You might have noticed that in the last 1-2 weeks I have posted alot of stock recommendations in the resources sector. The reason is that the weak $US is sending commodity prices crazy. The implication is that these price gains will drive resource-related equities as well, whether we are talking about service providers to mining, recruiters to mining, farming enterprises, but more particularly the miners themselves. The big companies will lead, though the glory will rub off on the small stocks as well. Some are better than others. For tips, see my blogs http://blue-sky-mining.blogspot.com and http://blue-chips.blogspot.com. Don't wait too long as they are already starting to move.
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Andrew Sheldon www.sheldonthinks.com
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.
Global Mining Investing - see store
Friday, February 29, 2008
Tuesday, February 26, 2008
Will dropping interest rates help the US economy?
The US Fed Reserve Board is signalling that it will be dropping rates even further. Some commentators are inclined to see these steps as good news....but is it? The rationale for raising rates is:
1. Increase liquidity in the banking system by creating the means of financial institutions to create more financial resources, which allows them to cover any short term incapacity to meet obligations as they fall due
2. Increase the financial resources of banks so they can lend more money to the private sector. In the context of a growing economy that has to be good. In the context of a bad economy, who wants to borrow money? No one wants to buy a house when property prices are falling. And with interest rates still low, clearly there is still a lot of pain to be placed on borrowers before we see a low in property markets.
The implication is then that the Fed moves will do very little except delay a few banking failures. But I suspect the Fed knows that. Politicians and Fed chairnman dont do things because they are logical, they do them because they are the actions expected by the market. They are delivering what perceptions demands of them. They wait for the market to direct them. Cries for lower interest rates - give them what they want. In 2 years when we have run away inflation. Stop inflation, then they apply higher rates.
Really there is no escaping the impact of inflation. If you take a certain set of actions you have to live with the consequences. If you expand the money supply more than the productive capacity of the economy over a sustained period, you will create asset inflation. When asset prices are too high, you undermine the capacity of people to borrow, you deflate that debt-asset pyramid, and the extent to which you do is the extent to which you dont see inflation. But to the extent that people are able to meet their debt servicing obligations, that is the extent to which other people will be hurt by the rising prices for living expenses.
1. Increase liquidity in the banking system by creating the means of financial institutions to create more financial resources, which allows them to cover any short term incapacity to meet obligations as they fall due
2. Increase the financial resources of banks so they can lend more money to the private sector. In the context of a growing economy that has to be good. In the context of a bad economy, who wants to borrow money? No one wants to buy a house when property prices are falling. And with interest rates still low, clearly there is still a lot of pain to be placed on borrowers before we see a low in property markets.
The implication is then that the Fed moves will do very little except delay a few banking failures. But I suspect the Fed knows that. Politicians and Fed chairnman dont do things because they are logical, they do them because they are the actions expected by the market. They are delivering what perceptions demands of them. They wait for the market to direct them. Cries for lower interest rates - give them what they want. In 2 years when we have run away inflation. Stop inflation, then they apply higher rates.
Really there is no escaping the impact of inflation. If you take a certain set of actions you have to live with the consequences. If you expand the money supply more than the productive capacity of the economy over a sustained period, you will create asset inflation. When asset prices are too high, you undermine the capacity of people to borrow, you deflate that debt-asset pyramid, and the extent to which you do is the extent to which you dont see inflation. But to the extent that people are able to meet their debt servicing obligations, that is the extent to which other people will be hurt by the rising prices for living expenses.
Tuesday, February 19, 2008
The best markets to trade & invest
In this period of rising inflation, you might be wondering where to place your money. Well I'm happy to offer you several alternatives, each with their own appeal. This might be a period of asset price contraction, but its worth reflecting on several points:
1. There is still alot of money out there, and its because there is still alot of credit out there
2. The cost savings fundamentals of China, Vietnam, India, Indonesia and the Philippines still make alot of sense.
The first task is to understand what is happening. The Fed and other central banks around the world have been in a competition to debase their currency. Because the USA is the base currency, that is the currency in which most goods and debt are priced, it has a more favourable position, thus it has a lower risk exposure. Currency debasement has 2 impacts:
1. Encourages a wealth effect
2. It favours holding assets to avoid inflation
In the last 15 years we have seen a number of bubbles in internet stocks, energy stocks, etc. These were examples of money chasing assets. With low interest rates, speculation was cheap. It was fears of inflation and poor yields that actually contributed to weaker asset markets. At the same time with money supply running so strong, and with asset prices falling, the imbalance between money supply & the productive capacity of the global economy had to be corrected. Hence as asset prices have fallen, and property and equities are among the biggest, we have seen consumable prices increase. I suggest there will be more of this pressure, as well as wage pressures. That does not change the fundamentals for China. A demand contraction is just as likely to fuel manufacturing capacity additions in China, but it will be at the expense of plants in the USA or Japan. New call centres will be created in the Philippines, but it will be at the expense of call centres in the USA.
It goes without saying that those markets which have lagged will now become the strongest. I particularly like Vietnam because it has lower costs than neighbouring China, the Philippines because of its strong position in call centres. Mind you I think there are other economies that could benefit from taking this path, just the Philippines has the best brand. Very affable people, but at the same time, they don't have a very good work ethic. So alot of training is required to keep this market lead.
Japan has been sleeping whilst everyone has been striving. This is true of money supply and asset prices, so I particularly like Japan and the Philippines. The Philippines is more of a capital growth scenario, whilst Japan is more of a yield story because of its slow pace on reform and lack of population growth. The Philippines is positive by these measures, though needs to keep the momentum.
Looking at the commodity markets, the fundamentals for many economies remains in place for manufacturing centres like Asia, and with tight commodity markets, you could be forgiven for thinking commodity prices will remain high. There are infrastructure bottlenecks all around the world, with over 100 ships off Newcastle port (Australia), strikes in Chile by workers seeking higher pay, and even a shortage of consumables, geological experts, etc. I wonder if there are enough ships? As the USA debases its currency these commodity currencies should remain fairly strong, particularly major food producers like NZ and Australia, as food prices have until 2007 really been trailing for the reasons mentioned above. So the markets that strike me as the best to trade are:
1. Precious metals - offer growth - see Commodities blog
2. Agricultural commodities - offer growth - see Commodities blog
3. Industrial commodities - offer trading opportunities - see Commodities blog
4. Property in Japan - offers yield- see Foreclosures and Property Market blogs
5. Property in Philippines & Indonesia - offers best capital growth - see Foreclosures and Property Market blogs
6. Currencies - Australia and NZ -trade long for interest swap and appreciation - see Forex Trading blog.
7. Equities - Stocks with a strong focus on commodities, whether mining or farming. I have a preference for those countries which are not big exporters, eg. Indonesia, Philippines, because they will not be penalised as much from forex exposure, but there are other factors to consider. Other good sectors are mining & rural service providers. In the broader equities market, infrastructure, utilities and healthcare will be ok, but not yet, and not nearly as lucrative. I dont know why I mentioned them. Really just so you dont buy them!
In the coming months I will be writing up notes into a number of eBooks for how to trade these markets. The first eBook is on Japanese Foreclosed Property.
-----------------------------------------
Andrew Sheldon www.sheldonthinks.com
1. There is still alot of money out there, and its because there is still alot of credit out there
2. The cost savings fundamentals of China, Vietnam, India, Indonesia and the Philippines still make alot of sense.
The first task is to understand what is happening. The Fed and other central banks around the world have been in a competition to debase their currency. Because the USA is the base currency, that is the currency in which most goods and debt are priced, it has a more favourable position, thus it has a lower risk exposure. Currency debasement has 2 impacts:
1. Encourages a wealth effect
2. It favours holding assets to avoid inflation
In the last 15 years we have seen a number of bubbles in internet stocks, energy stocks, etc. These were examples of money chasing assets. With low interest rates, speculation was cheap. It was fears of inflation and poor yields that actually contributed to weaker asset markets. At the same time with money supply running so strong, and with asset prices falling, the imbalance between money supply & the productive capacity of the global economy had to be corrected. Hence as asset prices have fallen, and property and equities are among the biggest, we have seen consumable prices increase. I suggest there will be more of this pressure, as well as wage pressures. That does not change the fundamentals for China. A demand contraction is just as likely to fuel manufacturing capacity additions in China, but it will be at the expense of plants in the USA or Japan. New call centres will be created in the Philippines, but it will be at the expense of call centres in the USA.
It goes without saying that those markets which have lagged will now become the strongest. I particularly like Vietnam because it has lower costs than neighbouring China, the Philippines because of its strong position in call centres. Mind you I think there are other economies that could benefit from taking this path, just the Philippines has the best brand. Very affable people, but at the same time, they don't have a very good work ethic. So alot of training is required to keep this market lead.
Japan has been sleeping whilst everyone has been striving. This is true of money supply and asset prices, so I particularly like Japan and the Philippines. The Philippines is more of a capital growth scenario, whilst Japan is more of a yield story because of its slow pace on reform and lack of population growth. The Philippines is positive by these measures, though needs to keep the momentum.
Looking at the commodity markets, the fundamentals for many economies remains in place for manufacturing centres like Asia, and with tight commodity markets, you could be forgiven for thinking commodity prices will remain high. There are infrastructure bottlenecks all around the world, with over 100 ships off Newcastle port (Australia), strikes in Chile by workers seeking higher pay, and even a shortage of consumables, geological experts, etc. I wonder if there are enough ships? As the USA debases its currency these commodity currencies should remain fairly strong, particularly major food producers like NZ and Australia, as food prices have until 2007 really been trailing for the reasons mentioned above. So the markets that strike me as the best to trade are:
1. Precious metals - offer growth - see Commodities blog
2. Agricultural commodities - offer growth - see Commodities blog
3. Industrial commodities - offer trading opportunities - see Commodities blog
4. Property in Japan - offers yield- see Foreclosures and Property Market blogs
5. Property in Philippines & Indonesia - offers best capital growth - see Foreclosures and Property Market blogs
6. Currencies - Australia and NZ -trade long for interest swap and appreciation - see Forex Trading blog.
7. Equities - Stocks with a strong focus on commodities, whether mining or farming. I have a preference for those countries which are not big exporters, eg. Indonesia, Philippines, because they will not be penalised as much from forex exposure, but there are other factors to consider. Other good sectors are mining & rural service providers. In the broader equities market, infrastructure, utilities and healthcare will be ok, but not yet, and not nearly as lucrative. I dont know why I mentioned them. Really just so you dont buy them!
In the coming months I will be writing up notes into a number of eBooks for how to trade these markets. The first eBook is on Japanese Foreclosed Property.
-----------------------------------------
Andrew Sheldon www.sheldonthinks.com
Sunday, February 17, 2008
ASX200 likely to consolidate a litlte longer
The ASX200 is likely to consolidate at this level a little longer, though I think the broader market will be weaker whilst resources are stronger.-----------------------------------------
Andrew Sheldon www.sheldonthinks.com
Sunday, February 03, 2008
Treasury yields close to historic lows!
The inflation-adjusted yield on US treasuries according to my charts are about to reach its previous low, so that should not only spark a sell-off in bonds, but also a sustained rally in stocks. There is no question in my mind that the broader equity market will attract interest as well, but at some point fundameentals will result in a flight in portfolio funds away from broad equities and into commodity based equities and derivatives. Whether minerals, precious metals or agricurtural commodities, we can expect a significant rally yet in commodities.
------------------------------------------
Andrew Sheldon www.sheldonthinks.com.
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Andrew Sheldon www.sheldonthinks.com.
Friday, February 01, 2008
Microsoft bid for Yahoo priced too high!
Microsoft has made a $31/share bid for Yahoo valuing the company at $US44.6 billion. The bid looks priced too high - at a 60% premium to the the current market price. Why are they making a pitch at such a high price, and why offer cash? The detail of the bid has yet to come out, so I suspect the cash component is minor, but otherwise the deal makes sense. I just dont know why they offered such a generous price. Why pay a 60% premium to the market when Google would be prevented from bidding for competitive reasons. I just can't see a 3rd party around that justifies a 60% premium in the current market. Make a bid pitched at a 40% premium, as you can always increase it later. I suspect the cash component is minor - otherwise its a bad deal for Microsoft.
See Microsoft bids $45 billion for Yahoo
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Andrew Sheldon www.sheldonthinks.com
See Microsoft bids $45 billion for Yahoo
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Andrew Sheldon www.sheldonthinks.com
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