Thursday, January 15, 2009

Gloomy day in the news -- 3 part update

When I woke up this morning and did my morning news reading there weren't too many stories that particularly stood out... If you wanted to describe the news this morning in one word, it would have to be gloomy.

I've assembled separate posts according to region and subject of the the “Gloom and Doom,” as Marc Faber says.

News reel: Economic Meltdown p3 – Commodities

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Gold Little Changed in Asia as Dollar Steady Before ECB Meeting – Bloomberg LP - Jan 15, 2009

Jan. 15 (Bloomberg) -- Gold traded little changed in Asia as the dollar steadied before a European Central Bank meeting where interest rates are widely expected to be cut by at least half a percentage point. Platinum declined.

Resources downturn trips up contractors – The Australian – Jan 16, 2009

MINING companies slashing costs and cutting production as they struggle to cope with the global financial crisis is driving down revenue in Australia's engineering, contracting and services sectors.

Although analysts believe that the diminished income and the prospect of further contract cancellations are already being incorporated into share prices, they said the full impact had not yet been incorporated.

Metal meltdown rocks global miner Rio Tinto – The Australian – Jan 16, 2009

RIO Tinto continues to be battered by the global slowdown, with fourth-quarter iron ore sales falling 31 per cent.

Slumping metal prices are set to wipe more than $US500 million ($758 million) from the miner's bottom line and more aluminium production cuts have been flagged.

Under new management, miner ready to tackle debt – The Australian – Jan 16, 2009

RIO Tinto's board has shown it is serious about its turnaround by dumping chairman Paul Skinner 11 months ahead of plan. And yesterday's 18 per cent fall in iron ore production underlined the magnitude of the cutbacks ahead.

Rio's fourth-quarter production report is, of course, just a warm-up to the real event on February 12, when its half-year profits are released.

Oil Falls Below $34 After OPEC Reduces 2009 Demand Forecast – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Crude oil fell below $34 a barrel after OPEC said that demand for its crude will decline 4.2 percent this year as the recession in the U.S., Europe and Japan curbs fuel use.

Natural Gas Falls After U.S. Supplies Drop Less Than Forecast – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Natural gas fell to the lowest in more than two years in New York as government reports today on gas stockpiles, producer prices and manufacturing pointed to slower demand as the U.S. recession deepens.

Stockpiles declined 94 billion cubic feet last week, less than the 102 billion analysts expected, an Energy Department report showed. Prices paid to producers in the U.S. dropped for the fifth straight month and manufacturing in the New York and Philadelphia areas shrank. Slowing demand from factories and power plants has helped send gas down 15 percent this month.

Copper Prices Drop for Second Day in N.Y. as Stockpiles Rise – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Copper futures fell for a second straight day as climbing inventories signaled global output of the metal is exceeding demand.

Stockpiles monitored by the London Metal Exchange climbed 1.4 percent to 387,325 metric tons today and have jumped 14 percent this month after surging 72 percent last year. Before today, copper prices plunged 65 percent from a record in May as slumping global growth slashed demand for the metal used in pipes and wires.

Soybeans Prices Jump on Adverse Weather in Argentina, Brazil – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Soybeans prices jumped on signs that demand for U.S. supplies will increase as adverse weather damages crops in Argentina, the world’s biggest exporter of vegetable oil and animal feed made from the oilseed.

Australia Expects ‘Significant’ Drop in Coal, Iron Ore Prices – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- Export prices for coal and iron ore from Australia, the world’s biggest shipper of the raw materials, may drop significantly this year as slowing industrial growth curbs demand, the nation’s central bank said.

News reel: Economic Meltdown p2 – China / Asia

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Asian stocks tumble – The Straits Times – Jan 15, 2009

HONG KONG - ASIAN stock markets tumbled on Thursday, with Japan's benchmark sliding almost 5 per cent, on gloomy US holiday sales and renewed concerns about the banking industry.

Every market across Asian suffered steep declines, with broad-based selling hitting industries from energy to financials to exporters. A sharp drop in Japanese machinery pointed to a deepening recession in the world's No. 2 economy, while oil prices continued to fall on worries that the global economic slump will further weaken demand for crude.

China may bailout more – The Straits Times – Jan 15, 2009

BEIJING - CHINA is planning more help for its steel, textile, shipbuilding and other key industries, analysts said on Thursday, a day after the government unveiled a stimulus package for its ailing auto sector.

Chinese slowdown, serious risk for the global economy MercoPress – Jan 15, 2009

A severe economic slowdown in China is one of the biggest risks faced by the world this year, the World Economic Forum (WEF) has warned. The WEF report said a hard landing for China's economy could create domestic social tensions and put stress on the global financial system.

Foreign Direct Investment in China Falls 5.7 Percent (Update3) – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) – Foreign Direct Investment in China declined for a third month, adding to the toll that recessions in the U.S. and Europe are taking on the world’s third-biggest economy.

Investment fell 5.7 percent to $5.98 billion in December from a year earlier, the commerce ministry said at a briefing in Beijing today. November’s decline was 36.5 percent.

China Home Prices to Continue Falling Until 2011, DTZ Says – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) -- Home prices and sales in China, which fell last year for the first time in a decade, will continue dropping until they reach a “reasonable” level and will rebound in 2011, property agency DTZ said.

Hong Kong Stocks Fall to Two-Month Low; Yue Yuen, HSBC Decline – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) – Hong Kong's benchmark stock index fell to the lowest in almost two months on concern slowing demand is deepening the global economic slump.

China-U.S. Ties to Get Stronger, Departing American Envoy Says – Bloomberg - Jan 15, 2009 Jan. 15 (Bloomberg) -- The economies of the U.S. and China, together generating 30 percent of the world’s gross domestic product, will become increasingly interdependent in the next 30 years, said America’s longest-serving envoy to China.

China unveils support package to auto, steel industries – Xinhua – Jan 14, 2009

· China's State Council unveiled a support package for the auto and steel sectors Wednesday.
· The gov't will lower purchase tax on cars under 1.6 liters from 10% to 5% from Jan. 20 to Dec. 31.
· The plan also urges improvements in the credit system for car purchase loans.

SKorea to miss growth forecast - The Straits Times – Jan 15, 2009

SEOUL - SOUTH Korea's economic growth this year could fall below the central bank's forecast of 2 per cent as the global recession deepens, the country's second vice finance minister said in a prepared speech on Thursday.

India’s Sensex Falls to One-Month Low; Infosys Leads Declines – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- India’s benchmark stock index fell to the lowest in more than a month. Tata Consultancy Services Ltd. and Infosys Technologies Ltd. led declines after a Canadian customer for their software services collapsed.

Satyam May Take 3 Months to Restate Accounts, Delaying Bailout – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) – Satyam Computer Services Ltd.'s new auditors may take three months to clear up an alleged $1 billion fraud at India's fourth-largest software exporter, delaying access to government funds.

Satyam fell 32 percent today after the government said it has no plans for a bailout until the board seeks aid. Satyam won't know how much it needs until auditors confirm assets and assess how much clients owe, director Deepak Parekh said. ``The government doesn't bail out every sick company,'' he said.

India’s Inflation Rate Falls, Paving Way for Stimulus (Update2) – Bloomberg – Jan 15, 2009

Jan. 15 (Bloomberg) -- India’s inflation slowed to an 11- month low, paving the way for further stimulus measures to bolster an economy expanding at the weakest pace in six years.

News reel: Economic Meltdown p1 – South America

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Peru in Talks to Borrow From U.S. Fed, China, Valdivieso Says – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) -- Peru is in talks with the U.S. Federal Reserve and China’s central bank to swap its currency for dollars as the government seeks to boost liquidity amid the global credit crunch, Finance Minister Luis Valdivieso said.

The country may tap another $9 billion in loans from multilateral lenders to help finance about $35 billion in mining, energy and other development projects, Valdivieso said in an interview with Bloomberg television last night at the Finance Ministry in Lima.

Brazil Company Debt Payment Aid Points to Larger Need in Region - Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) -- Brazil’s plan to provide more than $20 billion to help companies roll over maturing international debt may point to even bigger financing constraints in the rest of Latin America, according to Standard & Poor’s.

Brazil’s central bank President Henrique Meirelles unveiled plans yesterday to tap reserves for helping 4,000 or more companies meet international debt payments this year. Brazilian companies have $61.6 billion of foreign debt coming due this year, including $44.9 billion of obligations that mature in less than a year, Schineller said, citing central bank data.

Brazil’s Exports May Plunge 20 Percent in 2009, Barral Says – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) – Brazil’s exports may plunge 20 percent this year on slumping demand and falling prices as world economic growth slows, Foreign Trade Secretary Welber Barral said.

Argentina’s Buzzi Says Government’s Plan Isn’t Enough (Update1) – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) -- Argentine farm leader Eduardo Buzzi, president of the country’s Agrarian Federation, said measures announced by the government yesterday aren’t enough to help farmers facing drought and falling commodity prices.

Ecuador Bank Drafting Bill for Second Currency, Hoy Reports – Bloomberg - Jan 15, 2009

Jan. 15 (Bloomberg) -- Ecuador’s central bank is preparing legislation that would allow it to issue a currency to be used alongside the dollar, Quito-based newspaper Hoy reported, citing a draft of the bill it had obtained

Bolivia breaks relations with Israel over Gaza invasion – MercoPress- Jan 15, 2009

President Evo Morales announced Wednesday that Bolivia severed diplomatic ties with Israel as an act of solidarity with Palestinians suffering from the current offensive in the Gaza strip.

Tuesday, January 13, 2009

Hints for configuring your long term portfolio -- from the Motley Fool

Excerpt -- This is where you buy growth -- Motley Fool

by Nate Weisshaar

Two thousand years ago, Rome ruled the known world. Two hundred years ago, China and India contributed nearly half of the world's wealth. In 1913, Argentina was the 10th richest country in the world. Change is, as they say, the only constant.


Making change work for you

Smart investors are positioning themselves to profit from the changes of the next several decades. Warren Buffett and Jim Rogers have both called this China's century. Mohamed El-Erian, former investment manager for Harvard's endowment and current co-CEO of PIMCO, suggests that investors hold two-thirds of their investments in assets outside the United States.

You'd be hard-pressed to find that much foreign exposure in most Americans' portfolios. Just a few years ago, most investment advisors felt that foreign stocks should make up around 20% of your portfolio at most. My, how things have changed.

-- Click here to access the full article from the Motley Fool

Monday, January 12, 2009

Commodities in focus: Sector outlook

Gold -- To hold gold or not to hold gold...? That is the question.

Gold is a funny metal in the commodity family. Despite its functional use in areas such as filling cavities, gold is also a very fickle metal in the sense that a variety of other macro-conditions ultimately play a big role in determining the price of gold.

The price of gold has held up reasonably well, remaining in the $800/t oz. Range despite a short dip into the $700's/t oz in October and November. Reasons to favor gold right now come predominantly in the form of using it as a hedge against future depreciation of the US dollar vs. the Euro and other major currencies. With all the money the US Government is printing and spending, plus historically low interest rates, most analysts estimate that the currency will weaken in the coming quarters.

Kitco - 6 month gold spot

On the other side of the equation, demand is falling from major consumers like India. Second, if stock markets do witness a sharp rebound, investors may have reason to turn away from gold and return to stocks which are at historical valuations. Chandrashekhar of the Hindu Business Line, a Indian news site says “In the short-term it could come under pressure amid a deflationary environment or during bouts of dollar strength.”

Base Metals – Copper futures jump 5% limit in Shanghai trading, but outlook still remains dim

Li Rong, chief analyst at Great Wall Futures in Shanghai told Bloomberg (in this article), “Chinese consumers took advantage of lower overseas prices to stock up ahead of the Chinese New Year.”

Chandrashekhar had the following to say about base metals.

In case of copper, market fundamentals, especially the demand side continues to deteriorate. This metal may have the furthest downside potential from current levels. According to experts, copper prices are still above production costs and miners still make money. Therefore, there would likely be cost-related cutbacks in production. On the other hand, aluminum, zinc and nickel prices have all fallen very close to weighted average production costs. There is growing risk that copper could dip near to this level at $2,100/t (click here to access the full article from the Hindu Business Line).

Crude Oil / Energy -- Bounce back?

At the moment the financial crisis and the recent political tensions in the Middle-East and Eurasia (Russia) have created a sense that oil prices may have come too low. Additionally OPEC has just announced large production cuts will be hitting the markets in the coming months to bolster oil prices.

When the global crisis appears to have been brought under control and demand returns to markets, the price of a barrel of crude may well spike back above $50 a barrel. Further dollar deterioration and escalation of political tensions may also contribute to higher prices.

Sunday, January 11, 2009

Commodities in focus – mixed messages from China

Until this past October / November when markets came crashing down all over the world as the US credit crisis exploded into a full blown global economic crisis it seemed as if nothing could stem China's insatiable demand for commodities.

However, once economic crisis spread to wealthy nations a chain reaction started.

First, consumers who had been eating up cheap Chinese exports for years decreased their spending as credit dried up. Less demand for goods produced by China's manufacturing sector would mean less Chinese demand for commodities.

Second, a slowing global economy produced a situation where aggregate commodity demand shrank around the world. It mattered little if a country is rich or poor, a slowing global economy would mean less demand for energy and metals.

Third, as economic problems continued to spread it became less and less likely the economic dragon of China would be able to ride the storm out. If a global recession occurred, China would find it very difficult to rely solely on their domestic economy and international currency reserves to keep things growing as fast as they had been from 2001-2008.

Finally (and this is a over-simplification), combine all facts and you get a situation where the future of the global economy is unpredictable. Meaning, no one really knows when Chinese demand will pick up again, no one really knows when the global economy will recover and therefore investing in metals and energy seemed foolish if recession would hamper demand in the near future.

That being said, a few interesting stories passed through the presses this weekend. The first two indicate demand is returning to the commodity markets in China, the second two tell a different story.

Baoshan Steel, Angang Steel, Wuhan Iron & Steel and Maanshan Iron & Steel. Four major Chinese steelmaker stock ratings where raised by Credit Suisse, which said improving demand will help raise steel prices (click here for Bloomberg LP article).

China National Petroleum Corp., the country's biggest oil and gas producer, said it plans to increase oil and gas production by 5% annually to meet domestic demand (click here for Bloomberg LP article).

China's State Electricity Regulatory Commission said demand and output in China will continue to shrink this year because of slower economic growth. China is the world's second largest consumer of energy.

If people are using less electricity it means one of three things. First, it could be a bad sign for the economy. It could indicate the Chinese are becoming more efficient / environmentally friendly. Or third, it may mean the Chinese are trying to save a few Yuan from the higher price they have to pay for the energy.

The correct answer in this situation I feel is the first. A slowing economy simply means less demand for energy. I don't doubt the Chinese are indeed adapting their growth strategies to be more environmentally friendly, but I don't think it is the reason their demand for energy is shrinking (80% of China's energy comes from coal). Last, I don't think it's because of higher prices, commodities after all have once again become very cheap (click here for the Bloomberg LP article).

Moving onto aluminum. China's Shanxi Guanlu said on Friday it was shutting 40,000t of aluminum capacity owing to low prices and weak demand (click here for the full article from the Mining Journal).

I think the main idea to take away with you from all of this is that the market has no idea how to make up its mind and neither do the participants in the market. If and when the global economy does see a recovery, be sure you have some of your money invested in energy and metals, because demand will return and with a vengeance.

For a bit of perspective check out what Jimmy Rogers and Marc Faber, the guru's of commodity investing have to say.

Jim Rogers - Recession and Commodities in 2008

Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P1

Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P2