am convinced, as Warren Buffett teaches , that financial markets are not really predictable though as we shall now see about the raw materials, there are links that are not random and whose understanding may be helpful to an investor. who thinks but can make precise predictions is either a naive or a barker. When I read, as it happened to me these days, that Morgan Stanley sees oil to $ 150 a barrel or the analyst Arjun Murti of Goldman Sachs estimated it likely to rise to 150-200 dollars in a period between 6 and 24 months, my reaction is a smile.
Commodities are the only market that continues to give satisfaction to investment banks. You can tell they do not want them to be put out the fire of speculation .
that in recent years to the physical demand for raw materials has added to that for investment purposes (Facilitated by the spread of products such as ETFs and encouraged by the weak U.S. dollar ), and that this will then be appended to the purely speculative is not in doubt.
A look at the data is impressive: the nominal value of derivatives circulating on commodities has increased more than eightfold in four years, from one thousand to 8 thousand and $ 400 billion between early 2004 and the end of 2007. The
commodity rally, which began quietly in 1999, however, is primarily fueled by fundamental reasons. E 'was born from a growing imbalance between demand effervescent, due to rapid growth of emerging , and a 'bid stagnant after a long cycle of low prices and lack of investment.
The applicants commodity cycles
In its duration and its massive size - the oil, for example, started from levels below $ 20 a barrel over the past 16 months has increased from less than $ 60 to a maximum of 135 - there is also nothing unusual.
I cycles of are like commodities because supply and demand in this market are inelastic to changes in the price. Delle materie prime non possiamo fare a meno. Quando scarseggiano, non sono facili da sostituire e occorre molto tempo prima che si ristabilisca un equilibrio per effetto o di aumenti della produzione o di modifiche negli stili di vita e nei consumi.
Come già scrivevo nel post Petrolio e materie prime, analisi del bull market (a cui rinvio per una serie di considerazioni introduttive a quanto andrò ora aggiungendo), il greggio del Mare del Nord fu scoperto nel 1969 ma fu commercializzato a partire solo dal 1977, otto anni dopo. Un giacimento petrolifero o una miniera non si scoprono e non si sfruttano in un giorno. Spesso occorre un decennio.
La natura di questo mercato è ben rappresentata nel chart below, taken from a famous 2002 study signed by Barry Bannister, then an analyst with Legg Mason .
The graph shows how the current cycle (in 2002 more than anticipated by Bannister) and during the twentieth century was preceded by three other periods of dramatic price increases of raw materials: bull market of 1906-1923 , 1933-1953 and 1968-1982.
feature of these cycles (which already had appeared in similar form in the nineteenth century) was being pronounced , lasting and simultaneous among the different commodities. Commodities agricultural (green line), industrial (blue line) and energy (black line) that have always moved, writes Bannister, Unison ".
The inverse relationship with the actions
A look at the dates, however, has already done to catch those who know a little 'history of the Stock Exchange last but important feature: the bull market of raw materials have more or less coincided with the bear market of equity markets.
The inverse relationship stands out in another chart from the study of Bannister, the following:
In 130 years from 1870 to 2000 it is evident the clear succession of seven cycles the average duration of 18 years each, with the alternation of ' outperformance of the shares (green line on the rise shown by the red bar) and commodities (green line in fall shown by the blue bar).
(In the chart, the green line rises when the relationship between growth in the U.S. stock market and rising commodity prices is positive, and vice versa). Just as happened
start of the twentieth century, the twenty-first century opened with the raw materials of new shares in an unstable environment on winning that, as noted by Bannister, has historically been characterized also by inflation of consumer prices (see chart below, where price rises of raw materials - red line - always accompanied, in the last 200 years, consumer price inflation - blue line) and by rising geopolitical tensions often degenerated into wars .
assuming that this "rhythm" to be respected (a reasonable assumption but no less uncertain than others), we would now more or less in the middle of a new cycle.
Ignoring for the moment considerations of context, for which I would only express the hope that humanity abbia la forza e il buon senso di evitare le guerre, resta la domanda: davvero è pensabile che questo bull market abbia ancora diversi anni di vita?
Le materie prime alla prova dei fondamentali
E’ noto il detto di Mark Twain secondo cui “ la storia non si ripete ma fa rima.” E se facesse anche uso di licenze poetiche?
Fuor di metafora, sulla durata del bull market mi sembra vano azzardare previsioni. Anche perché, quando prende piede un clima speculativo, i comportamenti degli investitori diventano ancora più imitativi e irrazionali del solito. Come osservava John Maynard Keynes , " the market can remain irrational longer than one can remain liquid."
More useful is to analyze the fundamental and try to understand if the imbalances between supply and demand whether or not the point to be filled.
energy market have already discussed in my post oil and raw materials, analysis of the bull market , analysis, and those I invite the reader to return. Here I would only add three points
a) The following chart is taken from a recent article the International Monetary Fund , shows how the application di petrolio (linea blu) abbia nettamente superato nel 2007 la capacità produttiva (linea rossa) mentre la capacità di riserva ( spare capacity ) resta a livelli storicamente troppo bassi. La causa di fondo delle tensioni sui prezzi è qui evidente.
L’ultimo Energy report dell’ International Energy Agency ci dice che, dal lato dell’offerta, la situazione è migliorata a partire dall’ultimo trimestre del 2007 grazie a un sensibile aumento della produzione nei paesi OPEC .
Ma perché allora i prezzi hanno continuato a salire?
The IEA
suspicion, based on a series of clues, is that official statistics on fuel reserves emerging are not reliable and vitiated by default. The race to the accumulation of crude oil, particularly from the China, in a context of severe shortage of stocks, would be the real fundamental reason to the root of the recent gains.
addition, the 2.3 million barrels per day of spare capacity - almost entirely in the hands of all ' Saudi Arabia, consisting of low-quality crude and hard to refine - provide the market with very little insurance on continuity of supply, also saw a repeat of strikes, sabotage or damage to infrastructure, which suffered from decades of inadequate investment.
b) Looking ahead, the ' IEA expects a healthy increase of production in non-OPEC countries from the end of 2008 with the entry of new wells in operation. Of great importance is the potential of Santos Basin in Brazil , which may contain over 30 billion barrels (equivalent to a full year of world consumption), but the exploitation of which will be fully operational only during the middle of next decade.
source of disappointment to the IEA, it is instead the orientation OPEC and Saudi Arabia in particular, which does not seem willing to further increase their supplies in the belief that the supply of oil is "adequate."
Recently, it was the Saudi King Abdullah , in an obvious symbolic gesture, to invite the public state oil company Aramco to neglect the development of some wells, leaving the exploitation "to future generations."
In the presence of limited spare capacity and higher stocks low total is understandable that many market participants have come to the conclusion that the cartel dei paesi esportatori è soddisfatto degli alti prezzi attuali.
Anzi, c’è chi, come Jeffrey Frankel dell’ Università di Harvard , si è spinto a dire che gli alti prezzi delle materie prime e i concomitanti bassi rendimenti attesi di bond e azioni stanno incoraggiando i paesi produttori a tesaurizzare il greggio, conservandolo nelle sue naturali casseforti, sotto terra.
c) Se dal lato dell’offerta resta difficile prevedere un superamento degli squilibri nel prossimo futuro, il necessario adattamento verrà forse dal lato della domanda .
E’, dopo tutto, quello che accadde a cavallo tra gli anni ’70 and 80s. The embargo by exporting countries ran the first world economy into a prolonged recession and medium term generated a greater focus on energy saving policies . Oil prices, more immediately, remained high despite the decline in consumption, but in 1986 ended up collapsing.
This is a scenario that, in the opinion of Daniel Yergin and James Burkhard , respectively chairman and managing director of CERA , could now be repeated.
Economic growth is more than any other factor that helps to determine the demand for oil.
After a long period of booming world economy, 2008 will be a year fraught with uncertainties. The U.S. are on the brink of recession, ' Europe is rapidly slowing down and even from China (which I'll discuss in more detail towards the end) are signs of cooling.
High energy costs are certainly helping to depress economic activity. He calculated the CERA that, in view of improved energy efficiency, in 2008 it would take an average price of crude oil to $ 110 a barrel (the current one is 125) to have the same impact recessive that higher oil prices had on the world economy in 1980 .
The report made it clear in the chart below, where we see how, at current prices, the cost of supply of crude oil has already passed its peak of 7% of GDP touched since.
The repercussions of reduced economic activity on the other hand begin to manifest in U.S., where consumption of crude oil, that at the start of 2008, were down 2.3% from a year ago.
the lower use of oil will help more and more factors such as the development of alternative sources (l ' ethanol, for now, the United States, the biodiesel in Europe and so-called coal-to-liquids in China) and the energy saving .
In the U.S., the trend of truck and SUV is at sunset and is today the announcement that General Motors , as he did Ford, will close a number of facilities specializing in the production of these high consumption patterns to concentrate instead on developing hybrid cars and small. The conclusion of
CERA is that, at current prices, the world has gone to a " Point Break" or point breaking, where changing paradigms . The development of new liquid fuels and energy saving policies in the pipeline could lead, in the U.S., a "significant reduction" consumption of gasoline by the middle of next decade.
The bull market in agricultural commodity
The commodity bull market is not made of just oil or energy sources - although that represented approximately 40% in ' CRB index, the most famous indicator of market price of commodities .
Equally important, in recent times has become the world prices for agricultural commodities , which account for another in the CRB about 40% of the basket.
The reasons for the race to the top of basic necessities such as wheat , rice and maize - where prices have doubled over the past year - have been well analyzed in a recent article of Niels Jensen , chief executive of Absolute Return Partners .
The contributing factors, according to Jensen, are varied and include policies to support the production of biofuels in the U.S. and Europe, bullish speculation derivatives on commodity indices, soil erosion and lack of ' water, the rapid process of urbanization of poor farmers of developing countries, the high cost of fertilizers due to increases in energy and finally the evolution of eating habits of a growing, middle class in the newly industrialized countries.
Some of the examples cited by Jensen give an idea of \u200b\u200bhow deep the changes taking place. The U.S.
, traditional major exporters of maize this year will use the 20% of their crop to produce ethanol for transportation home. The inefficiency of this choice gives rise. A barrel of ethanol produced from corn costs $ 80 , more than twice that in Brazil ethanol is produced with sugar cane at a cost of $ 35 a barrel. The
China, until not long ago, was another major exporter of maize. Now, however, is expected in 2010 will need to import the 40% of U.S. exports.
A terrible water shortage (estimated at 40 billion cubic meters), erosion of soils and low yields are among the reasons for such an activity. In addition, three million hectares of land planted with rice have been lost over the past decade, "cemented" by the processes of urbanization .
Mass migration from the countryside to cities are not just a Chinese phenomenon. Have accompanied the last decade, the processes of rapid economic growth in many developing countries. The loss of workforce in the primary sector, in theory, could be offset by improved agricultural yields . But this is not happening.
In aggregate, developing countries yields are now lower than in the 90s. The increases in fertilizer tied to energy prices and become too expensive for many farmers, are a problem.
With economic growth in many emerging countries have been swelling the ranks of a middle class whose eating habits, as happened in his time in the West are changing.
The Japanese consume about today ten times the amount of protein that used 50 years ago. The idea that the Chinese can now do just as creepy. The production of one kilogram of pork requires three pounds of corn, and even eight pounds of corn are needed to produce one pound of beef or calf. In Saudi Arabia
, the estimated reserves of 'water cover less than 10 years of consumption and are in rapid decline. For this reason, the Saudis have decided to close its doors for agro-food industry that had so far ensured their self-sufficiency. The forecast is that by 2016 the country will import 100% of its food needs.
Obsessed perhaps the technological and industrial competition, governments have ignored in recent years the problems of food security .
The result is that in the U.S., for example, stocks of wheat are at their lowest since 1947, when the U.S. population was half that today. Globally, stocks of rice - the staple food for three billion Asians and Africans - the lowest since 1976.
The reaction of several governments - in India, Thailand, Vietnam, Argentina, Cambodia, China and Egypt - has been to impose controls on exports to ensure domestic security. The problems of food shortages have spread to such an extent that the World Bank considers it likely the outbreak of violence and riots in over 30 countries.
This string of critical - often linked to a long term process - leaves the impression that market tensions commodity foods are far from being overcome.
And 'This is also the assessment of FAO in its latest Food Outlook , it provides for the continuation, for all of 2008, of "serious imbalances" between supply and demand globally, particularly of rice in the markets and maize , while only for wheat is expected to improve after the extreme hardships experienced last season due to drought in several regions.
In the case of maize , the impact of the U.S. choice to provide an incentive use for the production of ethanol domestic use is expected to grow over time. It is estimated that the proportion spent on ethanol could rise from 20% in 2008 to 45% in 2015.
E 'soon to say goodbye to the Taurus
Summing than analyzed so far, it seems premature to say the requiem of this bull market .
High prices, of course, are playing their role in the production incentive and disincentive to consumption, not only in the energy sector but also in food. Symptomatic is the news that even the producers of opium 's Afghanistan they started to sow grain. But
imbalances remain for now and may have to wait for the next decade to find a new balance after "Break Point" reached recently. No
bull market, on the other hand, proceeds uninterrupted by pauses and temporary reversal of the trend.
The occasion for such a movement begins, perhaps in contrast to horizon. Originates from the U.S. housing bubble, which is imposing its costs in terms of reduced growth around the globe. But China is developing in .
Beware the China The
China, in the commodities market, has taken in recent years unparalleled influence, summarized in the chart below, prepared by the International Monetary Fund .
The bar shows the contribution to growth in demand metals, oil and food as the main raw materials developed countries (OECD, in blue), the emerging (green) and from China (red) in the last three decades. As you can see the importance of China has grown to become dominant everywhere in metals.
If the period 2001-2007, how does the graph of IMF, we consider only the last year, China's role expands further, so as to be decisive in setting the price in many commodity markets.
It 's the result of GDP growth rates since 1978, when Deng Xiaoping to reform the economic system, have been on average the' 8% annually, reaching double-digit rates during the most close to us.
Since 2003, China was responsible for 64% of increased demand for copper, 70% of increased demand for aluminum, 82% of della maggiore domanda di zinco e del 31% dell’addizionale domanda di greggio .
E’ ovvio che un repentino rallentamento del gigante asiatico scuoterebbe dalle fondamenta i mercati delle commodities . I rischi che questo accada nei prossimi trimestri, come non è mai accaduto nell’ultimo decennio, non sono affatto trascurabili.
Un mini rallentamento è già stato orchestrato dalle autorità cinesi allo scopo di moderare le pressioni sui prezzi fattesi intense. L’ inflazione al consumo ha toccato l’ 8,5% e sembra destinata ad aumentare ancora nonostante i generosi sussidi elargiti dallo stato per contenere the cost of petroleum products.
The problem is that China, as well as most of East Asia is particularly vulnerable to the impact of the high price of energy commodities and food, which is great import.
to these charges is added to a country still dependent on exports , the risk of a sharp cooling in external demand, now that the American crisis seems to infect Europe. Two
sensitive barometers of increased dangers for the Chinese economy are Shanghai Stock Exchange, who made a splash by 50% between October last year e l’aprile di quest’anno e il superindice economico ( China leading index ) dell’ Ocse , rappresentato nel grafico qui sotto con un anticipo di sei mesi rispetto all’andamento del Pil.
Come osserva Liz Ann Sonders , chief investment strategist di Schwab , il leading index cinese dell’Ocse non solo si è dimostrato affidabile nel prevedere l’evoluzione del Pil ma tende in genere ad anticipare correttamente anche i punti di svolta dell’ indice CRB , come risulta chiaro dal grafico che segue:
The insistence with which the newly Chinese authorities have sought to exclude any risk of hard landing for the economy only adds to suspicions. The Beijing Olympics are imminent, and it is obvious that all the levers of government are designed to ensure that this appointment is a great country in bloom.
now beyond the Olympic deadline looming on the horizon, however, a quite dense clouds - for China and the commodities market . As he wrote in 2004
Jim Rogers (pictured at the opening of article) in a book - Hot Commodities - which so far has proved prophetic, the commodity bull market is characterized by big rallies and big drops. In the bull market of 1968-1982, for example, the CRB index at one point fell by 53% before resuming the final stage of his ascent.
Where will, according to Rogers, the threats to investors in the current bull market ? From China that "was the cause of many gains and will also cause suffering."
Rogers wrote:
"Let me be clear: when China will sneeze the rest of the world will race in search of aspirin. The prices of raw materials, in particular, fall and a lot of investors will panic. You and I, however, then buy more raw materials supply and demand have conspired to create a larger secular bull market, which means that prices would continue rising until at least 2015 billion and that ... three hundred million Chinese are certainly not about to disappear. "
The date of 2015 will not do betting. But the scenario outlined four years ago by Rogers still deserves careful consideration.
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