Resources Boom - is it really a boom??

[IGO4IT]

Peter Costillo finally decided to comment on current share market status & had just warned investors of what he calls a resources "boom" that in his opinion may take another 2 years & then bust same as property boom that busted in 2003!!

I don't think its a boom.

a boom is a wide overvaluation of market price of property(s) due to many reasons including higher demand that pushes market prices higher than what their actual value or (book value).

I invest in resources stocks heavily & still don't see any reason to pay 1c higher for any stock that DOESN'T carry on that value of cashflow, physical production or reserves.

I think the resources market is heavily calculated very accurately on minute by minute basis & we always give the benefit of the doubt to a down trend unless proven wrong.

Do you really think resources investors pay too much for potential?? Do you think it's really a boom??

 

[wayneL]

Peter Costillo finally decided to comment on current share market status & had just warned investors of what he calls a resources "boom" that in his opinion may take another 2 years & then bust same as property boom that busted in 2003!!

I don't think its a boom.

a boom is a wide overvaluation of market price of property(s) due to many reasons including higher demand that pushes market prices higher than what their actual value or (book value).

I invest in resources stocks heavily & still don't see any reason to pay 1c higher for any stock that DOESN'T carry on that value of cashflow, physical production or reserves.

I think the resources market is heavily calculated very accurately on minute by minute basis & we always give the benefit of the doubt to a down trend unless proven wrong.

Do you really think resources investors pay too much for potential?? Do you think it's really a boom??

yes\/

boom
Definition

A period of rapid economic expansion.

http://www.investorwords.com/550/boom.html

 

[bullmarket]

This morning's Age newspaper said that China's government say their current 10.2% 'economic expansion' needs attention....ie...they're looking at ways to slow it down

So I suppose if it looks like a duck and quacks like a duck - then it probably is a duck so for my money China at least is in an economic boom atm and obviously that is what is contributing significantly to high oil and other commodity prices.

For me, the only question is how succesful will the Chinese gov't be in slowing it down and in what time frame and hence what affect will it then have on commodity prices.?

This morning's Age story (some bed time reading )

cheers

bullmarket

 

[crackaton]

I don't think they can. There are so many young people over there after the good life, luxuries etc.

 

[IGO4IT]

if its an economic growth not an overvaluation then why should it bust one day??

resources are getting more valuable each day because of many facts, gold for wars happening, uranium for global warming,etc....

even if we pay more today for expected future resources production or potential of a company, its usually based on estimated pricing of future production. if it fails, in many occassions drop in price is equal to value added in potential in first place.

India is building nuclear power plants as if there's not tomorrow & as if they can grow U on trees, so demand is not getting any lower, why should that current boom bust?

I don't think 1 day the world will wake up not feeling like taking on more oil or fell like they don't need steel anymore , demand for resources may had been lower before as world was divided in miners & manufacturers but now the WHOLE world is trying to manufacture & mine at the same time.

 

[bullmarket]

In addition to my earlier post - a replay of my post from another thread this morning which is just as pertinent in this thread:

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.

have a relaxing evening to whoever is reading this

cheers

bullmarket

 

[Smurf1976]

Hearing the comments from politicians, in the media and on this forum I'm increasingly of the view that the resources boom is in for a correction.

The job of bull markets is to take as few along for the ride as possible. Right now this train's getting just a little too crowded for my liking. Indeed it seems that the number of passengers is doubling at every station.

I'm not saying the bull market in commodities is over. It's not over IMO. But I think sentiment is getting far too bullish and that more than a few passengers need to get off the train. Question is when and how.

 

[IGO4IT]

It's not over IMO. But I think sentiment is getting far too bullish and that more than a few passengers need to get off the train. Question is when and how.

Don't you think that the more bullish it will become the harder it will reverse on small changes to demand.

Also, don't you think if politicians advise GENERALLY on all resources growth & its a bit of a foolish generalisation of demand of ALL resources to end & world will be swimming in ALL resources in 2 years time?

Demand for each metal now is totally up to its usages & its contribution to differnet production processes, Iron/gold/copper/etc.... are basics of life & the fact of life is that we have more people being born that dying every day.

Aircons/Mobile phones/plasma tv/PCs/CD roms/Mp3 players, all these are now necessities that weren't there 20 years ago, all of them require more materials & the more invetions we have don't delete that old gear we had is still used & still being manufactured somewhere in the world.

I don't think supply for resources will ever exceed demand, human being known to always look for those resources that could be over supplied & always invent the usage for them as they're cheaper than others.

Also the day 1 resource becomes more produced than demand,the day miners for that resource will look for others that will be financially feasable for them to mine & that by itself will drive demand back up on speculations of a possible future supply shortage. (same example in oil now, we don't have less oil in world than anytime in the last 50 years, but we have speculations that we could have less oil during the whole last 30 years & that's what's got the barrel from 30c to $70 today)

 

[Duckman#72]

When you have resource companies that had been trading at 5c or less for 5 years that are now trading at 50c plus within 6 months - you can call it a boom.

When companies are falling over themselves to announce "fantastic" test results of mineral deposits from tenements that had been held for years - you can call it a boom.

When prices rise so quickly and sharply that the Treasurer feels compelled to comment - you can call it a boom.

I agree that there are strong fundamentals for a lot of the resource companies but you cannot tell me IGO4IT, that people won't get burnt out of this current resource explosion. There are tin pot mining companies exploding up everywhere. There will be some companies that will do very, very well but the shareholders need to be astute in picking which ones. In a boom period anything in the sector experiences a surge regardless of the shape of the company. At the moment this is what is happening in resources.

Regards

Duckman

 

[wavepicker]

Hearing the comments from politicians, in the media and on this forum I'm increasingly of the view that the resources boom is in for a correction.

The job of bull markets is to take as few along for the ride as possible. Right now this train's getting just a little too crowded for my liking. Indeed it seems that the number of passengers is doubling at every station.

I'm not saying the bull market in commodities is over. It's not over IMO. But I think sentiment is getting far too bullish and that more than a few passengers need to get off the train. Question is when and how.

Totally agree with you smurf, however I think that gold, silver and our market put in a very historic top last week, and if that is not the case then that top will happen in a matter of days. Gold and Silver in this last run up just put in classic 5th wave extensions or blowoff under elliott wave terms. The beauty of these sorts of moves was that we knew they were coming after the "contracting triangles" that preceded them. Contracting triangles always precede the FINAL move in a sequence in this case a wave 5, and wave 5's are always the longest in commodities which is exactly what we got. Right now I see gold pulling all the way back to 450-500 bucks in a correction that will take at least 2-3 years before bottoming( statistically speaking the correction should take 33-50% the time of the advance). Thereafter we can start to perhaps look at beingvery long term bullish again in my opinion. This all ties in nicely with the Aussie buckaroo which should sell off at the same time and so should the local resource stocks and market for that matter as it is overweight with resource companies.

Personally I have exited out of all positions in resources, banks, and consumer discretionaries and I am rotating into undervalued beaten down industrial stocks such as Telstra and Pacifica Group. Remember the old saying buy low and sell high, not buy high and sell a little hogher or at a loss! The name of the game is to look for value.

Cheers

 

[rederob]

Right now I see gold pulling all the way back to 450-500 bucks in a correction that will take at least 2-3 years before bottoming

Maybe.
I think the very opposite.
An easy $1000 for gold within 3 years - I reckon much less.
Silver's correction was inevitable.
But gold's correction was meagre, and recovered to close the week out within cooeeee of its recent intra-day cyclical high.
I hope for wavepicker's sake he is right.
I do know TLS has no saving graces and is a stock presently to be avoided like the plague. As for now going significantly into cash, I won't say it is unwise, but perhaps ill-timed.
This questionable (?) resources boom is presently in its third year, and is actually more powerful across all base metals, precious metals and oil - concurrently - than it has been in the period to date.
Copper, nickel zinc and oil are at all time life of contract highs.
The commodity markets have (for most metals and oil) never been tighter, ever.
2 years ago I read the bears widely, fearing a massive correction and curtailing my investments in commodities. The more I read the more I realised it was who you read, not what you read, that was important.
Don't listen to economists is my best advice to you in a commodity boom. Listen to BHP's Chip Goodyear or INCO's Scott Hand/Peter Jones (http://www.inco.com/investorinfo/newsreleases/Default.aspx?posting_id=3560) and hear what they are saying about demand: These guys are responsible for putting in billions of dollars of mining exploration and infrastructure each year, and they do it on the best advice money can buy.
I have a strong bias to commodities, but it’s because it has worked well for me for a number of years, and none better than this one.
Yet the big end of town is suggesting more of the same for longer.
They were right a few years ago, and they could be right again now.

 

[Smurf1976]

I've been absolutely confident about the future of commodities for quite some time. Over 90% of all shares that I have EVER owned have been mining or oil stocks. Indeed my initial reason for becoming interested in direct share ownership was because I saw it as a logical way to profit from moves in commodity prices. And it's gone rather well so far.

But it's just TOO bullish as far as I'm concerned. Who, exactly, is left to pay ever higher prices for resource stocks? Sure, in the longer term there will be plenty and rising commodity prices are likely to underpin it. But in the short term I do wonder why there would be potential investors waiting to buy in when even the average taxi driver is well aware of the resources boom. The way I see it, most of the money that's going in to the market in the short term is already in. Why wouldn't it be given all the publicity?

I say this being firmly of the view that the (as in one) major correction in the commodities bull market is a question of "when" rather than "if". I could be wrong of course.

As for the companies themselves, a correction lasting a few years (at most) is no reason to do anything other than take the contrarian view and INCREASE exploration and development spending. The market will have picked up by the time it comes online anyway.

 

[bullmarket]

Hi smurf1976

I generally agree with you

Regarding who will be left to pay ever increading prices for stocks - well, one way of looking at it is that there will always be mugs in chatrooms, pubs, factory canteens, office water coolers etc etc who are happy to jump on the band wagon after listening to all the hype whilst not knowing any better.

Eventually though, after share prices have gone past even the most optimistic valuations the 'smart money' will say enough is enough and start dumping their holdings to lock in profits and it will be mostly the johnny-come-latelies that will get hurt the most imo.

Imo a lot of the hype that you hear about the resources boom going on forever is mostly coming from johhny-come-latelies who have recently jumped on and so what else are they going to say They have to try to drum up other punters to pay even higher prices than they did so that they can make a small profit.

Sure, the current boom is not going to fall over over night (but then it might, who knows ) but when the correction comes after the smart money's greed has been satisfied it will shake out the late punters over however long it takes before resuming the uptrend if the global fundamentals still justify it.

Anyway, just more food for thought and my

cheers

bullmarket

 

[professor_frink]

Hi smurf1976

I generally agree with you

Regarding who will be left to pay ever increading prices for stocks - well, one way of looking at it is that there will always be mugs in chatrooms, pubs, factory canteens, office water coolers etc etc who are happy to jump on the band wagon after listening to all the hype whilst not knowing any better.

Eventually though, after share prices have gone past even the most optimistic valuations the 'smart money' will say enough is enough and start dumping their holdings to lock in profits and it will be mostly the johnny-come-latelies that will get hurt the most imo.

Imo a lot of the hype that you hear about the resources boom going on forever is mostly coming from johhny-come-latelies who have recently jumped on and so what else are they going to say They have to try to drum up other punters to pay even higher prices than they did so that they can make a small profit.

Sure, the current boom is not going to fall over over night (but then it might, who knows but when the correction comes after the smart money's greed has been satisfied it will shake out the late punters over however long it takes before resuming the uptrend if the global fundamentals still justify it.

Anyway, just more food for thought and my

cheers

bullmarket

If you guys are wondering where the 'bigger fools' are going to come from to turn this bullmarket into a bubble, comments like the one costello made should help to bring a few more punters into the market!
2 guys down at the pub tonight-
"you hear costello on the news? he says there is a resource boom"
"well mate we better go buy into some small mining companies then"
"yeah they say it'll be different this time"
"I'll go mortage my house then"

i love mock conversations

 

[IGO4IT]

very interesting to see that resources boom had gone to the average person knowledge & also Mr. Costello thinking it will be same as tech boom that busted in past as well.

Tech boom was a must because the world needed tech companies to move the world to the next www era & of course too many of them came in at the same time & demand was overwhelmed by supply because supply DIDN'T depend on minerals or metals to multiply, supply was depending on basic financial set up to multiply its products so it was easy to multiply & it was easier to set up many more suppliers over night.

in resources however I see it differently, I directly connect the current boom to the fact that the world we live in needs more materials because of the simple fact of life that we need more materials to survive.

can anyone give me an example of why we shouldn't need more resources in future? why would miners (on a wide range) go broke? why would a market that is so much needed for human beings survivability have less demand?

the link between resources needs & the current boom is very clear & more wars we have, the more new inventions we have, the more we like to develop as human beings the more we'll need raw materials & the more we'll pay to secure future source of these materials to secure our survival.

 

[tech/a]

Regarding who will be left to pay ever increading prices for stocks - well, one way of looking at it is that there will always be mugs in chatrooms, pubs, factory canteens, office water coolers etc etc who are happy to jump on the band wagon after listening to all the hype whilst not knowing any better.

You really think that the Australian Rescource sector could be held up even for a minute by these Hoards of Mugs?

How much private sector investment/spectulation in terms of total daily turnover do you think is traded as a % of total traded?

 

[wayneL]

.....secure our survival.

A stunning conundrum somewhere in there. The more we develop (as in the burgeoning middle class), the LESS likely we are to survive as a species.

The planet's in trouble already folks!

 

[bullmarket]

Hi igo4it

I could be wrong but I think you are under the impression that people are saying that the 'end of the world will come' when the eventual correction happens and that there won't be any global need for resources after that.

Well, maybe there are some who might think that but I get the impression that the overwhelming majority in here and elsewhere warning of a correction are not saying that there will never be any demand for resources ever again.

All I was saying earlier, to summarise, is that if people keep talking it up then there will always be 'inexperienced mugs' who don't know better that will continually jump on the band wagon until the 'smart money' sees that share prices have gone well past even the most optimistic valuations and so the smart money will then start dumping their holdings to lock in profits.

This will obviously shake out at least the mug punters and after they have been taken out then if global fundamentals still justify it, then more than likely the resources sector will restart an upward trend.

I suppose with your logic whereby you say there will always be a demand for goods and so supply will never meet demand then I assume you also think that house prices should always continue to rise and never fall because people will always need a roof over their head and somewhere to live - but even house prices move up and down in cycles because even in housing booms sellers begin to lock in profits when prices rise above realistic valuations and buyers stop bidding up prices for the same reason - and imo a roof over one's head is much more of a necessity than the necessities you listed for the vast majority of people.

cheers

bullmarket

 

[wavepicker]

Maybe.
I think the very opposite.
An easy $1000 for gold within 3 years - I reckon much less.
Silver's correction was inevitable.
But gold's correction was meagre, and recovered to close the week out within cooeeee of its recent intra-day cyclical high.
I hope for wavepicker's sake he is right.
I do know TLS has no saving graces and is a stock presently to be avoided like the plague. As for now going significantly into cash, I won't say it is unwise, but perhaps ill-timed.
This questionable (?) resources boom is presently in its third year, and is actually more powerful across all base metals, precious metals and oil - concurrently - than it has been in the period to date.
Copper, nickel zinc and oil are at all time life of contract highs.
The commodity markets have (for most metals and oil) never been tighter, ever.
2 years ago I read the bears widely, fearing a massive correction and curtailing my investments in commodities. The more I read the more I realised it was who you read, not what you read, that was important.
Don't listen to economists is my best advice to you in a commodity boom. Listen to BHP's Chip Goodyear or INCO's Scott Hand/Peter Jones (http://www.inco.com/investorinfo/newsreleases/Default.aspx?posting_id=3560) and hear what they are saying about demand: These guys are responsible for putting in billions of dollars of mining exploration and infrastructure each year, and they do it on the best advice money can buy.
I have a strong bias to commodities, but it’s because it has worked well for me for a number of years, and none better than this one.
Yet the big end of town is suggesting more of the same for longer.
They were right a few years ago, and they could be right again now.

Don't get me wrong. I too beleive that gold is a secular bull market and that it will eventually move well beyond $1000 and probably much higher than the average person thinks. BUT in the very long term. Not in the next 2-3 years.
In the year 2001 when gold was $250, no one wanted to know about it. It was being bashed by the financial press galore and branded as a relic with little commercial use. When 95% of the crowd was pessimistic was the best time to move in. Now every mug wants a piece of the pie. The same can be said about resources in general. Sentiment has turned to the other extreme and once again 95% of pundits will be wrong. That is the way markets have always worked, because most peoples decisions are emotionally based with no plan whatsover. The reason I gave you those 2 stock earlier as examples as a buy is for exactly the same reasons. Because they are being bashed over and over, with pessimism at an extreme. My timing to enter these stocks is right now!! What is your timing and what will your exit mechanism be for resources? My exit maybe ill timed to you, but I gave up love affairs with stocks long time ago. The market does not always reward loyal.

Everyone says we have at least another 2 -3 years to run in this bull, based on fundemental observations. But they forget one thing, that it is not the fundementals that are trading the markets but the people. In general there can be anything up to 3-6 months lag between the market and the fundementals from what I have seen. That may sound silly to some but most economists did not realize they were in a depression in the 1930's until it was actually happening for 2 years. Let alone forecast a market correction/crash.

good luck

 

[Smurf1976]

Overall, I see the resources boom as a bit like flying from Hobart to London via Sydney with an overnight stay in Sydney. I think we're getting pretty close to landing at Sydney - most of the journey is still ahead but we don't fly again until tomorrow.