Alan Abelson: 1925 to 2013
By Ed Finn
http://online.barrons.com/article/SB50001424052748704253204578473291926739834.html
By Ed Finn
http://online.barrons.com/article/SB50001424052748704253204578473291926739834.html
"The best place to be is in commodities"
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May 11, 2013
>>>>> That Was The Week That Was … In Australia <<<<<
By Our Man in Oz
Minews. Good morning Australia. You seem to have enjoyed near-boom conditions last week.
Oz. It was an interesting time, and yes, some of the upward moves had the appearance of a boom though the near 10 per cent rise by the ASX minerals and metals index was more about currency and interest rate changes than underlying metal prices.
Minews. You had best explain what happened, because a 10 per cent rise over one week in any asset class at a time of low yields is outstanding.
Oz. Agreed, but in this case the driving force was a decision by Australia’s central bank to join the global currency war. It cut official interest rates by 0.25 per cent, taking the cash rate down to 2.75 per cent, the lowest in 60 years.
That seemingly small reduction triggered a stampede by investors into currency-exposed stocks, especially the mineral and agricultural exporters that should enjoy higher returns on conversion from commodities sold in US dollars.
Interestingly, however, the dollar only dipped by around US2 cents to be sitting just above parity with the U.S. currency which means a lot of last week’s action was about an expectation of a much bigger fall in the Aussie dollar later this year.
The currency move, and perhaps a widespread belief that global recovery is indeed happening, helped the two dominant diversified miners, BHP Billiton (BHP) and Rio Tinto (RIO) enjoy a solid burst of buying support. BHP rose by 8.7 per cent and Rio rose by 7.3 per cent respectively.
It was those moves by the big boys of mining which were the principal driving force behind the 9.5 per cent rise in the metals and mining index. That jump strongly outshone the all ordinaries which rose by a modest 1.7 per cent following a retreat by bank shares.
Minews. Presumably your gold stocks also benefited.
Oz. They did, and gold is perhaps the most interesting because it is the mineral world’s closest thing to a currency.
On the ASX the gold index added an eye-catching eight per cent despite the US$19 fall in the gold price to US$1,458 per ounce at the time of the markets close. That increase was driven largely by a A$1.38 rise from sector leader Newcrest (NCM) to A$17.40,
Because of the US2 cent currency shift, the Australian gold price actually rose by US$10.00 per ounce, rising from A$1,448 a week earlier to be sitting close to parity with the U.S. price by the end of the week at A$1,458 per ounce.
Minews. That’s all very interesting, but it’s time now for our readers to see what it did to prices, starting with the gold sector.
Oz. Newcrest set the lead but there were handsome rises across the board, marred by a few falls from junior explorers not able to participate in the currency-led rise.
Some of the better upward moves included: St Barbara (SBM), up A17 cents to A75.5 cents, Regis (RRL), up A36 cents to A$4.18, Medusa (MML), up A21 cents to A$2.86, Kingsgate (KCN), up A22 cents to A$2.04, Perseus (PRU), up A13 cents to A$1.43, Silver Lake (SLR), up A10 cents to A$1.12, Troy (TRY), up A18 cents to A$1.96, Northern Star (NST), up A13 cents to A84.5 cents, and Gryphon (GRY), up A5.5 cents to A24.5 cents.
Gold stocks which did not do as well included: Endeavour (EVN), up a modest A1.5 cents to A95.5 cents. Evolution (EVR), down A2 cents to A93 cents, OceanaGold (OGC), up A4 cents to A$2.07, Haoma (HAO), down A2 cents to A19.5 cents, and PMI (PVM), also down A2 cents to A37 cents.
...
Source >>>>> www.minesite.com
*****
>>>>> That Was The Week That Was … In Australia <<<<<
By Our Man in Oz
Minews. Good morning Australia. You seem to have enjoyed near-boom conditions last week.
Oz. It was an interesting time, and yes, some of the upward moves had the appearance of a boom though the near 10 per cent rise by the ASX minerals and metals index was more about currency and interest rate changes than underlying metal prices.
Minews. You had best explain what happened, because a 10 per cent rise over one week in any asset class at a time of low yields is outstanding.
Oz. Agreed, but in this case the driving force was a decision by Australia’s central bank to join the global currency war. It cut official interest rates by 0.25 per cent, taking the cash rate down to 2.75 per cent, the lowest in 60 years.
That seemingly small reduction triggered a stampede by investors into currency-exposed stocks, especially the mineral and agricultural exporters that should enjoy higher returns on conversion from commodities sold in US dollars.
Interestingly, however, the dollar only dipped by around US2 cents to be sitting just above parity with the U.S. currency which means a lot of last week’s action was about an expectation of a much bigger fall in the Aussie dollar later this year.
The currency move, and perhaps a widespread belief that global recovery is indeed happening, helped the two dominant diversified miners, BHP Billiton (BHP) and Rio Tinto (RIO) enjoy a solid burst of buying support. BHP rose by 8.7 per cent and Rio rose by 7.3 per cent respectively.
It was those moves by the big boys of mining which were the principal driving force behind the 9.5 per cent rise in the metals and mining index. That jump strongly outshone the all ordinaries which rose by a modest 1.7 per cent following a retreat by bank shares.
Minews. Presumably your gold stocks also benefited.
Oz. They did, and gold is perhaps the most interesting because it is the mineral world’s closest thing to a currency.
On the ASX the gold index added an eye-catching eight per cent despite the US$19 fall in the gold price to US$1,458 per ounce at the time of the markets close. That increase was driven largely by a A$1.38 rise from sector leader Newcrest (NCM) to A$17.40,
Because of the US2 cent currency shift, the Australian gold price actually rose by US$10.00 per ounce, rising from A$1,448 a week earlier to be sitting close to parity with the U.S. price by the end of the week at A$1,458 per ounce.
Minews. That’s all very interesting, but it’s time now for our readers to see what it did to prices, starting with the gold sector.
Oz. Newcrest set the lead but there were handsome rises across the board, marred by a few falls from junior explorers not able to participate in the currency-led rise.
Some of the better upward moves included: St Barbara (SBM), up A17 cents to A75.5 cents, Regis (RRL), up A36 cents to A$4.18, Medusa (MML), up A21 cents to A$2.86, Kingsgate (KCN), up A22 cents to A$2.04, Perseus (PRU), up A13 cents to A$1.43, Silver Lake (SLR), up A10 cents to A$1.12, Troy (TRY), up A18 cents to A$1.96, Northern Star (NST), up A13 cents to A84.5 cents, and Gryphon (GRY), up A5.5 cents to A24.5 cents.
Gold stocks which did not do as well included: Endeavour (EVN), up a modest A1.5 cents to A95.5 cents. Evolution (EVR), down A2 cents to A93 cents, OceanaGold (OGC), up A4 cents to A$2.07, Haoma (HAO), down A2 cents to A19.5 cents, and PMI (PVM), also down A2 cents to A37 cents.
...
Source >>>>> www.minesite.com
*****
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Don’t you think it is time to think about some other commodities including neglected commodities? For examples people use gas and food oriented commodities in good and bad times.
If I am correct Gold investment is based on safe heaven concept. On other hand some commodities can have demand and supply mismatch due to climate threat and less arable land in the future. It is common to see drought in Africa time to time. It is same in other countries such as USA and Australasia now. Prolonged drought situations will reduce inventory level for some commodities. When we see drought in major grain producing countries such as USA, Russia and Australia there will be great demand for grains. Similarly when we see drought in Kenya, India or China not only grains but also tea and coffee production can go down in the future.
I believe still the possibility that gold could retest the mid-1300s before stabilizing.
Although some soft commodities are trading in the futures market some commodity such as tea, salt are not trading there except listed companies link to particular commodity globally.
If we analyze financial history no commodity, currency, stock or any other stocks can go straight up or down. Time to time there will be day for each and every commodity including commodities such as coffee, sugar, salt, tea and potatoes.
If I am correct Gold investment is based on safe heaven concept. On other hand some commodities can have demand and supply mismatch due to climate threat and less arable land in the future. It is common to see drought in Africa time to time. It is same in other countries such as USA and Australasia now. Prolonged drought situations will reduce inventory level for some commodities. When we see drought in major grain producing countries such as USA, Russia and Australia there will be great demand for grains. Similarly when we see drought in Kenya, India or China not only grains but also tea and coffee production can go down in the future.
I believe still the possibility that gold could retest the mid-1300s before stabilizing.
Although some soft commodities are trading in the futures market some commodity such as tea, salt are not trading there except listed companies link to particular commodity globally.
If we analyze financial history no commodity, currency, stock or any other stocks can go straight up or down. Time to time there will be day for each and every commodity including commodities such as coffee, sugar, salt, tea and potatoes.
Cut In Australian Interest Rates May Push Aussies Toward Gold
http://www.kitco.com/reports/KitcoNews20130510DeC_interview.html
http://www.kitco.com/reports/KitcoNews20130510DeC_interview.html
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Thank you my friends for your information.
Best regards
Best regards
May 13, 2013
Two Basic Rules Of Economics Underpin The Emerging Signs Of Global Growth
Rob Davies
It might be sporadic and it might be weak, but evidence of growth in the Western world, apart from on mainland Europe, is growing.
The simplest indicator is the vibrancy of the major stock markets.
Many of them are back to pre-crash levels not seen since 2007.
Much of this so-called recovery is due to the artificial stimulation from quantitative easing in all the major economies, with the most recent being in Japan.
The proximate effect of this has been to push the yen down against the dollar so that it now trades at over 100 to the buck.
This has had the knock-on effect of invigorating the local stock market, pushing it up 50 per cent in six months.
And once the dollar starts a run it can become self-sustaining, as it is evidence of confidence in the US economy. If that is the case there is no need to hold gold against the uncertainties of economic Armageddon.
Gold duly responded by dropping another 2.3 per cent to US$1,429 an ounce. Base metals in contrast enjoyed a modest gain of 0.9 per cent to take the LME index up to 3,163.
Further evidence of the recovery comes from the premium of 12 cents a pound now being demanded by US copper producers for cathode.
Even in lacklustre Europe zinc, the dog of the sector, is enjoying a surcharge of US$137 a tonne, up from US$120 in March.
These data seems to be at odds with some of the comments in the financial press - but then trying to analyse the world economy is beyond the skills of most of us. The best we can do is rely on a few tried and tested rules of economics.
The most basic of these is ensuring that any business activity adds more value than it consumes.
The corollary to that is that there is a strong incentive to stop doing things that lose money.
It is these two basic rules that have reshaped the US economy over the last five years and allowed it to start expanding again.
And these two rules of business were the driving forces of the great consolidation in the mining sector over the last decade.
No one played a greater role in that than Mick Davis at Xstrata. Now that the acquisition of Xstrata by Glencore is complete he is at liberty to start a new mining empire from scratch.
One thing he won’t be doing is fine tuning his acquisition strategy in accordance with the economic cycle. He knows that by sticking to the two rules the business cycle will take of itself.
Of course it helps to get a tailwind from the US Federal Reserve. Its QE programme has devalued the dollar and given everyone the apparent feeling of wealth.
The argument is that it is better to pretend the nation is creating wealth again, rather than being certain that it is not, is hard to argue against.
Some observers argue that the central bank printing presses have created an artificial recovery.
But there is such a willingness to have any sort of recovery, that a synthetic one is better than none at all.
Source >>> www.minesite.com
*****
Two Basic Rules Of Economics Underpin The Emerging Signs Of Global Growth
Rob Davies
It might be sporadic and it might be weak, but evidence of growth in the Western world, apart from on mainland Europe, is growing.
The simplest indicator is the vibrancy of the major stock markets.
Many of them are back to pre-crash levels not seen since 2007.
Much of this so-called recovery is due to the artificial stimulation from quantitative easing in all the major economies, with the most recent being in Japan.
The proximate effect of this has been to push the yen down against the dollar so that it now trades at over 100 to the buck.
This has had the knock-on effect of invigorating the local stock market, pushing it up 50 per cent in six months.
And once the dollar starts a run it can become self-sustaining, as it is evidence of confidence in the US economy. If that is the case there is no need to hold gold against the uncertainties of economic Armageddon.
Gold duly responded by dropping another 2.3 per cent to US$1,429 an ounce. Base metals in contrast enjoyed a modest gain of 0.9 per cent to take the LME index up to 3,163.
Further evidence of the recovery comes from the premium of 12 cents a pound now being demanded by US copper producers for cathode.
Even in lacklustre Europe zinc, the dog of the sector, is enjoying a surcharge of US$137 a tonne, up from US$120 in March.
These data seems to be at odds with some of the comments in the financial press - but then trying to analyse the world economy is beyond the skills of most of us. The best we can do is rely on a few tried and tested rules of economics.
The most basic of these is ensuring that any business activity adds more value than it consumes.
The corollary to that is that there is a strong incentive to stop doing things that lose money.
It is these two basic rules that have reshaped the US economy over the last five years and allowed it to start expanding again.
And these two rules of business were the driving forces of the great consolidation in the mining sector over the last decade.
No one played a greater role in that than Mick Davis at Xstrata. Now that the acquisition of Xstrata by Glencore is complete he is at liberty to start a new mining empire from scratch.
One thing he won’t be doing is fine tuning his acquisition strategy in accordance with the economic cycle. He knows that by sticking to the two rules the business cycle will take of itself.
Of course it helps to get a tailwind from the US Federal Reserve. Its QE programme has devalued the dollar and given everyone the apparent feeling of wealth.
The argument is that it is better to pretend the nation is creating wealth again, rather than being certain that it is not, is hard to argue against.
Some observers argue that the central bank printing presses have created an artificial recovery.
But there is such a willingness to have any sort of recovery, that a synthetic one is better than none at all.
Source >>> www.minesite.com
*****
Asset Class Performance
May 10, 2013
Australia (EWA) is up on the year.
Commodities like gold (GLD) and silver (SLV) remain weak, and while we've seen a small bounce in oil (USO) recently, it's still down for the quarter and up just 2.31% on the year. Natural gas (UNG) is up 11.90%, on the year.
Source >>> http://www.bespokeinvest.com/thinkbig/2013/5/10/recent-asset-class-performance.html
May 10, 2013
Australia (EWA) is up on the year.
Commodities like gold (GLD) and silver (SLV) remain weak, and while we've seen a small bounce in oil (USO) recently, it's still down for the quarter and up just 2.31% on the year. Natural gas (UNG) is up 11.90%, on the year.
Source >>> http://www.bespokeinvest.com/thinkbig/2013/5/10/recent-asset-class-performance.html
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Hi Drillinto I like some of the factors in your link (www.minesite.com)
We can learn lot of things from this article. I think it is time to identify next most bullish commodities, stocks, sectors, assets and currencies. There can be opportunities in almost all types of markets such as developed, emerging and frontier markets.
Some of the factors to consider in this article are:
It might be sporadic and it might be weak, but evidence of growth in the Western world, apart from on mainland Europe, is growing.
The simplest indicator is the vibrancy of the major stock markets.
Many of them are back to pre-crash levels not seen since 2007.
Much of this so-called recovery is due to the artificial stimulation from quantitative easing in all the major economies, with the most recent being in Japan.
The best we can do is rely on a few tried and tested rules of economics.
We can learn lot of things from this article. I think it is time to identify next most bullish commodities, stocks, sectors, assets and currencies. There can be opportunities in almost all types of markets such as developed, emerging and frontier markets.
Some of the factors to consider in this article are:
It might be sporadic and it might be weak, but evidence of growth in the Western world, apart from on mainland Europe, is growing.
The simplest indicator is the vibrancy of the major stock markets.
Many of them are back to pre-crash levels not seen since 2007.
Much of this so-called recovery is due to the artificial stimulation from quantitative easing in all the major economies, with the most recent being in Japan.
The best we can do is rely on a few tried and tested rules of economics.
BIG: 2013 and Q2 Country Returns
May 15, 2013
Australia is up 11.67% in 2013, while New Zealand is up 14.26%.
http://www.bespokeinvest.com/thinkbig/2013/5/15/2013-and-q2-country-returns.html
May 15, 2013
Australia is up 11.67% in 2013, while New Zealand is up 14.26%.
http://www.bespokeinvest.com/thinkbig/2013/5/15/2013-and-q2-country-returns.html
- Joined
- 12 February 2012
- Posts
- 410
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- 29
If I am correct there are three types of commodities
Soft commodities
Orange juice, corn, wheat, coffee, sugar and cocoa beans are all examples of "soft" commodities.
Hard commodities
Hard commodities are typically mined or extracted.
Gold, oil, aluminium and copper are examples of hard commodities
Hard commodities dominated the market during last couple of years
Emerging Commodities
Beyond those listed above, there is an another class of commodities; they, have no liquid futures market. These include things like coal, tea, salt, timber and iron.
There are also "emerging commodities" like wind, solar, water, water rights and pollution rights.
For now, investors can only access these emerging commodities by buying stock in companies listed in the global markets that operate in these fields.
I thinks it is time to study on emerging commodities and commodities beyond soft and hard commodities. I believe more than gold and other hard commodities, Investors can have great opportunities in emerging commodities.
My ideas are not a recommendation to either buy or sell any security or currency. Please do your own research prior to making any investment decisions.
Soft commodities
Orange juice, corn, wheat, coffee, sugar and cocoa beans are all examples of "soft" commodities.
Hard commodities
Hard commodities are typically mined or extracted.
Gold, oil, aluminium and copper are examples of hard commodities
Hard commodities dominated the market during last couple of years
Emerging Commodities
Beyond those listed above, there is an another class of commodities; they, have no liquid futures market. These include things like coal, tea, salt, timber and iron.
There are also "emerging commodities" like wind, solar, water, water rights and pollution rights.
For now, investors can only access these emerging commodities by buying stock in companies listed in the global markets that operate in these fields.
I thinks it is time to study on emerging commodities and commodities beyond soft and hard commodities. I believe more than gold and other hard commodities, Investors can have great opportunities in emerging commodities.
My ideas are not a recommendation to either buy or sell any security or currency. Please do your own research prior to making any investment decisions.
May 17, 2013
Demand For Physical Gold Remains Strong, According The World Gold Council’s Latest Report, While ETFs Still Only Represent 1% Of Gold Stocks
By Alastair Ford
http://minesite.com/news/demand-for...le-etfs-still-only-represent-1-of-gold-stocks
Demand For Physical Gold Remains Strong, According The World Gold Council’s Latest Report, While ETFs Still Only Represent 1% Of Gold Stocks
By Alastair Ford
http://minesite.com/news/demand-for...le-etfs-still-only-represent-1-of-gold-stocks
May 18, 2013
That Was The Week That Was … In Australia
By Our Man in Oz
Minews. Good morning Australia. You seem to have had a tough week both on and off the market.
Oz. It was heavy going financially and politically. The mining sector of the market was hit by solid selling and the Australian Government finally confessed about the mess it’s made of the country’s budget. Just to round off a down week the dollar fell sharply.
Minews. The budget and currency moves are something you’ve been predicting for some time.
Oz. It has been fairly obvious that the local currency has been significantly over-valued with the only questions being how far it would fall, and when would the slide start.
We have an answer to the second question, the slide has started. We now have to see how far it falls and my best guess is US90 cents as a first target, and then down to around US80 cents, and perhaps further if commodity prices stay low.
Minews. Isn’t the currency fall good for your exporters?
Oz. It is, but it will also add to the cost of repaying foreign debt and imported capital goods, with both being major costs for the country.
On balance it’s probably a good thing that the dollar has fallen from the US$1.05 it was trading at just five weeks ago, but the 7.6 per cent fall over recent days can be expected to stretch out to 15 per cent fairly quickly.
Minews. Enough currency and politics, time for a quick run-down of prices.
Oz. It will be quick because there’s virtually no good news and I’m on a field trip to South Australia which means there’s only a narrow window of opportunity to talk about the market.
Overall, the ASX did not perform too badly with the all ordinaries index losing just 1.2 per cent. Losses on mining stocks were offset by reasonable strength among the banks, retailers and agricultural exporters which will also benefit from the lower exchange rate.
It was a different story with the metals and mining index which dropped four per cent and a very different story with the gold sector which plunged 14.6 per cent lower, as the gold price fell through US$1,400 an ounce.
Not even the currency effect which helped hold the local gold price at around A$1,427 per ounce failed to stem the outgoing tide of gold investors.
If you looked hard enough, and I did, you could find one-or-two gold stocks which rose over the course of the week, but you needed a pretty powerful microscope.
It was not so bad in other parts of the mining industry, but the overall trend was down, everywhere.
Minews. Let’s get the bad news out first by starting with a selection of gold mining share prices.
Oz. The sector leader, Newcrest (NCM), weighed heavily on the index with a fall of A$2.71 (15.5 per cent) to A$14.69, and while there were percentage falls greater than that in the week-long sell-off it was Newcrest’s weighting which contributed heavily to the 14.6 per cent drop in the gold index.
Other gold falls included: Perseus (PRU), down A29 cents to A$1.14, Medusa (MML), down A53 cents to A$2.33, Regis (RRL) down A58 cents to A$3.60, Resolute (RSG), down A12 cents to A74.5 cents, Silver Lake (SLR), down A30 cents to A82 cents, Troy (TRY), down A28 cents to A$1.68, Northern Star (NST), down A12 cents to A72 cents, Papillon (PIR), down A8 cents to A73 cents, Kingsgate (KCN), down A47 cents to A$1.57, Beadell (BDR) down A11 cents to A62 cents, St Barbara (SBM), down A12 cents to A63 cents, Kingsrose (KRM), down A10 cents to A48 cents, and Gryphon (GRY), down A3 cents to A21 cents.
...
Source >> www.minesite.com
*****
That Was The Week That Was … In Australia
By Our Man in Oz
Minews. Good morning Australia. You seem to have had a tough week both on and off the market.
Oz. It was heavy going financially and politically. The mining sector of the market was hit by solid selling and the Australian Government finally confessed about the mess it’s made of the country’s budget. Just to round off a down week the dollar fell sharply.
Minews. The budget and currency moves are something you’ve been predicting for some time.
Oz. It has been fairly obvious that the local currency has been significantly over-valued with the only questions being how far it would fall, and when would the slide start.
We have an answer to the second question, the slide has started. We now have to see how far it falls and my best guess is US90 cents as a first target, and then down to around US80 cents, and perhaps further if commodity prices stay low.
Minews. Isn’t the currency fall good for your exporters?
Oz. It is, but it will also add to the cost of repaying foreign debt and imported capital goods, with both being major costs for the country.
On balance it’s probably a good thing that the dollar has fallen from the US$1.05 it was trading at just five weeks ago, but the 7.6 per cent fall over recent days can be expected to stretch out to 15 per cent fairly quickly.
Minews. Enough currency and politics, time for a quick run-down of prices.
Oz. It will be quick because there’s virtually no good news and I’m on a field trip to South Australia which means there’s only a narrow window of opportunity to talk about the market.
Overall, the ASX did not perform too badly with the all ordinaries index losing just 1.2 per cent. Losses on mining stocks were offset by reasonable strength among the banks, retailers and agricultural exporters which will also benefit from the lower exchange rate.
It was a different story with the metals and mining index which dropped four per cent and a very different story with the gold sector which plunged 14.6 per cent lower, as the gold price fell through US$1,400 an ounce.
Not even the currency effect which helped hold the local gold price at around A$1,427 per ounce failed to stem the outgoing tide of gold investors.
If you looked hard enough, and I did, you could find one-or-two gold stocks which rose over the course of the week, but you needed a pretty powerful microscope.
It was not so bad in other parts of the mining industry, but the overall trend was down, everywhere.
Minews. Let’s get the bad news out first by starting with a selection of gold mining share prices.
Oz. The sector leader, Newcrest (NCM), weighed heavily on the index with a fall of A$2.71 (15.5 per cent) to A$14.69, and while there were percentage falls greater than that in the week-long sell-off it was Newcrest’s weighting which contributed heavily to the 14.6 per cent drop in the gold index.
Other gold falls included: Perseus (PRU), down A29 cents to A$1.14, Medusa (MML), down A53 cents to A$2.33, Regis (RRL) down A58 cents to A$3.60, Resolute (RSG), down A12 cents to A74.5 cents, Silver Lake (SLR), down A30 cents to A82 cents, Troy (TRY), down A28 cents to A$1.68, Northern Star (NST), down A12 cents to A72 cents, Papillon (PIR), down A8 cents to A73 cents, Kingsgate (KCN), down A47 cents to A$1.57, Beadell (BDR) down A11 cents to A62 cents, St Barbara (SBM), down A12 cents to A63 cents, Kingsrose (KRM), down A10 cents to A48 cents, and Gryphon (GRY), down A3 cents to A21 cents.
...
Source >> www.minesite.com
*****
May 20, 2013
What A China Crash Might Mean For Commodities
Rob Davies
Knowing that China accounts for about 40 per cent of global metals consumption is both comforting and a concern.
It is good to know that the industry is not reliant on the lacklustre economies of the western world.
On the other hand there is always the underlying worry about what might happen to your biggest customer.
Unfortunately that worry is not allayed at all by a recent report from Lombard Street Research which lifts the lid a little on the Chinese economy.
Data for this massive country is soft to say the least, but this research house has made a valiant effort to try and identify some of the numbers investors should focus on.
Its most immediate concern is the overvaluation of the Chinese currency. Lombard estimates that this began in 2011 and now leaves the RMB about 33 per cent overvalued.
It says there are two reasons for this. One is the aggressive monetary policies that have been pursued first by the US and then more recently by the Japanese. This has devalued the dollar and the yen against the RMB.
The second reason is the massive capital spending programme by the Chinese government which reached an incredible 48 per cent of GDP in 2010-2011.
Like many state programmes not all these infrastructure projects were sensible and many bridges, roads and buildings are simply not needed and superfluous. Lombard estimates there is 4.5 billion square metres of surplus real estate inventory, up from 1.6 billion in 2007 and equivalent to 3.5 square metres per person.
This has been paid for by debt, and the inefficient use of this debt will damage the economy. Some of the cash has also gone into commodity hoarding that has probably helped elevate metal prices and is also unproductive.
This excess activity has had two negative impacts. One has been to drive up real wages to an estimated 20 per cent above the equilibrium level.
The other has been to push real interest rates up to nine per cent. Both effects reduce the competiveness of the country.
External evidence for that comes from CRU, a commodity consultancy. CRU estimates a third of China’s aluminium capacity, about five million tonnes, is currently uneconomic.
An additional problem caused by this state spending splurge has been to raise government debt to about 140 per cent of GDP. Not as bad as some Western economies but a long way from what might be expected of a booming emerging market economy.
Lombard says one way of solving the problem is to remove currency controls and allow capital flows to restore balance.
So far that has only been done on inflows, which has actually made the problem worse. What is needed, these experts say, is to allow capital outflows too, so that some of China’s annual savings of US$4.5 trillion could go overseas and weaken the RMB.
This massive amount is more than twice the US$2 trillion of savings made in the US. The trouble is that any substantial moves out of the country risk destabilising Chinese banks.
If this currency outflow were to happen it would likely boost asset prices in many capital markets. What the impact on China might be is harder to tell, which is probably why the new leadership will delay it for as long as possible.
Whatever happens, the effect on commodities will be large and hard to dodge.
For the time being it makes sense for investors to stay in this dance. Too many players have an interest in keeping the music going.
But it might be an idea to keep an eye on the exit in case the song changes.
Source >>> www.minesite.com
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What A China Crash Might Mean For Commodities
Rob Davies
Knowing that China accounts for about 40 per cent of global metals consumption is both comforting and a concern.
It is good to know that the industry is not reliant on the lacklustre economies of the western world.
On the other hand there is always the underlying worry about what might happen to your biggest customer.
Unfortunately that worry is not allayed at all by a recent report from Lombard Street Research which lifts the lid a little on the Chinese economy.
Data for this massive country is soft to say the least, but this research house has made a valiant effort to try and identify some of the numbers investors should focus on.
Its most immediate concern is the overvaluation of the Chinese currency. Lombard estimates that this began in 2011 and now leaves the RMB about 33 per cent overvalued.
It says there are two reasons for this. One is the aggressive monetary policies that have been pursued first by the US and then more recently by the Japanese. This has devalued the dollar and the yen against the RMB.
The second reason is the massive capital spending programme by the Chinese government which reached an incredible 48 per cent of GDP in 2010-2011.
Like many state programmes not all these infrastructure projects were sensible and many bridges, roads and buildings are simply not needed and superfluous. Lombard estimates there is 4.5 billion square metres of surplus real estate inventory, up from 1.6 billion in 2007 and equivalent to 3.5 square metres per person.
This has been paid for by debt, and the inefficient use of this debt will damage the economy. Some of the cash has also gone into commodity hoarding that has probably helped elevate metal prices and is also unproductive.
This excess activity has had two negative impacts. One has been to drive up real wages to an estimated 20 per cent above the equilibrium level.
The other has been to push real interest rates up to nine per cent. Both effects reduce the competiveness of the country.
External evidence for that comes from CRU, a commodity consultancy. CRU estimates a third of China’s aluminium capacity, about five million tonnes, is currently uneconomic.
An additional problem caused by this state spending splurge has been to raise government debt to about 140 per cent of GDP. Not as bad as some Western economies but a long way from what might be expected of a booming emerging market economy.
Lombard says one way of solving the problem is to remove currency controls and allow capital flows to restore balance.
So far that has only been done on inflows, which has actually made the problem worse. What is needed, these experts say, is to allow capital outflows too, so that some of China’s annual savings of US$4.5 trillion could go overseas and weaken the RMB.
This massive amount is more than twice the US$2 trillion of savings made in the US. The trouble is that any substantial moves out of the country risk destabilising Chinese banks.
If this currency outflow were to happen it would likely boost asset prices in many capital markets. What the impact on China might be is harder to tell, which is probably why the new leadership will delay it for as long as possible.
Whatever happens, the effect on commodities will be large and hard to dodge.
For the time being it makes sense for investors to stay in this dance. Too many players have an interest in keeping the music going.
But it might be an idea to keep an eye on the exit in case the song changes.
Source >>> www.minesite.com
*****
Mergers, acquisitions and capital raising in mining and metals
2012 trends
2013 outlook
When opportunity knocks, who answers?
http://www.ey.com/Publication/vwLUAssets/Global_mining_and_metals_transactions_2012_trends_2013_outlook/$FILE/Mergers_acquisitions_and_capital_raising_in_mining_and_metals.pdf
2012 trends
2013 outlook
When opportunity knocks, who answers?
http://www.ey.com/Publication/vwLUAssets/Global_mining_and_metals_transactions_2012_trends_2013_outlook/$FILE/Mergers_acquisitions_and_capital_raising_in_mining_and_metals.pdf
Rice: China's Cadmium Problem May Be Boost for Rice Exporters
http://online.wsj.com/article/SB10001424127887323336104578498751887802128.html
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http://online.wsj.com/article/SB10001424127887323336104578498751887802128.html
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