the Steel sector dropped by 20% in the first half of the year. The problem is overcapacity. Too many steel companies have added too much capacity, driving down the price they can charge for their product.

Cheap money in plentiful supply has produced a real estate boom in China, too. Higher prices pull more money into real estate, of course. In the first six months of 2006, real estate investment climbed 24.2% over the same period in 2005. According to the National Bureau of Statistics, 1.41 billion square meters of housing were built from January through June 2006, up 21% from 2006.

China needs GDP growth north of 7% a year just to stay even with the number of new job seekers thrown up by its massive population every year.

A purely rational economic analysis would say that if Chinese textile makers can't compete after the yuan is appropriately revalued, then the least-efficient companies in the sector should go out of business and the jobs should flow to countries, perhaps Vietnam, where lower labor costs would allow textile makers to make a profit.

That would mean shipping jobs out of China, however, and advocating that is political death in a country that needs to create 20 million jobs a year to keep the population governable by the Communist regime.

Therefore, it would seemingly be economic suicide to dampen demand from the US via refusal to fund the deficit in trade. The second part of the equation being, how much of the infra-structure, & productive assets belong to US Corporations via their FDI investments?
Just because the profits are not being repatriated due to tax reasons, does not mean the profits are not accruing to Corporate America.

With such a large component of listed Australian stocks having their earnings seemingly dependent upon Chinese demand, how will Australia weather a recession in China?

Anyway, food for thought
jog on
d998

 

[ducati916]

And just for all those that may have missed the BHP thread, this from about a month or so ago [ADR prices used]

Current Price $39.91
Code BHP
Yield 1.1%
Market Capitalization $128150
TCI Price Target $18.70 to $13.80
Investment Sector Industrial Metals & Minerals
Price/Earnings ratio 18.73
Recommendation Place on a watch list

Place Price Chart here.

INDUSTRY STATISTICS

Market Capitalization: 360B
Price / Earnings: 15.6
Price / Book: 5.2
Net Profit Margin 16.7%
Price To Free Cash Flow -87.0
Return on Equity: 32.6%
Total Debt / Equity: 0.5
Dividend Yield: 1.5%


Resources, commodity prices have been at historic highs just recently. With prices for the producers of commodities currently so high we must take into account the “cyclical” nature of the businesses involved.
We must ascertain whether the P/E ratio is derived from high earnings due to high prices received for production, or, a low purchase price available for the aggregate earnings over a number of business cycles.

To date the earnings have risen on high prices, and this has already more than been reflected within the prices asked for within the industry. This can further be illustrated within the low current dividend yield.

Purchasing this industry implies continued growth within China & other developing nations.
Is this current growth rate sustainable?
There will be many opinions upon that crucial question, but, the answers are all speculative, and if wrong, could find a very nasty correction in the prices of resource stocks. This has already happened in May, and currently the question remains, after the correction, have the prices become cheap, or undervalued?
The unequivocal answer is no. They are still as a sector overvalued.

CAPITALIZATION

Market Cap (intraday): 116.89B
Enterprise Value (19-Jun-06) 129.64B
Trailing P/E ( intraday): 15.08


The Capitalization structure of BHP is an unqualified good.
The debt, constituting both funded debt & Bank debt is a very small component of the Capitalization.
Further, the Pension & Operating Leases component is currently showing a surplus from my estimations.

Income Statement
Revenue 32.20B
Revenue Per Share 10.64
Qtrly Revenue Growth 9.70%
Gross Profit 10.09B
EBITDA 13.08B
Net Income to Common 7.80B
Diluted EPS 2.56
Qtrly Earnings Growth 55.10%


The coverage of Interest payments is excellent, and poses little risk to holders of debt, or of equity.
We can see the result of the current high prices of commodities reflected within the two ratios of “revenue growth” and “earnings growth”.

A 9.70% growth in Revenue, contrasted with a 55.1% growth in Earnings. Should commodity prices weaken, and commodity prices are very cyclical, we would see a significant shrinkage within earnings as a result, with a concurrent shrinkage in Revenues.

Due to the lack of leverage within the Balance Sheet, and the high percentage of Common, the expectation would be for a low volatility within the share price. This until just recently was the case. It has not been the case over the past two years.

There has also been a significant improvement to net profit due to a reduction in production costs, quite possibly due to economies of scale. There has additionally been a significant improvement within Selling General & Administration, costs falling. These are both positives, but sustainability is a concern.

Balance Sheet
Total Cash 1.65B
Total Cash Per Share 0.546
Total Debt 10.47B
Total Debt/Equity 0.495
Current Ratio 1.092
Book Value Per Share 6.98


Cash is lower currently than one would like to see. This in of itself is not a major problem, as of course the ability to borrow cash would be forthcoming, and undoubtedly, BHP, would have a credit revolver available.
The Current Ratio however is not high enough to qualify BHP as “Investment Grade” currently.

Inventory & Receivables display no red flags, and pass muster.
The collections of Receivables is possibly a little low, but is consistent, this will be monitored.

BHP however does not pass muster on the return generated on assets. With the current high prices that are being paid for commodities, a return of $0.97 on each invested $1.00 is indicative of a low return business.



Cash Flow Statement
Operating Cash Flow 10.04B
Levered Free Cash Flow 8.27B


Cash-flow analysis throws up some interesting areas.
Depreciation is the problem child. As a percentage of Revenues, Depreciation has fallen from an aggregate of 8.9% to 6.6%. This will after Tax, flow to the bottom line, improving net profit growth, this is some $0.13 cents per share.

Capital Expenditures have fallen quite significantly, some $0.77 per share from the aggregate.
Depreciation compared to Capital Expenditures has also decreased.
Depreciation to Cash from Operations……..fallen.
Depreciation as a percentage of Net Assets………..fallen

What we are left with does not look confidence inspiring currently, especially as we are not even purchasing a bargain, thus we have no margin of safety.

We have reduced Capital Expenditures, thus pumping up net profits.
We have reduced Depreciation being charged against Net Assets, pumping up profits.
In short, there may very well be reduced investment, or more importantly reduced, or inadequate spending on maintenance to pump up earnings.

Examination from a different perspective reveals nothing that allays any concerns.
%growth in Capital Expenditures = 30.7%
%growth in Plant Property & Equipment = 24.3%
%growth in Depreciation = 9.8%

When we compare this to the following;

%growth in Revenues = 22.8%
%growth in Gross Profits = 34.3%

It would seem that the Depreciation charge is being inappropriately rated. This is always a red flag, and may pose problems further down the road. At current prices, it is certainly enough of a question to apply prudence to the investment decision.

The Depreciation or Depletion charge carries an extra importance within the purchase of the common stock of a resources business. The Depreciation charged by the business cannot be the depreciation charge utilized by the individual investor, as of course, the business charges depletion at purchase price, and so must the investor.

Utilizing a pessimistic outlook, and diminishing productive capacity after seven years, the investors return would calculate to 4.5%. This is inadequate, and provides no margin of safety at all.

Utilizing a generous twenty years on productive capacity, we still have only a 6.7% return. For this return, a lot of things would need to move in the investors favor.

MANAGEMENT

Looking at hidden Cash-flows we can identify a discretionary Cash-flow of $295.9 million, or $0.09 per share within Selling General & Administration. This in of itself is generally a positive, as these cash-flows may well be available to the business in harder business cycles.

There is however a discretionary Cash-flow within Capital Expenditures also, calculated to be approximately $593.8 million, or $0.19 per share. Under the present question marks present regarding the Depreciation charge, I am not willing to look at this as a positive, if; in point of fact maintenance spending has suffered.















SUMMARY

BHP is considered a “Blue Chip” business, or share. In my opinion, the business is profitable, but has a very low return. It has some serious question marks in regards to the Depreciation charges and related questions regarding the outcome of Capital Expenditure spending.

At the current price, it is too expensive, and returns accruing to the investor, purchased at these prices will reside almost entirely on speculative outcomes. Will commodity prices remain at 25 year highs? Will China & other developing nations continue their extreme growth rates?

If you do not know the answers to these questions, then BHP is a watch list security. Should prices fall to circa $8.00 then there will be enough value available to warrant an investment with “Fair Value” calculated at the range of $18.70 to $13.80 per share.

 

[Freeballinginawetsuit]

Hello Freeballinginawetsuit,

Re Wayne’s $12 forecast - How do you know for sure it’s wrong? You must have one hell of a crystal ball!

$12 is quite possible. Sure, it’s not likely, but there have been real crash scenarios in the past - look at 1929, and 1987 for example – just look at the way commodities are trading now, and bond markets, interest rates, etc. Have you looked at crude oil, unleaded futures, copper and other base metals recently? Imagine the bottom fell out of them and what the effect it might have?

Try this on for size ala Douglas: Anything can happen, and every moment in the market is unique. The biggest crime many commit is not realising this. This is what risk management is all about, being prepared for any eventuality.

Wayne is illustrating this point. BHP may never make $12 this financial year, but it is conceivable, and on a par with your projection of $35. The question is, if the indications show the probability of one or other eventuality becoming a reality, do you have a plan of action to take advantage of these opportunities? Maybe BHP range trades around the current levels for the remainder of the year too – all possible.

Me, I just don’t know what will happen, but I can tell you that I will be looking for clues, and use my analysis and rules to trade the market whatever it does… maybe you may consider adopting a more open minded approach to the future, it may help you to avoid the negative effects of bearish moves, what do you think?


Regards


Magdoran

Personally I wouldn't trade BHP at the moment, its exposure is to varied and as today proved has no real support level. Over the past few months it has been sideways and is difficult to channel trade quickly, or at all!. You have to pick the absolute bottom and top to make 15%.

However I did buy RIO today and it also proved to fall past its support. Personally I prefer RIO'S exposure and will probably hold this one LONG, and hopefully with a trailing stop. If it drops 3% tommorrow again, my stop will get hit and I will cut my losses, worth the punt anyway.

Anyway I'm bullish on materials, after two days of pullback I will take the punt on all the ones I picked up today.

I'm significantly ahead, thats the main thing!.

 

[MichaelD]

Re Wayne’s $12 forecast - How do you know for sure it’s wrong? You must have one hell of a crystal ball!

Try this on for size ala Douglas: Anything can happen, and every moment in the market is unique. The biggest crime many commit is not realising this. This is what risk management is all about, being prepared for any eventuality.

The crystal ball differs for fundies and techies. Not sure which one works better.

Fundies operate on the notion that if they state the price a stock SHOULD be at often enough and loudly enough and in enough places, the market will surely heed their pleas to stop the pain.

Techies draw REALLY REALLY thick support lines on charts. Preferably red. The thicker and the redder the more likely the market will sit up and take notice and reverse at these points.

 

[wayneL]

The crystal ball differs for fundies and techies. Not sure which one works better.

Fundies operate on the notion that if they state the price a stock SHOULD be at often enough and loudly enough and in enough places, the market will surely heed their pleas to stop the pain.

Techies draw REALLY REALLY thick support lines on charts. Preferably red. The thicker and the redder the more likely the market will sit up and take notice and reverse at these points.

hahaha so true! A few years in the markets cures you of that though.

Actually, I wasn't invoking the crystal ball when I said $12.

I was:

a) being somewhat mischievious (I thought that apparent with the use of silly graphics etc)

b) seeing what the response would be (ditto of a) really)

But dealing now in cold hard fact, the NYSE version of BHP is down yet again... no dead cat bounce here... yet.

Oct Crude down to < $64, Dec Gold @ ~$595, Dec Copper @ 336.50 and Dec Silver @ $11.11... all down on the day.

 

[tech/a]

This happened in May and there was doom and gloom everywhere.

Get a grip the fundumentals of the economy havent changed enough for crash bang!

 

[MichaelD]

Actually, I wasn't invoking the crystal ball when I said $12.

I was:

a) being somewhat mischievious (I thought that apparent with the use of silly graphics etc)

b) seeing what the response would be (ditto of a) really)

I know. Me too.

The point, however, and subsequent responses are illuminating - it would appear that the scenario of BHP at $12 is simply something most stock market players deny could ever happen. I guess if you deny something could happen, then you don't need to cope with dealing with the possibility that it MIGHT happen.

 

[Realist]

BHP up 50 cents today.. :

RIO up $1.30

It is nice to see some green on Commsec for once...

 

[The Mint Man]

Probably. But...............

Gold down, oil down.... ahh bugger it, easier to say Platinum up, Nickle up and everything else down. Dollar back down to around .75 even.

Possible sell of after this rise on friday?

 

[Magdoran]

Gold down, oil down.... ahh bugger it, easier to say Platinum up, Nickle up and everything else down. Dollar back down to around .75 even.

Possible sell of after this rise on friday?

Copper came back up a little, but I wouldn't hold my breath...

You’d expect a bullish counter trend after such an exhaustive drive down. May still be some downside yet.

You’d expect the market to rally to try to fill any gaps, for stocks like BHP, then if this fails... we may see a retest of the recent lows, and maybe another capitulation... depends in part on what oil and metals do, let alone other things like currency movements.

I suspect 2-4 days counter trend rally, then a retest for many resource stocks...