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"The best place to be is in commodities"

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June 02, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. How did your market perform in another difficult week?

Oz. Not as badly as might have been expected, but we’ll almost certainly be hit hard on Monday because the big sell-off in New York on Friday came after we had closed, and also, incidentally, after I had started a long-haul air trip over to your part of the world.
Minews. Yes, you mentioned a spot of travel over the next few weeks, while keeping an eye on your home market, so let’s make this the first of a few short reports for June.

Oz. Thanks, though I suspect that your readers will be grateful for hearing as little as possible about a market which is looking more shell-shocked by the day. As ever, it is the problems of Europe which are dragging the rest of the world down, though unlike the American version of the same excess-debt crisis which hit in 2008, this version appears to have no early solution because of the fractured and fractious nature of the European family.

For Australia and other resources-focussed economies, it’s a case of plugging ahead, and hoping that the major nations can agree on a solution that restores demand for commodities. Unfortunately, in Australia’s case there is the added problem of a government in deep political trouble, thrashing about looking for gimmicks and stunts to maintain its grip on power. The net result is a sort of stalemate which is hurting the small miners most, but which is also causing the big miners to put up the shutters when it comes to new-project investment.

Minews. Time is tight, as you have mentioned, let’s move quickly to prices.

Oz. Okay, bearing in mind that you’ll need to put a history filter over everything that happened last week because New York’s 2.2 per cent fall will flow into the Australian market on Monday, knocking out last week’s modest 0.8 per cent rise in the all ordinaries index, and the 0.6 per cent rise in the metal and mining index. The one sector that should produce good news next week will be gold, which reacted solidly to New York’s equity correction and to talk of more quantitative easing, code for more paper money and higher inflation in the future. Those concerns lifted gold to around US$1,625 per ounce late on Friday, and up to A$1,675 per ounce on conversion.
...

Source >> www.minesite.com
*****
 
June 04, 2012
Don’t Miss Out: Any Breakup Of The Euro Would Trigger The Mother Of All Rallies
By Rob Davies

Albert Edwards, an economist at Société Generalé, wrote a piece of research last week with a sub-title that went something like: “All hope will be crushed”.

Since then equities and commodities have dropped and some sovereign debt markets have climbed. It is the collective wisdom of “the authorities” that the safest thing banks should be holding is debt issued by the governments of Germany, USA and the UK.

And so the yields on ten year bonds issued by these countries are respectively: 1.2 per cent, 1.45 per cent and 1.53 per cent. But Albert Edwards believes yields on these instruments could fall to under one percent.

No wonder Ross Norman of Sharps Pixley floated the kite that the Bank of International Settlements, the central bankers’ bank, is contemplating allowing commercial banks to hold gold as part of their Tier I assets. But surely that won’t happen until gold is much, much higher?

But what these market moves are telling us is that expectations of growth are being scaled back very rapidly, and not from a very high level in the first place. Even so, red-blooded investors seek out this sort of mood because they can provide excellent money-making opportunities.

The difficulty is measuring how depressed people are. The simple way is looking at the change over the week. Base metals fell 2.8 per cent to 3,216, as measured by the LME base metals index, about the same percentage fall as was endured in the major equity markets.

And in percentage terms the gains made by US Treasuries of 16 per cent over the week are outstanding and put everything else in the shade and, along with the two per cent rise in the gold price, are testament to the apprehension in the market.

Such pessimism can become self-fulfilling and investors become locked into a cycle of despair. While many observers are deeply sceptical of the effectiveness of intervention by the authorities, intervention nonetheless still has the potential to make a big impact.

In the past few years central banks have responded several times to the prevailing gloom by creating liquidity through quantitative easing. These events have had a dramatic effect on the markets and spurred sharp rises in risk assets. The risk now is not being in the market if such an event was to be repeated.

Perhaps more likely though, is the event the authorities dread most: the departure of one or more countries from the eurozone, whether voluntary or involuntary.

If the eurozone were to break up, even partially, a number of analysts think it would be the single most important factor to bring growth back, whatever the Germans might think.

Such a development would have the benefit of inflicting the pain on the one country that is most able to suffer it. Germany, as a 27 per cent shareholder of the ECB, would be the country that would be most impacted by fringe countries leaving the euro.

Such an action would mean that these countries would revert to their national currencies and almost certainly default on the euro loans they and their banks have taken from the ECB.

While it would be painful for the Germans, and many European banks, a breakup of the euro would kick start growth in Europe and trigger the mother and father of rallies in risk assets like commodities and equities.

Succumbing to the prevailing gloom, and not being invested in these assets if such a development happened, could potentially be very expensive - and galling, as cautious types watch those prepared to take risks being rewarded, at last.

Source >> www.minesite.com
*****
 
June 09, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. Have you been able to keep an eye on your market while travelling?

Oz. I wouldn’t dare miss a day when conditions are this unstable! Even while in London it’s been important to check regularly on the ASX because, like you, we’ve been up one minute and down the next. Last week was a good example of that trend, with the gains from four up days cancelled out by one bad day, leaving the overall market almost exactly where it started. The exception was the gold index which managed to hold on to much of its gain thanks to the ongoing European wobbles, closing the week with a solid five per cent gain.

Minews. Have you seen differences between your home market and London?

Oz. Difficult to say, yet. Last week was exceptional in both places. London, obviously, was in party mood, when not dodging the weather. Australia was also being lulled somewhat by remarkable economic growth data which showed gross domestic product growth of 1.3 per cent in the March quarter, an annualised 5.2 per cent, which is a number you would normally associate with Chinese growth.

Minews. You don’t believe the numbers?

Oz. No, I suspect it will be revised down when the June quarter data comes out. But even if the number drops to an annualised three or four per cent that would still make Australia one of the world’s better performing economies, for now. But - and it is a big but - it is hard to see Australia maintaining that sort of growth if the rest of the world, particularly China, slows significantly.

Minews. Have you seen any other differences between our part of the world and yours?

Oz. The key variance appears to be confidence, brought about by lower debt levels, our obvious proximity to China, and its demand for raw materials. Australia, unlike Europe, is not trying to compete with China. Instead it is successfully riding on the dragon’s tail, a profitable position for now, but one which will, in time, be tested.
...

Source >> www.minesite.com
*****
 
June 11, 2012
Short Covering Pushes Commodities Markets Up Temporarily, But The Chinese Slowdown May Put A Longer Term Dampner On Prices
By Rob Davies

China accounts for 40 per cent of the 20 million tonnes of copper the world consumes every year. So when it sneezes lots of people rush out with tissues and words of reassurance, hoping that it hasn’t got Legionnaire’s disease.

But when China cut its interest rate from 6.56 per cent to 6.31 per cent last week, it confirmed a widespread suspicion that the rate of growth in Chine is slowing quite rapidly. In turn that raised concerns about the prospects for global growth.

The initial reaction of capital markets to this bad news was to close short positions in commodities and equities. While these positions were probably put in place more to cover fears about the Eurozone than to offset worries about China, the negative news from the Middle Kingdom was still enough to confirm the opinion that there continues to be a lot to worry about.

In any event the short covering rally pushed base metals up 0.9 per cent to take the LME index up to 3,241 by Thursday. Friday showed a weaker tone and left three month copper down US$200 at US$7,290 a tonne.

On the face of it LME copper inventories of only 229,300 tonnes should support prices at these levels. Unfortunately, ANZ Bank estimates that China is sitting on another 750,000 tonnes of the red metal. That is quite an overhang, and more than enough to affect sentiment and depress prices.

The problem is that it is hard to know what the longer term outlook for China is. No one doubts the work ethic or the entrepreneurial zeal of the country.

While those are important factors, much of the growth over the last two decades has been driven by the mass movement of labour from rural to urban areas. Here that labour - and there is lots of it - has been used much more productively, in a manner similar to the way that the industrial revolution deployed labour and drove growth in the UK in the nineteenth century.

There is, however, a cloud on the horizon. Uniquely among large countries China instigated a “one child” policy thirty years ago to limit explosive population growth. That worked, and the impact of the policy is now being felt in a labour force that is growing more slowly.

Indeed, UBS estimates the Chinese work force will peak in 2015 and then start to shrink. From then on economic growth will depend on rising productivity rather than an expanding workforce. Making both occur at the same time, as is ideally the case in developed countries, remains a challenge.

If Chinese growth does stall, commodity markets will get precious little help from other parts of the world. There is a massive difference between China and the next largest source of demand for copper, which is Europe at 20 per cent of the total.

Not only is this a much smaller market, it is now forecast to shrink by 0.3 per cent this year. And since the heart of the Spanish banking crisis was overenthusiastic lending to property, leading to a massive overhang of unoccupied property, it is clear that the building industry is going to be subdued for a while. That is bad news for copper, since construction accounts for about a quarter of demand.

It is always dangerous for any business to be overly reliant on any one customer. Unfortunately, that is the situation that commodity producers have got into now with China.

It is of course better to have had that demand over the last decade than not. Nevertheless, it may be that the mining industry may have to go back to the more mundane levels of demand growth it had before China took off on its bull run.

Source >> www.minesite.com
*****
 
Goldman Sachs Group Inc. (GS) said it expects a 29 percent return from the Standard & Poor's GSCI Enhanced Commodity Index over the next 12 months, with the biggest gains in energy and base metals.
Source >> Bloomberg, June 11.
 
Wiess Research

Chinese banks issued a whopping $125 billion in new loans in May, a record for the month of May and widely exceeding analyst estimates. In addition, M2, the broadest measure of money supply, surged 13.2% in May from a year earlier.
Click to expand...

The taps are open again in China.
 
June 15, 2012
That Was The Week That Was … In Canada
By Our Canadian Correspondent

Minews. Now, over to our Canadian Correspondent for a look at how the Canadian markets performed over the past week.

CC. Canadian manufacturing sales declined for the third time in four months in April, and Canada’s Federal Finance Minster warned Canadians that the European financial crisis will affect the Canadian Economy.

Minews. You have to love the brilliant deductive reasoning of a politician.

CC. Yes. And the Governor of the Bank of Canada and his policy team voiced similar logical conclusions by reiterating that Europe’s worsening drama could do damage to the global recovery. The end result of all that bleak economic news was a very cautious week of trading ahead of the Greek election on Sunday. Once all the trading was done, the TSX Ventures Exchange, home to more junior exploration companies than anywhere else in the world, had lost 3.24 per cent, while the TSX Gold Index had moved the other direction having added a modest 0.13 of a per cent.

Source >> www.minesite.com
 
June 16, 2012
That Was The Week That Was … In Australia
By Our Man in Oz

Minews. Good morning Australia. You don’t seem to have gone anywhere last week.

Oz. Not quite right. I’m still moving around Europe - it’s the Australian stock market which went absolutely nowhere last week. All major indices ended roughly where they started, with the only significant movers being the Aussie dollar and the price of gold, which both rose quite strongly. The dollar moved back through parity with its US cousin, negating for local gold miners some of the effects of the gold price stacking on the best part of US$50 an ounce. Across the sectors most share-price moves were modest, either way, with no discernible trend. Rises broadly matched losses, even among gold stocks.

Minews. That sounds a bit like northern hemisphere markets - almost as if we’re all waiting for something to happen.

Oz. Not a bad way of describing today’s mood, though by Monday we might have a clearer picture of what’s going to happen in Greece, which should help determine what happens in Europe. The problem, which we’ve discussed in the past, is how the different pieces of the world are connected with slowdowns in one area affecting the next and that, in turn, affecting demand for minerals and metals and share prices on the ASX.

Minews. And that uncertainty you refer to can be seen in the higher gold price. But why the stronger Australian dollar?

Oz. The only explanation is that the Australian currency is being treated as a safe haven from what might happen in Europe - a bit like the way your pound has become a favourite of rich Greek escapees.
...

Source >> www.minesite.com
*****
 
Mr Z said:
Wiess Research



The taps are open again in China.
Click to expand...

:bazooka: Hank Paulson had the bazooka solution too - still waiting for the US 'recovery' to materialise??

But nobody can (wants to) put a bucket under the tap because all their buckets are overflowing already?

It'll be like all the rest - pushing on a piece of spaghetti if there is no intrinsic demand (because of oversupply)

What are they going to do - build more apartments that nobody buys, build more roads, bridges, cars, power stations etc

The commodities boom has just busted......:cry:
 
June 15 - The Hong Kong stock exchange said Friday it had entered into an agreement to buy the London Metal Exchange (LME) for a total of £1.39 billion (US$2.15 billion).

*****
 
Jim Rogers' advice amid all the global economic turmoil: Short stocks, consider commodities and to heck with European bailouts. (June 12, 2012)
 

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