Posts Tagged ‘Commodities Prices’
The Case for Commodities in 2010 (And Beyond)
Sunday, January 24th, 2010
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors, Inc.
The biggest emerging economies have ambitious plans that require a greater share of the world’s limited commodities. This trend is spurring profound and permanent disruptions in how these resources are allocated now and in the future. For investors, these disruptions present opportunities.
Simply put, an investment in natural resources is a vote of confidence in global economic growth.
Rapid urbanization and industrialization, better infrastructure and growing consumption in emerging markets are among the key themes in the global growth story. They are also key drivers in the rising demand for oil, steel, copper, cement and other resources.
Here are just a few of the many available data points to help gauge the scale of opportunity:
- Just over half of the world’s people now live in cities – that figure is likely to rise to 70 percent over the next four decades. The urban population in emerging nations has expanded by an average of 3 million per week for the past 20 years.
- India has embarked on a $500 billion plan to expand and upgrade its highways, airports and other transportation assets by 2012.
- More than 13 million cars and light trucks were sold in China in 2009, transforming a land once dominated by bicycles into the largest auto market in the world. Forecasts for 2010 call for vehicle sales to increase by as much as 10 percent.
Commodities (as measured by the Reuters-Jefferies CRB Index) shot up 24 percent in 2009, the largest single-year increase since the early 1970s, and the International Monetary Fund projects that prices will keep rising this year due to emerging-markets demand and global economic recovery.
China’s economic growth is often mentioned in the context of commodities prices and demand – indeed, China surprised many by growing its GDP at an 8 percent rate in 2009, with commodity-heavy infrastructure investment playing a major role.
Less often discussed is China’s rapidly growing middle class (chart). Estimates are that as many as 25 percent of Chinese – more people than the entire U.S. population – fall into this category now, with a doubling possible within the next decade. While most dramatic in China, it is also under way in India, Brazil and elsewhere. This rise of the “American Dream” in emerging nations is memorably portrayed in the Oscar-winning movie “Slumdog Millionaire.”
This trend has huge implications for commodities. Wealthier people want a better lifestyle. That means more and better housing – in addition to the structure itself (cement, steel), that means more wiring for electricity (copper), more plumbing (copper, zinc) and more basic appliances (steel, copper and other metals).
They also want better transportation, as we’ve seen in China. In only 10 years, China has gone from being the world’s 20th largest oil consumer to No. 2 behind the United States as a result of its accelerating shift from the bicycle to the car. Getting around also means more roads, more bridges, more airports, more and faster railroads – all of which add to commodities demand.
While demand is growing, the supply of many key commodities is not keeping pace.
It is increasingly difficult and costly to find and develop large new oil fields, and mining projects are often slowed down by environmental opposition and tighter regulatory requirements. Many promising new commodity sources are in countries with inadequate infrastructure and/or significant political risks.
Commodity supercycles typically last 20 to 25 years – the current supercycle began in 2000, so we are just at the halfway mark. A stress in the markets is that insufficient capital has been invested in resources in recent decades, while at the same time the world’s population has doubled and there has been spectacular growth in the middle class. Any supply disruptions quickly lead to price spikes.
There are other reasons to consider an investment in commodities or commodity-based equities, be it through an actively managed natural resources fund or a passive vehicle like an index fund or exchange-traded fund.
We’re hearing more talk about inflation – natural resources are one of the few asset classes that benefit from inflation. If prices for fuel or other commodities rise, one way to hedge against the impact of that price increase is to invest in those commodities.
Commodities are also a natural hedge against the erosive impact of a weak dollar. Given massive federal deficits for the next decade, yawning trade deficits and historically low interest rates, it is hard to see how the dollar could see a sustainable rally any time soon.
For the reasons detailed above, we believe that the secular bull market for commodities and natural resources stocks remains intact and could even intensify in 2010, depending on the extent of economic recovery in developed nations.
Tags: Auto Market, Chief Investment Officer, China, Commodities, Commodities Prices, Crb Index, Emerging Economies, Emerging Markets, Frank Holmes, Fund Projects, Global Economic Growth, India, Infrastructure Investment, International Monetary Fund, Largest Auto, Light Trucks, Million Cars, oil, Rapid Urbanization, Transportation Assets, U S Global Investors, U S Global Investors Inc, Urban Population, Vote Of Confidence, World Forecasts
Posted in Markets | 1 Comment »
China Rate Hikes May Be Premature
Thursday, January 21st, 2010
An interesting report on China reveals that 8.0% growth is the minimum GDP growth China needs to achieve in order to keep things there going, and despite the 10.7% print this week, Michael Pettis of Peking University, discusses the fact that without the currency subsidy or the interest rate subsidy, many companies just won’t be able to make money.
Reading between the lines, it seems continued rate hikes as policy tightening, which has spooked world markets and commodities prices, would be premature. While China is experiencing asset price inflation, the export sector continues to be deflationary as there is still an enormous amount slack to take up.
Tags: Asset Price, China, China Rate Hike, Commodities, Commodities Prices, Currency, Emerging Markets, Export Sector, GDP, GDP Growth, Interest Rate, Michael Pettis, Money Reading, Peking University, Price Inflation, Rate Hikes, Reading Between The Lines, Slack, Subsidy, World Markets
Posted in Markets | No Comments »
Japan’s Misfortune Good News for Canadian Market
Sunday, January 10th, 2010
Commodities and the Canadian dollar have continued to strengthen despite the rally in the U.S. dollar. That’s odd, because for nine months, the U.S. dollar was involved in an inverse relationship with commodities, the Canadian dollar, equities, and emerging markets.
That relationship ended in late November as the dollar began its now, six-week old recovery.
It was often reported, from March to November 2009, that commodities prices were rising as a by-product of the falling U.S. dollar. That, indeed was doubly so. Speculative interest in commodities was driving prices higher, while rising short interest in the U.S. dollar, and record deployments of institutional cash were sending the currency lower, against the yen, and euro…
Find out why its possible Canadian stocks, bonds, the loonie, the commodity complex could remain relatively stable, and possibly go higher, though modestly.
Pierre Daillie (AdvisorAnalyst.com), GlobeAdvisor.com, January 11, 2009
Tags: Canada, Canadian Bonds, Canadian Dollar, Canadian Stocks, Commodities, Commodities Prices, Commodity, Currency, Deployments, Emerging Markets, Globeadvisor, Inverse Relationship, Japan News, Late November, Market Commodities, Misfortune, Nine Months, Rally, Short Interest, Speculative Interest, Stocks Bonds, Yen
Posted in Markets | No Comments »
Canada’s IMF Upgrade an Important Sign Post
Friday, October 2nd, 2009
Canada’s GDP growth outlook got an upgrade from the IMF this week thanks in part to the outlook for commodities prices, as well as global demand coming from the developing world, in particular, China and India. Yesterday, we discussed the outlook for China and India in Mobius, Rogers, and IMF Love China.
Bloomberg reports: Canada’s economy will grow more in 2010 than previously forecast and shrink more in 2009, helped by commodity prices that have rebounded ahead of a global recovery, the International Monetary Fund said in its World Economic Outlook report.
The U.S.’s biggest trading partner will contract 2.5 percent in 2009 and grow 2.1 percent in 2010, the IMF said today. The IMF had predicted in July the Canadian economy would shrink 2.3 percent this year before rebounding to 1.6 percent in 2010.
“The recent rebound in commodity prices and reduced reliance on manufactured products have helped exports,” the report said. Canada exports oil, natural gas, metals and other commodities.
The IMF upgrade is an important signpost, and on its own, its great news, but it is actually far more important than it appears at first. As local investors, we tend to focus more on how we feel locally. You have to also pay close attention to Canada’s attractiveness to foreign investors.
Last week, we discussed the idea that China and BRIC peers may not be interested yet in investing in Canada Bonds, even though they are an ultra-safe alternative to US Treasuries, because the by-product would be a higher Canadian dollar, which means they would pay higher prices for our commodities exports.
Its true, for those reasons, they may not be interested in our paper, but on the other hand, large global investors are.
Our yields are not only higher (for now), our bonds are also perceived to be inherently safer than those of the US and UK, thanks to Canada’s sound fiscal position, stable credit market, and strong, and well capitalized banking system.
Andrew Willis reports that Ontario floated $2-billion of 10-year bonds, with a 4% coupon in the US, following an offering of Canada bonds made by the Federal Government.
Ontario tapped American credit markets on Tuesday with a $2-billion (U.S.) 10-year bond offering, a financing that follows of a federal government issue in the global market.
As part of a busy week, Ontario sold debt with a 4 per cent interest rate, offering investors a 73 basis points premium over the benchmark U.S. government bond. Bank of America/Merrill Lynch, BNP Paribas, Deutsche Bank and TD Securities were the lead underwriters.
These developments continue to provide evidence that Canada is in the uniquely advantageous position in the developed world to become a powerful, and key, world financial market, as a result of its once-in-several-decades position.
The benefits are two-fold.
- Canada’s capital market as a magnet for foreign capital, attracting large investments from global investors looking for a safe haven in both the fixed income and equity markets. Canada’s risk/reward is favourably tilted for reward given its position in the global commodity complex and economic stability.
- Canadian companies will be among the world’s biggest producers and vendors of commodities to the emerging markets, which all face long term shortages of oil, food, water, and metals.
Its high time for Canadians to recognize that Canada is poised for superior growth during the next decade.
The perfect-storm-like convergence of the credit crisis, which has investors looking for the safest places in the world to invest, and the dramatic redistribution of wealth and economic transformation that is driving the growth of the developing world, and the resultant demand for commodities has Canada is in the cross-hairs of both.
Bottom Line: Canadian investors should view any weakness in markets as a graduated opportunity to accumulate positions in Canadian banks and key, preferably under-levered, commodities producers.
Tags: 10 Year Bonds, Andrew Willis, BRIC, Canada, Canada Bonds, Canada Exports, Canadian Economy, China, Commodities, Commodities Prices, Commodity Prices, Credit Markets, Emerging Markets, Fiscal Position, Foreign Investors, GDP Growth, Global Demand, Global Investors, Global Recovery, Growth Outlook, India, International Monetary Fund, Investing In Canada, Ntario, oil, Outlook Report, Post Canada, Signpost, Uk Thanks, World Economic Outlook
Posted in Emerging Markets, Markets | No Comments »
Bespoke: BRIC countries continue to surge
Sunday, May 31st, 2009
Bespoke Investment Group, who do a brilliant job charting, have put together the year-to-date look at BRICs vs. S&P500 [below].
Are emerging markets equities decoupling once again from developed markets equities?
It may still be too soon to tell, however, a recognition of the underindebtedness of BRIC-based companies and consumers, healthy banking systems, sound fiscal and monetary policies, as well as a resurgence in government spending and domestic consumption could be behind the recovery which has taken place in Emerging Markets since last November’s lows, which began 4 months sooner than the equity market recovery in March in the G-7.
Oil’s surging recovery from the $30s to $66 [Friday], and the weakening Greenback [which has been good to commodities' prices] have provided a further boost to Russia and Brazil’s commodity complex.
A landslide general election victory for India’s incumbent Congress [Liberals] coalition government has cleared the way politically for India to move forward on much needed reforms for at least the next 5 years.
China’s economic rebalancing, via its $600-billion stimulus appears to be trickling very solidly into the corporate sector and the economy, much faster than anticipated.
Time will tell.
Russia’s RTS stock index was up another 3.2% today [Friday], while China was up 1.71% and India was up 2.3%. The BRIC (Brazil, Russia, India, China) countries continue to surge higher in 2009, as they’ve far outpaced stock markets of so-called ‘developed’ countries. Below we highlight their year to date performance compared to the S&P 500. As shown, Russia is up a whopping 72.1% this year, followed by India at 51.6%, China at 44.6%, and Brazil at 39.7%. The S&P 500 is up 0.22%.
Source: Bespoke, May 29, 2009.
Tags: Banking Systems, BRIC, Bric Countries, BRICs, Brilliant Job, Coalition Government, Commodities Prices, Corporate Sector, Domestic Consumption, Election Victory, Emerging Markets, Fiscal And Monetary Policies, government spending, Greenback, India, India China, Investment Group, Last November, P500, Rebalancing, Stock Index, Stock Markets
Posted in Emerging Markets, Markets | No Comments »
Commodities Snapshot
Sunday, December 7th, 2008
If you look closely at the charts for Natural Gas, Platinum, Copper, Silver, you can see that these are experiencing a U-shaped flattening of prices. Oil is continuing on its epic, stronger downtrend. For the time being, there appears to be little support for commodities prices as weakening economic fundamentals, sentiment, negative wealth effects and deleveraging are leading to vicious-cycle demand destruction. A turn in the Baltic Dry Index while still not anticipated would herald a favourable turn in global activity.
Charts: Bespoke Investment Group
Tags: Activity Charts, Baltic Dry Index, Blog, Br, Chart, Commodities, Commodities Prices, Copper, Dow, Eco, Economic Fundamentals, Global Activity, Global Investment, Gold, Img, Investment, Investment Group, Natural Gas, oil, Platinum, Sentiment, Silver, Snap, Snapshot, Vicious Cycle, Wealth Effects
Posted in Commodities, Gold, Markets, Oil and Gas | No Comments »
Baltic Dry Index: A Valuable Leading Indicator?
Friday, December 5th, 2008
The Baltic Dry Index is a very important indicator of the health of trade globally, as it measures shipping activity in dry cargo.
Take a look at the chart below: According to the BDI, one of the purest economic indicators, the activity of shipping dry bulk cargo, mainly consisting of commodities such as coal, steel, iron ore, and cement, has almost completely ground to a halt, as indicated by the crash in the index’s value.
The BDI offers a real time glimpse at global raw material and infrastructure demand. Unlike stock and commodities markets, the Baltic Dry Index is totally devoid of speculative players. The trading is limited only to the member companies, and the only relevant parties securing contracts are those who have actual cargo to move and those who have the ships to move it. [1]
Another interesting feature of the BDI, is its high correlation to equity markets. Take a look at BDI vs. S&P500 and FXI (China 25 Index iShare), Crude Oil and Copper:
Baltic Dry Index vs. S&P 500
Baltic Dry Index vs. FXI (FTSE Xinhua 25 Index iShare)
Baltic Dry Index vs. Crude Oil
Baltic Dry Index vs. Copper
We’ll keep an eye on credit markets, and the Baltic Dry Index as indicators of the vitality (or lack thereof) of the economy and markets and keep you posted.
As goes the BDI (a leading indicator), so goes the economy, and perhaps equity markets (and commodities, we might add).
At the time of the publishing of this article, the BDI stands at 663 pts.
Tags: Array, Baltic Dry Index, Bdi, Blog, Br, Bulk Cargo, Cargoes, Cement, Chart, China, Coal, Commodities, Commodities Prices, Copper, Correlation, Crash, Credit, Credit Market, Credit Markets, Crude Oil, Debacle, Dow, Dry Cargo, Eco, Economic Indicators, Economy, Equity Market, Failure, FTSE, Ftse Index, Ftse Xinhua, Fxi China, Glimpse, Grains, Health, Img, Infrastructure, Investment, Iron Ore, Ishare, Issuance, Leading Indicator, Lehman Brothers, Loc, Markets, Measures, Member Companies, oil, P500, Php, Precipitate, Raw Material, Relevant Parties, S&P 500, S&P500, Shipping Activity, Time Glimpse, Trading, Value, Vitality
Posted in Commodities, Credit Markets, Economy, Markets, Oil and Gas | No Comments »
10-Yr+ US Treasury and Canada Yields Falling
Monday, December 1st, 2008
During the December 1st liquidation of stocks, the yield on 10-Yr. US treasury securities fell to 2.81%, a level not seen since 1954. Incidentally, during the 1935-1955 period, the yield on these was at levels far below current levels, this being the period following the collapse of the US financial market post circa 1929.
With the bond market rallying in the longer durations, its hard to NOT see how this plays right into the hands of the US government’s needs for long-term funds to pay for a trillion-dollar war and a trillion-dollar plus bailout, not to mention just staying in business.
Bloomberg says: Yields on two-, 10- and 30-year debt dropped to levels not seen since the U.S. began regular sales of the securities after Federal Reserve Chairman Ben S. Bernanke said the central bank may purchase Treasuries and target long-term interest rates to combat the deepening recession.
Which once again begs the question:
What incentive does the US Government have for reviving the equity market, except to levels which keep some hope alive? Not much, right now.
With investors being crowded out of equity markets by continuing volatility and losses surmounting from deleveraging, it should eventually be a snap for Washington to amortize very sizable short term obligations by selling bonds to fleeing investors. Bernanke is merely pointing out the obvious in a roundabout way.
Debt is the new equity. Why would you bet against the Fed? This is the direction they have been moving us in, deliberately.
Canada Long Bond Yields Falling
By the way, the 30-year Canada rates fell from 3.97% last week, to 3.76% today, in the face of the 9% drop in the TSX. Until 5 months ago, the Canadian economy was bolstered nicely by rich commodities prices. Now that commodities prices have fallen sharply and fairly quickly, Canadian investors haven’t yet adjusted to the reality that Canada is in recession too, and given that, it is likely the long-term Canada yields will fall. Our three key industries are now dealing with a slump; autos, financials, and commodities.
Which is the likely scenario over the next one to two years: Long-term Canada Yields go up, sideways, or down, given that Canada is entering a full-blown recession?
Bloomberg says: The yield on the two-year bond declined 12 basis points, or 0.12 percentage point, to 1.59 percent at 4 p.m. in Toronto, the lowest since Bloomberg records began in 1989. The price of the 2.75 percent security due in December 2010 rose 23 cents to C$102.29.
The 10-year note’s yield fell 19 basis points to 3.13 percent, also the lowest since at least 1989. The price of the 4.25 percent security maturing in June 2018 climbed C$1.66 to C$109.18.
“Long-term rates are playing catch-up in terms of the decline in yields we have seen in short-term bonds,” said Mark Chandler, RBC Dominion Securities Inc. “There is limited downside in short-term yields,” he said.
“The relatively greater drop in yields on long-term bonds compared with short-term bonds is a theme that could continue into the first half of 2009,” Mr. Chandler said. “This is known as a yield curve flattener,” as the spread between the short-term and long-term rates narrows.
Currently, Canada’s yield curve is steep, defined by short term rates near zero percent, and 30 year rates, which closed today (12/01) at 3.761%, down 21 bps from last Thursday (11/27) morning.
As Hugh Hendry recently put it:
“I withdrew my hard-earned money from a bank this summer. But it may surprise you to learn that I bought government bonds of long duration. Surely I should have bought gold? Except that I believe the way to make money is to seek opportunities through paradox.
And therein lies our brinkmanship: everyone has skipped our story and read the conclusion. They fear financial anarchy. Gold coins are sold out. Everyone is in. And yet the price of gold has fallen this year. So, for now, I would stick with the bonds. The 18-year British gilt yields 4.8pc but, with the Bank of England likely to follow the Fed and slash rates to 1pc, I believe we could see gilt yields below 3pc.
And I promise you that if bond yields broke 3pc there would be a stampede to buy. At this stage gold might trade close to $500, and those who missed its rally from 2002 would have the solace of schadenfreude when in reality they should be buying the stuff and selling their bonds. What delicious irony: deflationists and inflationists could both claim to be right. But how many will have profited?”
Tags: Bailout, Basis Point, Basis Points, Bernanke, Blog, Bloomberg, Bond Market, Bond Yields, Bonds, Bps, Br, Canada, Canada Rates, Canadian Economy, Canadian Investors, Collapse, Commodities, Commodities Prices, Current, Deflation, Dollar, Dollar War, Dow, Eco, Economy, Equity Market, Fed, Federal Reserve, Federal Reserve Chairman, Financials, Gold, Government Bonds, Hugh Hendry, Img, inflation, interest rates, Investors, Key Industries, Liquidation, Loc, Loom, Markets, Money, oil, Rally, Recession, REW, Rose, Roundabout Way, Snap, Stocks, Stuff, Target, Term Bond, Term Funds, Term Interest, Term Obligations, Treasuries, Treasury Securities, Trillion, Tsx, Us Government, Us Treasury, Volatility, Yield Curve
Posted in Bonds, Canadian Stocks, Commodities, Economy, Gold, Markets, Oil and Gas | No Comments »
Commodity Snapshot
Sunday, October 26th, 2008
Judging by the way that commodities prices have literally been “drawn and quartered” since July, its obvious that the market has been forced into liquidation by the massive unwinding or rather de-levering caused by the near failure in the credit market, and the assumption of debt by governments and central banks around the world.
Gold, notably, has traded lower during this anomalous selling-spree, even though it has long been regarded to be the real asset choice of those wanting to protect against financial risk. Perhaps its simply either that gold is highly liquid at a time of great need and is being sold off, or there has been a substantial amount of central bank intervention by way of shorting gold in the futures market. Either way, given the sheer amount of money supply growth, by contrast, gold is very cheap. Which brings us to platinum. Take a look at these charts:
Platinum, which is 30X rarer than gold closed at $793, only $83 premium to the price of gold. At peak earlier this year, platinum traded at a $1,300 premium to gold.
Oil is continuing to get cheaper. OPEC held an emergency meeting, agreeing to cut production by 1.5 -million barrels. News of this had no effect on oil prices, not even an intermediate effect; it closed on Friday at $64.15. Which begs the question: Is OPEC really a cartel? They seemed content to sit back and watch gleefully as the price shot up to 147, but have been unable to do anything to stop its slide to current levels, not even a substantial cut in production. Or so it seems.
Is the imminent food crisis over? Are fears of oil shortages overwrought?
Right now, it looks like nobody cares. They just want their money out, and at any price.
As Warren Buffett has put it so eloquently in his recent NYTimes Op-Ed piece, Buy American. I am, “Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”
Charts: Bespoke Investment Group
Tags: 5 Million, Amount Of Money, Banks, Bespoke Investment Group, Cartel, Central Bank Intervention, Central Banks, Chart, Commodities, Commodities Prices, Commodity, Credit, Credit Market, Dollar, Ed Piece, energy, Financial Risk, Food Crisis, Futures Market, Gold, Money Supply Growth, Nytimes, oil, Oil Prices, Oil Shortages, Opec, Platinum, Price Of Gold, Rally, risk, Silver, Spree, Warren Buffett, World Gold
Posted in Commodities, Credit Markets, Gold, Markets, Oil and Gas | No Comments »
Commodity Snapshot
Monday, April 7th, 2008
April 7, 2008 - Courtesy of Bespoke Investment Group - Below we feature, as no one else does better, Bespoke’s commodity snapshot. It gives you an at-a-glance view of where commodities prices are in relative terms.
Below we highlight our trading range charts of ten major commodities. The green shading represents two standard deviations above and below the commodity’s 50-day moving average. When the price moves above or below this trading range, the commodity is considered overbought or oversold.
After a pullback from $110 to $100, oil is now trading at $104, which is just above the middle of its trading range. Natural gas declined sharply on the commodity pullback a couple of weeks ago, but it has since moved higher and is almost back to new highs. Declines in silver, platinum, wheat and copper left prices right in the middle of their trading ranges, while declines in gold and coffee put them close to oversold territory. Corn has actually moved back to new highs and is now trading above the top of its trading range.
Tags: Agriculture, Chart, coffee, Commodities, Commodities Prices, Commodity, Copper, Corn, Declines, energy, Glance View, Gold, Investment, Investment Group, Metals, Moving Average, Natural Gas, New Highs, oil, Platinum, Pullback, Range Charts, Relative Terms, Shading, Silver, Silver Platinum, Snapshot, Standard Deviations, Trading, Trading Commodity, Trading Ranges, Wheat
Posted in Commodities, Gold, Markets, Oil and Gas | No Comments »
