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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Wednesday, May 20, 2009

US Fed reaches deep for new levels of delusion

The latest headline “US Fed sees signs of economic upturn” by Rob Lever, SMH Online, 21st May 2009 has the US Fed recognising "tentative evidence" that the US economy is emerging from recession and could show modest growth in the second half of 2009. By way of our analysis, suggests a new low in US Fed delusion. How possibly could the US be looking at turning around when it’s just about to experience a re-setting of mortgage loans. Remember the sub-prime crisis. Well there is an equally large problem facing US mortgagees – the resetting of those ‘teaser’ interest rates to market rates. Now, I must concede that those interest rates are not going to reset at troublesome rates in the short turn, but with the Fed and central banks around the world pumping money into the banking system, the day is not too far away that we are going to experience some inflationary pressures. Just as governments have been stripping out costs to reduce taxation, now we are going to see consumers or households facing higher costs, higher inflation, partially for the sake of debt sustainability, and partly because there is so much paper money in the market which is not supported by current levels of economic activity.
The Fed revised its economic outlook to suggest US output would fall 1.3-2.0% over 2009, and that the worst declines may be over. Well that does not surprise me. If you are ‘high’ on economic stimulus there is no question people are going to feel good about a stabilisation of asset prices, but at some point inflation is going to take its toll on household’s purchasing power.
The notion that “there are improvements in financial and credit markets” only highlights the fact that the Fed and other central banks have been recapitalising the banks using taxpayer money, and rather then using the proceeds to lend to households, who are already indebted, the banks have been speculating in the securities markets, driving up security prices. This will come to an end at some point soon, and we will be looking at another volatile downtrend through 2009-2010 as interest rates move higher.
US economic output fell by 6.1% in the March quarter of 2009 after a 6.3% fall in Dec-08 quarter. They are serious hits to the market, but more will follow. There is at least some recognition that this is crisis is not over. The Fed projects unemployment to rise from 8.9% in 2008 (a 25-year high) to 9.2-9.6% in 2009.
The Fed expects inflation to hold at 0.6-0.9% in 2009. I have never believed in inflation numbers because you only have to look at how they define the concept. Any measure of inflation that does not consider all asset prices, excludes the most important components like securities, food and energy, is just trying to plan delusional games betting on Chinese deflationary impacts. A sudden loss of economic capacity is going to result in higher fixed costs to all production. There is no escaping that, though if you are selective in your inflationary analysis, you can of course opportunistically consider energy and asset prices, which have been falling...but not for much longer. The reality is – inflation as defined is manipulated, so give it no heart.
Now for those of your with a sense of humour. The Fed is forecasting “modest growth” of 2-3% in 2010. Wow, that is quite a turnaround. You might be inclined to believe that there is no reason why this market cannot just turnaround like it did in years past. Afterall as long as the Fed and other central banks shore up the banking system, what it to stop Western governments from sustaining this delusion for years to come. I think there are several issues which can stop them:
1. War
2. Pandemic
3. Debt levels
The international political environment is pretty tense, but there is probably little prospect of war or further substantial military action at this point since oil prices have fallen significantly. A pandemic is a threat to consumer spending, though I would suggest any threat is likely to be short lived. It might actually be expected to affect the financial system more than the real economy. My analysis is that it will cause short term financial volatility, which will probably knock a few more financial institutions out of the market, but that the market will recover from a bird/swine flu based pandemic. We will stock up on food, hide in our houses for a few weeks as it sweeps the world, and on that basis it will die out, and become a less virulent strain.
Debt levels remain the biggest obstacle to the sustainability of the current economy. Even if tax increases can be delayed a few years, it will only result in government debt being rising to the same levels of household debt. With many households already having lost a lot of equity in their homes in recent times, causing the biggest mass transfer of wealth (as a % of GDP) in history, who would expect a recovery? This at a time when governments are moving to consumption-based taxation. Who understands the logic of these people? Well of course its a desire for short term political power, and taking every expedient step to preserve it.
Andrew Sheldon

Tuesday, May 12, 2009

Nikkei-225 likely to top off

The Nikkei-225 is likely to come under selling pressure at these levels. The country is really faring poorly as a result of a slump in exports, and job cuts. Confidence is at a low level. The defiance comes only from the market, which of course is being fuelled by the cheap bank funding, as you can bet the funds going into the banking sector are not going into loans.
I don't see the Nikkei going above 9600 points unless the Japanese government decides to stimulate the economy with yet more money. Of course there is no limit to the upside in equities in the short term. It all comes down to how much you are prepared to debase your currency.
So I am negative on Japan, but let's wait and see for the market to set the direction. Stimulus will drive the market higher, property taxes will drive it lower.
Andrew Sheldon

Monday, May 11, 2009

ASX-200 set for a rally

I have indicated already that I see a hard time for the US economy. There is nevertheless the prospect of more stimulus in the US, and I would not be surprised to see a tax on energy. We have the prospect of carbon credits trading in the US, as in other countries. This issue awaits the Copenhagen Summit. I would not however be surprised to see these governments agree to just tax energy consumption since that will allow them to control the cash. Really it was all just a rationalisation to create another indirect tax.
The chart to the right suggests that the ASX stock index has broken through resistance at 3,845. Having convincingly done so, the market has once again pulled back to support at that level. I suggest this is an opportunity to buy.
The reason the ASX200 is looking so positive is because of the positive shape of the Australian economy. The positives are its agricultural and mineral export base. This is positive in several respects. China is talking about buying up commodities, which means commodity prices are going to stay relatively strong, or at least stronger than they otherwise would, so we can expect the ASX market to trade higher as well. This also helps support some of those projects which would otherwise be cancelled, as I am sure that a good deal of investment will be going into mining/mine equity as well as commodity inventories. So we can expect a lot of investment in Australian resources, and that's across the board - coal, iron ore, copper, gold, nickel and ENERGY. There are some large LNG projects on the table. Australian tourism is very weak despite the weak dollar, though that fabulous Qld govt campaign promotion for the 'Best Job in the World' will help.
So basically I am expecting the ASX-200 to climb to 4360 level in coming year, though I think that will be the top of the market. The China factor will stop Australia sinking back to lows, but it will mean the AUD and equities just trading in a higher channel band. The flipside is that the market might go sideways longer, but I don't think so, as I don't think China will be dumping commodities in a hurry.
Andrew Sheldon

US equities poised for a fall

The US market has been fairly strong in recent months. You might well be wondering how much longer this can go on. I am actually expecting a pull-back fairly soon. There is of course the ARMM loan re-sets, but there are other factors as well. I suspect the swine flu hoisted up sales in the last quarter, so we might expect a slackening after the build-up of those food inventories.
The current softer interest rate outlook is really just fluff since anyone will be hard-pressed to get credit in this market. Really the global central banks are just subsidising the 'perception' of cheap credit. The only ones getting cheap credit are the banks, and they have been busy investing in stocks and commodities to rebuild reserves, rather than lending to lovely people like yourselves. So having reached a support level, I think you will see them dump those positions, unless they are planning further stimulus.
There is actually one reason why I think the governments might in fact consider further stimulus - they have no money, and they are not likely to raise taxes in hard times. More probable is the prospect that they will continue the great money illusion. This will of course be inflationary, at least to asset prices. The reality is - it will only be government money supporting the market for the next few years. It is apparent that governments are all too willing to throw everything at this market to stop the 'rot'. We need to remember that there is nothing stopping the Dow Jones going to 15,000 if the US government is willing to undermine the value of the USD. Expect central banks around the world to help them.
Andrew Sheldon

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