Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Saturday, January 29, 2005

Is the US Deficit a problem?

I've been studying the US market for some time, and by necessity, the Chinese, Japanese & EU as well. There were times when I feared a collapse in the market, at least before I'd get the opportunity to complete my analysis of the market.
I have come to the conclusion that:
  1. The deficit is a concern but not a critical problem
  2. Focus on the trade deficit has ignored the structural changes that the US is going through
  3. The inadequacy of the national accounts in providing an accurate assessment of the market.

The problems as I see them are the following:

  1. US Structural issues: The US is not addressing some serious structural flaws in its society. The problems are the over-reliance on hydrocarbons for transportation fuels. The US needs a better rail service. Government intervention into the money supply has resulted in a blow-out in property prices, which is fuelling imports, and a decline in the national savings rate. US corporations are 'slashing & burning' US jobs to move production facilities at home with though thought to the long term impact of those moves. They should remember that ex-employees are also consumers of their products.

There are several elements to the US deficit issue, which arise on its several accounts:

  1. Merchandise Account: The US has experienced a decline in exports, whilst imports have continued to soar. This 'statistical fact' is taken as evidence that the US has lost its competitive edge. This might serve the interests of US companies seeking concessions, hoping to sway public opinion, but it must be recognised that a great many US companies have moved manufacturing capacity offshore. The best indication of this are Capital Account statistics, which records the flow of investment funds abroad, as well as the income received.
  2. Services Account: The US has also experienced a decline in its services about, though its far better than the trade account. Regardless, we might expect to see the same movement of jobs offshore as consulting, banking, etc is undertaken from regional offices.
  3. Capital Account: The Capital Account statistics fail to reveal offshore earnings by US companies. Every year, US corporations are increasing investment in offshore markets, recognising that these markets are where the growth is occuring. Rather than repatriating profits to the US (which would improve the Capital Account), these companies are re-investing profits in additional production capacity. We are not likely however to see this until US demand falls. In this case, we might expect the flow of investment funds out of the US, since markets like China remain firmly export-orientated. Without a strong US market, opportunities for growth in China would decline.

Whilst I don't see the deficit as a risk, the is however solid prospects for higher inflation. But thats another story. A 'gold story'.

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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

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The NZ property market is shaping up as one of the most attractive property investment markets for the next few years. High yielding property and the collapse of the NZD make NZ the perfect counter-cyclical investment if you buy right! In addition, there is no capital gains tax, transfer taxes, VAT/GST or wealth taxes in NZ, so rest assured that NZ property is tax-effective! Learn more now!

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