On 8/20/08, from gmail.com
I feel mining and metals ferrous and non ferrous both have attracted so much of investment that the complete value chain is controlled by couple of producers. They have two liabilities created in the process - return for lenders and equity holders apart from the fact that they all know (markets have turned oligopolistic) that in case they are not able to get the super natural profits / profits, the downturn will even be worse than the highs of couple of years. For this not to happen, markets have to be good all across.
For markets to be good all across merely interest rates cannot do anything rather it is a tool to destabilize the financial system.
So, there has to be a period which will force the prices to fall and that of commodities too.So that the next wave will have to come again from the buying power of masses and not of the handful of millionaire’s/billionaire’s. Even Government spending will not be enough to support such demand.
Let us be more realistic and also factor the aggression in the fringe market of derivatives which is the outcome of interest rate fluctuations in last 7 years (courtesy FED), that every tom ...hary has started taking positions leading to spiraling of positions without much increase in Demand for almost all the commodities and supply side dynamics have also not changed much over these years except for consolidation and so do on the capitalisation front except for meltdown and sellout/bail out and re capitalisation.
We may see head and shoulder formation for couple of months and may even see a downturn leading to correction in inflation all across. One must agree that Crude is one such commodity (I termed it first - crudonomics) which can shatter the whole of Asian hopes and growth. Though west and Europe may wish but OPEC may see it otherwise.Most of the MNC’s and banks are dependent on the emerging markets and cannot afford to see these economies crippled. It will turn out to be a vicious cycle.In fact increase in metal and mining prices are helping the developed countries as they have competitive advantage here.
For the returns , growth is required and no one can afford to cut on growth unless - it is mess like the one happening around due to one by one factor which like any disease will take time to get cured and show signs of recovery.
To sustain the hightened volatility index one needs continuous support of derivative positions. As there is credit squeeze and that CDS market has seen 100-200% rise in the last three months, fall of crude , fall of coal and other comodities are vindicates the technical patterns of a fall or a subdeued /bearish phase for some time.
Well, 7b USD of outflow and reduced inflow has pushed dollar by 10% in last 5 months.Slight reduction in crude and better numbers of a quarter in US can appriciate USD that within a week it breaches and there comes a trend reversal.
The startegy, thus is of a day traded from investment point of view and to be hedged in Fx to the extent of 50% thumb rule for a medium term view till crude breaches 100 USD/barrel and there is a double bottom / 30 day MACD to be downward / RSI to be less than 30.
Happy Investing
Dinesh
No comments:
Post a Comment