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HIGH-GRADE NI-CU-PT-PD-ZN-CR-AU-V-TI DISCOVERIES IN THE "RING OF FIRE"
NI 43-101 Update (September 2012): 11.1 Mt @ 1.68% Ni, 0.87% Cu, 0.89 gpt Pt and 3.09 gpt Pd and 0.18 gpt Au (Proven & Probable Reserves) / 8.9 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inferred Resource)
Message: Commodity - Is the story over? ... Sept 25/08 Article
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Commodity - Is the story over? ·
US is showing visible signs of slow down. In fact for the first time, there has been
economic report of contraction, which means recession
·
China is making all efforts to slow down. Anyway, with US, its largest consumer of
exports, slowing down, China is bound to slow down.
·
Japan and Europe are still struggling on economic front.
So, does that mean commodity bull run is over? The answer is "No". Are you surprised? Lets understand the boom to bust cycle - Phase I - Supply demand imbalances - The boom cycle starts with supply-demand imbalances. There is strong demand pick-up, and supply does not rise fast enough to meet the demand. Prices go up to adjust supply demand gap. Phase 2 - Investment demand - Supply concerns aggravate. Since, there has been no supply build-up in the past, it also attracts investment demand. Suddenly, there is lot of investment in the arena, and prices go up on Investment demand. But despite this, the prices are still realistic. Phase 3 - Speculation demand - It attracts investment from non traditional participants. There are launch of commodity/idea specific hedge funds. But in this phase also, the market is still in the hand of sophisticated speculators. The fundamental factors that have been driving the prices up still exist. Hence, a combination of speculative buying with supply concerns enable commodities to double/treble in value. Phase 4 - Story selling/Mania/Herd Mentality - The real problem starts in this phase. The story of how investors make huge money by investing in that particular idea/commodity
Newsletter for the Week of September 25 (
www.stateofthemarket.net
)
spreads like wild fire. Now everyone wants to try their hand out at this. It's the party time.
The analyst make the party time more merrier by developing crazy valuation methods and
obscene price targets. There is launch of commodity/idea specific funds to attract common
investor. Remember Internet opportunities fund in 2000. Even pan wallahas are aware of
the story. Newspaper and magazines run cover stories on the subject. The entire world is
hooked on to the idea. Speculation lead to higher trading volumes.
Phase 5 - Speculative Unwinding - Then one day some news event suddenly alters the
perception of sector/commodity/idea. Suddenly, the hedge funds start unwinding the
position, and the prices see a steep fall. There is long position liquidation, chart based
selling and rush to preserve profits or minimize losses. The situation aggravate on the news
like a hedge fund has gone bankrupt, as it intensifies the mad rush of unwinding. I call it an
inevitable fall - When the fund wants to get out, they will exit. No fundamental factors
work as a rationale. Investors usually overreact, often wildly, first pushing prices up too
high and then pushing them too low.
Consideration for Phase 1,and 2 - Fundamental factors.
Consideration for Phase 3, 4 and 5 - Liquidity.
But the question still remains - Does the speculative unwinding means end of bull run? The
answer is No. The speculative unwinding only means end of easy money run.
The bull run only ends when supply > demand. I don't think commodity has reached the
stage where there is massive oversupply be it base metal or crude. Hence, what we are
witnessing now is market going from speculators hand to investors hand. The interest in the
sector will sustain till we see a massive oversupply in a particular commodity.
Hence, it's difficult for me to buy the idea that crude may go down to $40, Or Metals will
sink. I only buy the idea, that we may not see a secular rise in the prices of crude and base
metal atleast in near to medium term.
2 Recommendations
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