Resources Boom - is it really a boom?? [Archive]

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IGO4IT

21st-April-2006, 07:15 PM

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

21st-April-2006, 07:22 PM

bullmarket

21st-April-2006, 07:44 PM

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 :D 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 (http://www.theage.com.au/news/business/talk-of-overheated-economy-presages-more-tinkering/2006/04/20/1145344217965.html) (some bed time reading :))

cheers

bullmarket :)

crackaton

21st-April-2006, 07:52 PM

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

IGO4IT

21st-April-2006, 07:59 PM

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

21st-April-2006, 08:11 PM

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

21st-April-2006, 09:33 PM

IGO4IT

22nd-April-2006, 10:45 AM

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. :2twocents

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

22nd-April-2006, 02:05 PM

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

22nd-April-2006, 02:27 PM

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. :2twocents

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

22nd-April-2006, 03:09 PM

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

22nd-April-2006, 04:08 PM

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. :2twocents

bullmarket

22nd-April-2006, 04:34 PM

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 :rolleyes: 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 :D ) 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 :2twocents

cheers

bullmarket :)

professor_frink

22nd-April-2006, 05:23 PM

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 :rolleyes: 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 :2twocents

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 :D

IGO4IT

22nd-April-2006, 05:39 PM

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

22nd-April-2006, 05:56 PM

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

22nd-April-2006, 06:04 PM

.....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

22nd-April-2006, 06:05 PM

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 :D 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

22nd-April-2006, 09:15 PM

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

22nd-April-2006, 10:32 PM

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. :2twocents

rederob

22nd-April-2006, 10:59 PM

wavepicker
Your reply is greatly appreciated.
I agree with contrarian investing.
The difficulty, however, is picking the turnaround.
I have done in the past what you are now doing with TLS etc: I did it first with Pacific Dunlop and got lucky and did the same with Seaworld, and then with Orica. There were a few I was not so lucky with later on, though.
The problem can be having a lot of money tied up in stocks that just don't go anywhere..... for a long time. One I have been holding for some years is OEC, but with only $5k on it I am not too worried.
In relation to this commodity run, I think we probably have 15-20 years to run, minimum, guaranteed.
Along the way we might get a mini boom and bust cycle, but the run will continue afterwards at a greater pace each time.
Why so long, rather than the few years "everyone else says" it will last for?
China wants to do what Japan did, and China has over 10 times the population.
And India wants to do what China is doing, and India's population is slightly less than China's.
Right now if you tallied up every known copper resource and then tallied up the number of homes in China and India that need to be wired to the electricity grid, and have fridges, TVs and airconditioners etc, the overwhelming quick conclusion you arrive at is that there just is not enough copper to do the job, nor enough nickel to make the steel etc, etc.
Of course if they all want cars as well, then the resource equation is so out of whack it's almost funny.
Yes, we will find more copper, and nickel and all the other metals (but not enough oil), and when we do it will take many years to bring the refined metals to consumer goods manufacturers, and then into the marketplace.
We could be saved if the US melts down in the interim, but until then get used to high commodity prices, looming $100+ oil, and a steadily rising rate of inflation.

IGO4IT

22nd-April-2006, 11:13 PM

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.
bullmarket :)

the need to buy a house (NOT to rent) is more of an advanced financial state that you reach after fulfilling many other basic needs like having a tv, fridge, oven, shower & a car to drive to work, etc....

Yes, I believe humans can survive without BUYING a house because they can still rent or live with their parents or share accomodation but none of which I know now can live without a mobile phone & most can't work without a car or a watch.

house prices increased in latest boom mainly because of the low intrest rates that made it obvious for those renting that with extra 30% to thier rent payment they can pay for their own home & same prices gone down when renting again became more affordable when interest rates gone up again. I understand that it was a boom as it was based on a temporary reasoned increase of demand (because of the low intrest rates).

I still think that minerals are the basic fact of everything around us & its appreciation is coming from the ever expanding immediate need for it by all manufacturers & that will never change because we'll always need more not less.

Smurf1976

22nd-April-2006, 11:57 PM

I think we're thinking about two different things here. It's quite possible and rational to be both bullish and bearish on the same sector. It all depends on the timeframe being considered.

1. Long term commodities boom. Most seem to agree that over the long term there's a lot of upside left in commodities.

2. Short term situation. Some including myself believe it's all gone a bit too far, too fast and is due for a rest. Others disagree.

I could be wrong but I think we're getting a bit confused with each others posts depending on the timeframe under consideration. Some are thinking long term (decade plus), others are thinking in terms of the next year or two. Just my perception of course. :)

bullmarket

23rd-April-2006, 09:42 AM

I think you summed it up pretty well smurf1976 :)

Medium to long term, say 3-5+ years then the overall picture still looks encouraging but if some resource stocks keep going up at the rate they have, given that China have stated they are now looking at ways to slow down their economic growth, then when the smart money sees that share prices have gone past at least short term optimistic valuations the smart money will dump their holdings to lock in profits and hence trigger at least a short term correction.

If global fundamentals then still justify a perception of global growth the resources sector will then most probably restart an upward trend.

cheers

bullmarket :)

IGO4IT

23rd-April-2006, 11:08 AM

Smurf,

very true that we're talking about 2 time frames.

On the short term, do you think in resources sector we tend to pay more than fund value is worth to the extent that one day we may realise that shares we're holding are worth say half of what bought them for?? this is when the resources market boom busts!!

on the short term, I think we've been very cautious when it comes to valuation of stocks we buy, even that most don't agree but I think majority of whom are trading know their shares value & are educated enough (share market wise) to not put their "investment" into an over valued share, any newbie has basics & if not they get burnt few times & decides to learn to not lose money.

Traders are the exception here because they could be day trading or short term trading & not necesserily that they'll wait for a good entry point but will catch whatever wave (volume or event) to get any return out of a trade but long term investors who like to wait for many years are usually not very bad in valuating their stocks & paying right price for it.

imo, a short term fast over growing market is even based on fast resources growth (economy has more resources & it became richer in captial) or fast financial growth (economy can produce more goods, it became richer thru increased operational profit). We are the first, how can it bust again? we'll we have less resources on short term? will resources prices fall? will our cost increase? will we have competition to provide more resources than we can (which doesn't make us any poorer!)?

No one still can tell me a reason of why it will bust on short term :) being overvalued is a general statement & not enough reason for a whole sector to fall because even if it is, it's still in the benefit of all share holders of that sector to keep it overvalued.

bullmarket

23rd-April-2006, 11:39 AM

Hi igo4it :)

.............No one still can tell me a reason of why it will bust on short term :) being overvalued is a general statement & not enough reason for a whole sector to fall because even if it is, it's still in the benefit of all share holders of that sector to keep it overvalued.

Maybe I'm splitting hairs, but technically I don't believe your above comment is correct.

Reading back through the posts in this thread I can see plenty of reasons in various peoples' posts of why there could be a correction if share prices run further than what even the smart money feels is an optimistic valuation.

To me the posts are in plain English and make sense.

If you disagree then that's fine. After all, people having different views is what helps makes prices move up and down :)

cheers

bullmarket :)

rederob

23rd-April-2006, 12:28 PM

Bullmarket
Corrections are a given in every market, but the degree/extent always can be debated.
While the speculative end of the resource spectrum can crash and burn as there is little cash to prop it up, the producer end has a different composition.
Some producers have significant proportions of their metals pre-sold at set prices - hedged - into the future, so their profitability is easy to determine. Typically if the market sold down, they would prosper by comparison.
Other producers have long term contracts at set, or variable prices (often with "floors" and "ceilings"), and these companies are also not likely to be severely impacted by rapid market changes.
Unhedged producers would be at the peril of the market, and these companies are known right now to follow the markets up and down each day.
However, with tight markets the unhedged producers cannot meet consumer demand, so consumers are presently highly dependent on unhedged producers.
And we have funds taking the place of the commercials who used to "run" these commodities markets, and the funds don't care about anything but making profit.
So, if the funds know that consumers need unhedged producers to stay in business, they can afford to bid up prices until near breaking point, and stay in the market to reap the rewards: That's what they are doing now.
However, as some sectors get so overbought (like silver last week) that it makes no sense to stay on board, positions will be quit and the markets will correct downwards.
My view is that funds can and are manipulating a tight market for principal commodities because they can get away with it, and because consumers have no option but to pay up to stay in business.
As soon as the balance changes, for any commodity type, watch out below.

So the daily charts will show up some big movement from time to time, but the weekly and monthly charts, for years to come, will maintain a rhythmically robust resounding uptrend.

bullmarket

23rd-April-2006, 12:52 PM

Hi rederob

Bullmarket
Corrections are a given in every market, but the degree/extent always can be debated..................................

I see we are essentially in agreement as that is the point I have been making in this and other threads where I talked about average market PER's....but I get the impression a few in these forums believe there is no possibility of a correction in the resources sector - which obviously they are entitled to believe if they choose but I and some others don't agree with them.

I don't follow resources as closely as you do, especially at the smaller end of the sector - I stick to the majors - but the rest of your post seems logical and makes sense to me.

cheers

bullmarket :)

michael_selway

23rd-April-2006, 11:10 PM

Boomtime
Sunday, April 23, 2006
"If you look at the industrialisation of China, if it follows the same course as Japan and Korea, then this process lasts a number of decades."

The share market is surging to record highs and there doesn't seem to be any stopping it. But everyone knows it must come to an end sometime. Even Federal Treasurer Peter Costello this week warned the good times couldn't last. He cautioned investors against putting all their "eggs" into resource companies. So what does the future hold? What do you do right now — buy, sell, stay put, bail out? Business Sunday has put together a panel of experts to explain what's going on with the markets and work out the best course for investors. Ali Moore hosts this discussion.

ALI MOORE: Gentlemen thank you very much for joining me. I think we've got three bulls and a bear which is probably pretty reflective of market sentiment at the moment. Let's start with a politician, and the Federal Treasurer no less, Peter Costello says he put all your eggs in the resource basket and in a few years time he'll be as badly off as those who bet on the tech boom. Let's start with you Shane, is he right?

SHANE OLIVER, AMP Capital: I think it's always wrong to put all your eggs in the one basket, you need diversification and there's always going to be volatility in individual shares and the overall share market but I think the situation we have today is very different to the tech boom. Back in March 2000, Nasdaq, that was the index dominated by the tech stocks, was trading on a PE of nearly a hundred times the dot coms, trading on PE's near infinity, very little profit growth, whereas this time around, the resources stocks are generating very, very strong profit growth, 50 percent, often more.

MOORE: So has this boom got more than a few years to run?

OLIVER: My feeling is that it's got many years to run.

MOORE: Justin, are you as optimistic as Shane, a long, long time, if indeed you are, can you put a time-frame on it, is five, ten, fifteen years?

JUSTIN BRAITLING, Wilson Asset Management : Sure. If you look at the industrialisation of China, if it follows the same course as Japan and Korea, then this process lasts, you know, a number of decades and we're very early in that process.

MOORE: Greg, what are the charts telling you, I mean, is this sort of demand, this level of demand sustainable over that period of time?

GREG TOLPIGIN, GH Financial : A lot of these commodity prices haven't done anything for 20 years, I mean, we're talking about silver prices, gold prices, copper prices, these sorts of things are awakening from 20 years or, 25 years in some cases, of poor performances. So, when you're leaving behind that sort of activity, you tend to see some very, very big, large and longer term price movements that tend to underpin what we are seeing in the equity market.

MOORE: Gerard, in the face of all of this, you're the bear, how can you possibly be bearish?

GERARD MINACK, Morgan Stanley: Well, two points. First is there's a lot of other areas in the market I'm more worried about than the resources, but if you just focus on the resource sector I always like to distinguish between on the one hand the economics, and on the second the investment case. Now, there's lots of other areas in the market where this same sort of volume arguments are true as well, so on a one or two year view, I'd be happy to buy these things but I think extrapolating out for ten and twenty years is way too optimistic.

OLIVER: I think that's a bit too negative, I mean if you look at the resources sector, it is a big chunk of our export income, and each year every time we see commodity prices rise that leads to higher profits for companies like BHP and Rio and some of that flows through into the Government budget surplus.

MINACK: We are truly the lucky country. I mean just as we had the consumer adjustment start, we had land in our lap, this once in a generation commodity price windfall. I think it's too early to say however the consumer's escaped its problems. We're still leveraging up at an enormous rate, we're still seeing home owners borrow six-billion dollars a month for (unintelligable) led investments, I mean this is good money going into a bad investment. More-over we can focus on the upside of China and the exports there but let me tell you, there's only one thing that's grown faster than exports to China, and that's our imports from China.

MOORE: But how much does that demand in China trickle through to all those other sectors of our economy that people want to invest in. I mean, how many companies are really going to reap the benefit of China's boom in the next two, three, four years?

OLIVER: It's broad-based, you see what happens is that obviously the key sector benefiting is the mining sector but as income levels rise there people get paid more, they spend that money in the rest of the economy and you get a flow-on to the rest of the economy.

MOORE: Can you see some value?

MINACK: Very stock specific. But in aggregate we have a market where the profit share of GDP's at all time highs… and that's the case.

MINACK: US, Europe, Japan.

MINACK: You're absolutely right. Why, this is, Australia is as I describe it, a part of a global bubble, we are worlds best practice in my view, in terms of the bubble but this is not just an Australian problem and what I'd argue is, we are being swept along now in part, on the back of a global wave of euphoria and I don't think...

MOORE: But what pricks that? What pricks that?

MINACK: What pricks that is you can have these things prick without a trigger that that's obvious and I'd ask all the panellists — here we are, six years after the Nasdaq top, can anybody say what was the trigger then?

TOLPIGIN: The trigger was, in January, US bond yields peaked in January and they were falling for two months signalling that the strength of that US economy had ended and I think, as Gerard's probably point is that there are going to be some aspects that are of concern out there, there are some head winds for the markets in the next few years and I think...

MOORE: But headwinds are a lot different to substantially changing the…

MINACK: I think we're now at the stage where people have pushed up these things, risk appetites are so aggressive at the moment that it doesn't take much bad news to get a large reaction.

OLIVER: Nasdaq — there were a few things that ultimate led to the peak, Nasdaq was trading on an exceptional PE, a hundred times. BHP is trading on about 14 times…

OLIVER: Very, very different. Very hard to say that BHP and Rio are in a bubble.

MINACK: I don't think they are as big a bubble... but it's more the issue of the trigger. I mean, to say the Nasdaq was expensive in March 2000 — absolutely, but it was expensive a month before, a year before, two years before, given how far it ultimately fell, it was expensive five years...

OLIVER: I'm saying it was expensive five years before.

MINACK: That's right.

BRAITLING: If you want to look at the specific events which led to the unravelling of the tech bubble, first of all it was an additional call of a 100-billion dollars of capital to fund the third generation mobile licences. I think the fundamentals are much stronger in this mining boom and it's all to do with the industrialisation of China and the issues we talked about.

MOORE: As Gerard, you say, everyone is riding this particular wave, I mean, so what? I mean everyone can be right can't they?

MINACK: Not, not but not everybody's riding the, the mining wave. I think the wave I'm talking about is the leverage investment in markets. I mean, everything's gone up over the last three years. We're not just talking about mining stocks we're talking about financial stocks, we're talking about credits, everything where risk is involved has performed well.

MOORE: So are you seeing signs of a rational exuberance? Are you seeing the??

MINACK: I think in some parts of the global markets absolutely.

OLIVER: It's fair to look around — you can certainly say there's risks there. As households we've taken on a lot of debts compared to the past but you've got to see something that goes wrong to trigger that, either a big rise in unemployment or interest rates and right now I can't see either of those occurring on a big enough basis to cause big problems for Australian consumers, or therefore, the banks.

MOORE: So, is that fair to say, there's three of you all in that camp, no really big issues on the immediate horizon?

TOLPIGIN: I think there are some big issues on the horizon, but it's just a matter of whether the market can overlook those in the short term, obviously any of these concerns, for example the oil price, geo-political concerns in what's happening in Iran, and if the US Federal Reserve continues to raise rates where it pricks the housing bubble there are probably your three main global concern.

OLIVER: I would sort of see the oil price and there's a few other problems around the world like the rise in bond yields, and interest rates, there's a possibility that China might announce a monetary tightening sometime in the next couple of weeks to slow their economy down just a touch, all of those things have the potential to cause a correction in our market. Last year we saw two corrections, around April and October, both of the order of eight per cent, or so, both of them were associated with higher bond yields and oil price concerns, but, of course, with both of those corrections the market then came back down and then moved back up...

michael_selway

23rd-April-2006, 11:11 PM

MOORE: So you'd say a healthy pause is what we're likely to be in for but not a fundamental change.

OLIVER: Yes, we have seen an eleven per cent in the market - our market so far this year, other markets are up by similar, if not greater amounts, so we are due for a bit of a pause at some point.

MOORE: Let me ask all of you, given the scenario that we've painted about the current situation and what's ahead, do you hold, do you sell, or do you buy, Greg?

TOLPIGIN: I think you buy.

MOORE: You buy.

TOLPIGIN: You buy.

MOORE: Alright we'll get to where you buy in a minute. Shane

OLIVER: Right now I'd be holding and I would use any correction as an opportunity to buy into the market.

MOORE: I guess you'll just…

MINACK: Short term, short term, I'm with Shane, I don't think we're at the top yet. I think markets may have a one or two months celebration if the Federal Reserve brings to an end its rate increases but I'd be selling into that rally.

BRAITLING: I think there's a strong corporate profit momentum in place and consequently I think the earnings expectations will be met and the stock market can move ahead.

MOORE: So is now a good time to buy, or sit for and wait for a little correction?

BRAITLING: I would hold.

MOORE: You'd hold. Ok the question then is, when it does come time to buy, what do you buy. I mean if you look at resources, you've got massive share price increases just in the last couple of months alone coming off a very high base. Let's perhaps start with you this time, give us your topics?

BRAITLING: Well if you look at the earnings forecast, a large portion in earnings growth that the market's looking for is coming from the international growth companies, NewsCorp, Aristocrat, ResMed, these types of companies.

MOORE: How about you?

MINACK: If you had to invest I'd go for off-shore companies as well. I'd go for QBE a world-class insurer, I'd go for Brambles, which is in turnaround mode, and I'd also go for Westfield.

MOORE: Shane…

OLIVER: I'd be focussing on two main areas. One is the resources sector, I think that's still worth looking at...

MOORE: Even though BHP's off something like 30 percent just since January.

OLIVER: Certainly had a great gain but the PEs are still quite reasonable and my feeling is that earnings growth will remain quite strong for that.. that sector driving further gains in the resources stocks, so I certainly think that's one area to look at. On top of that, another one worth looking at is the health care stocks. Health care is being driven by very rapid growth on the back of innovative products and good off-shore expansion, stocks like CSL and Cochlear and ResMed and those sorts of companies.

MOORE: Greg, what are the charts telling you?

TOLPIGIN: If you're looking in the resources area, I mean I continually like stocks like Beach Petroleum, for example, stocks that potentially when there is consolidation in the industry, and oil companies start to merge and acquire each other, you want to be owning one of those stocks that's being acquired and get a premium for your investment. Outside the resources sector my favourite out there is IBA Health...

MOORE: So you're sort of next tier down really aren't you?

TOLPIGIN: Yeah, I think so, I think, look, that's where I think the best opportunities are going to lie with stocks specific, opportunities in sectors where there is a lot of growth.

MOORE: I do want to just ask you, was anyone keeping more cash? Any one putting a little bit away in case there's a rainy day? You are?

MINACK: Well I unfortunately still have an investment that gives me a guaranteed, after tax, return of seven percent, which I just don't think the stockmarket can do, apart from a mortgage.

MOORE: Despite a 22 percent return last year.

MINACK: Despite that, I mean, I wish I'd have put it in the stock market a year ago but if I had a dollar today I'd pay down my mortgage.

MOORE: Well it's a brave man who calls an end early isn't it? Gentlemen, thank you very, very much for joining us.

http://businesssunday.ninemsn.com.au/article.aspx?id=96757

nizar

23rd-April-2006, 11:26 PM

thanks for that MS

a good read

I follow some of Shane Oliver's other reports, he puts asx200 fair value at 5600

Wysiwyg

6th-January-2007, 08:26 PM

Holy Roly

30th-March-2009, 12:05 PM

What do people / investors think?

POG is still quite strong, and Uranium, though price has dropped still is subject to mergers and takeovers. Perhaps, we could even see some recovery of base metal prices that have taken a nose dive.

However, it seems to me a lot of money has left the stock market, and even good news does not hold up a price for long, and market seems only to be interested to buy low and sell at a reasonable gain.

Please, revive this thread, and hope that the resources sector is also revived.

Note: still trying to get to 10 posts.

Lucky_Country

30th-March-2009, 01:27 PM

Wysiwyg

20th-November-2009, 04:59 PM

Resource boom is over but not the super cycle !

1 or 2 years of bad prices does not end a the cycle just prolongs it as investments are delayed.

Once this GFC is over we shall see the supply constraints re appear and all will be welcoming an increase in prices and investments.
Is this a good thing for Australia in the long run? Any thought on the following excerpt? Could be a 'no idea' story but what for I know not.

The resource curse (http://www.theage.com.au/news/business/mining-boom-could-bust-us/2007/11/10/1194329562546.html) is usually found in developing countries, but as former US Federal Reserve Board chairman Alan Greenspan explained in his recent book, The Age of Turbulence, the phenomenon was first identified in Holland, when revenue from North Sea oil flooded into the country.

"How is it possible that a super-abundance of natural resources — oil, gas, copper, iron ore — would not significantly add to a nation's production and wealth? Paradoxically, most analysts conclude that, particularly in developing countries, natural resource bonanzas tend to reduce rather than enhance living standards," he writes. "[It] takes the form of an economic affliction nicknamed the 'Dutch disease'. Dutch disease strikes when foreign demand for an export drives up the exchange value of the exporting country's currency."