Posts Tagged ‘Commodities’

What if there is stagnation?

In Commodities, Economy, Investments, Property on 21/10/2011 at 6:49 am

A few days ago, I blogged that were three scenarios for the developed world. Growth — buy equities; inflation — buy property and commodities; and recession — buy government bonds.

Thinking about it again, there is a  fourth scenario: stagnation. There will be shallow recoveries and recessions in quick succession.

In that scenario, one should be looking at buying equities for their dividend yields, and the corporate bonds of super blue chips.

Where be the next winner?

In Commodities, Economy, Investments, Property on 17/10/2011 at 7:00 am

Depending on where the developed world heads, equities, commodities and property, or government bonds could be the investment.

There are three scenarios for the developed world (remember the BRIC and Indonesia etc still are dependent on the developed world to drive their economies). It can

— grow out of its debt burden,

—  inflate the debt away, or

—  fall back into recession, marked by the occasional default.

Each of those outcomes leads to a different portfolio.

Renewed growth would favour equities, but at the moment, this looks too hard to achieve. An attempt to inflate would be good for commodities and property but would be disastrous for government bonds. Selected equities might do well: those that can pass on the cost rises to customers. Those bonds would do best if the developed world goes into a  recession.

Hope this explains the extreme volatility of markets.

Commodities: Clash of the titans

In Commodities on 07/05/2011 at 10:30 am

Billionaire traders offer clashing opinions over future of falling commodities market .

Soros is bearish, Paulson is bullish. Guardian story.

Falling commodity prices gd?

In Commodities, Economy on 07/05/2011 at 6:39 am

Err world economy could be weakening.

Housing prices should come off unless M’sian Chinese decide to migrate here.

Glencore lists, commodities’ mkts collapse

In Commodities on 06/05/2011 at 4:35 pm

As trading and mining house Glencore is listing, making some mgrs billionaires, commodity prices have fallen for a second day in early trading in Europe, led by another drop in crude oil.

This comes after markets were hit by one of the biggest sell-offs in two years on Thursday. Brent crude fell 4.3% to below $106 a barrel, adding to a 8.6% drop on Thursday, and bringing its cumulative fall over the past week to over 16%.

Industrial metals such as copper also saw further falls, as did some foodstuffs.

If this goes on, the view blogged here earlier that the Glencore IPO is a sign that commodities mkts have peaked for the time being, was a gd call.

Global food prices: not time to panic yet!

In China, Commodities on 21/11/2010 at 6:07 am

Still lower than 1980 levels as this chart shows

But big macs are getting more expensive in China. The US policy of QE2 is forcing up the real value of the yuan (via the price of gds, services and food). The more the Chinese defend the exchange rate to prevent the Yuan from appreciating in norminal terms, the more the real value of yuan rises.

The US is still the hegemon.

Juz when you tot it was safe II

In Emerging markets on 30/04/2010 at 5:20 am

Another emerging market bear. GMO’s founder Jeremy Grantham has a good track record*.  He called the recent crisis correctly in a timely manner. FT reports:

His candidates for potential bubbles are emerging markets and commodities. The former is a no-brainer: “it’s correct; they will have better GDP [growth]”. He does not think valuations will go as high as in Japan or on internet stocks, but a 50 per cent premium is possible. “Let’s say the market at 15 [price/earnings ratio] and these guys at 22.5.”

Should investors try to grab a piece of that, or steer clear? Mr Grantham would personally like to join in, “as an individual”. But he is not certain it is a good policy. The question is, “if you want to buy bargains, when do you knowingly overpay a bit, because you see a queue of people outside ready to buy?

“We haven’t settled that internally. We like the idea of exclusively playing the long-term winning bets. Why mess around with the secondary considerations?”

The question is even harder to answer with regard to commodities. The story here is “we’re running out of everything” but it is a long-run story beyond the time horizon of most clients. Investors can probably make money, “but the tricky problem is overpaying upfront. The price has shifted.Those with a genuine 10-20-year horizon “should own people who own the resources”, because there is no money in processing, only in ownership.

*His record:

His  GMO forecasts rank asset classes in order of expected real return, and Mr Grantham is particularly pleased with the 10-year forecast ending December 2009.

This had US Reits (real estate investment trusts) at the top of the list followed by emerging market equities, and the S&P 500 at the bottom in 11th place. In the event, emerging market equities did best, returning 8.1 per cent a year after inflation (the forecast was 7.8 per cent), Reits were third with 7.4 per cent (10.0 per cent), and the S&P was last with -3.5 per cent (-1.9 per cent). The ranking of the assets in between was almost spot on. The probability of getting that right by chance was 1 in 550,000, says Mr Grantham.