Normally I brush off analyst comments, but when Macquarie is commenting on an Asian commodity matter and Lloyds is publishing, I tend to listen.
I don't know enough about the overall shipping sector to comment much further - I have heard that wheat is also gaining decent volume, but I still think that IO and coal make up the bulk of the cargo. Agree that the BDI overshot on the downside.
I am on the fence with regards to the great base metals question. Will the Chinese government stimulus plan overcome the deteriorating housing situation, falling export sector, and increasing unemployment? Jim Rogers' cyclical theory seems to suggest yes, but I'm not sure that China has hit bottom yet. Is this what many call analysis paralysis?
I was not aware that SQM was sitting on lithium. Makes sense, however, since the salt planes extend into Chile.
"you know I think you are a very valuable contributor."
I think Jim Rogers is overly optimistic about this commodity cycle and that it will take some time for metals, grains and even energy to recover. History is replete with commodity bubbles that took decades to recover (e.g. oil) and there is no way that most commodities will return to 2008 prices in the context of recession, plentiful supply and speculative fervor that is either BK or gone elsewhere.
I'm in energy services because the majors can and will keep spending whatever the price of oil... witness PBR. I like NOV because they have a big backlog and they dominate the business of equipping rigs. I like RIG because they are the undisputed leader in deep water -- which may well be the "last frontier".
I like coal because the US has plenty and our electrical grid runs on it; we cannot turn away from it until alt energy becomes a reality -- 50 years from now.
I like Ag/Ferts because the world has to feed a growing population.. the ethanol debate is a sideshow... we have hungry mouths to feed now and inefficient animal protein is a growing part of the global diet. The industry structure is one of a powerful and disciplined oligopoly with very high barriers to entry -- very good for pricing.
I like shipping in the short run because these companies have been oversold. It's not the end of the world. The short term pain is good for the "ecology" of the industry because it will help prevent an over-supply from developing. Longer term, the march of history suggests that world trade is not going away, that Chindia will need IO, steel, ferts, sugar and grains. However, 2008 pricing is a memory unlikely to be revisited in our lifetimes. But the stocks are still selling like they are going BK. The good news for a small investor is that the BDI is linked to the real market and the FFA's to the shipping futures market. Between the two, one can assess the market independently of equity performance and sentiment: One needn't be a chartist nor depend on momentum -- as long as the BDI rises, the stocks will also rise; if the BDI falls, the stocks will fall. Tomorrow's BDI #s should be interesting...
Finally, Brazil: I'm long via EWZ and SDA (bow, wow, wow) only because I am bottom fishing and hoping, in the case of SDA, that the currency-derivative disaster will not drag down the whole operation of an otherwise excellent company. I think the hype around Brazil is extraordinary and unhealthy. Yes, Brazil is in better shape than in the past, but we are talking about a country whose export markets are moribund; whose growth will slow from 8% to at best 2% (recession entirely possible); where inflation is still well above 6% (while the rest of the world flirts with deflation) because inflation is ingrained in the economy, accepted by The State and encouraged by Commerce; where The State is an unbelievable drag on Commerce; where Consumers suffer because of the State-ist orientation of Commerce; where credit is the only thing propelling the economy at this time; where layoffs by the major employers (Vale, CSN, etc.) are announced daily.. but nobody wants to acknowledge them...
I mean, really, you'd think that Lula believes his own BS... and that Jim Rogers believes his! The fact is that without China, Brazil is f-ked... and that China will play Brazil off of Australia, off of Africa... to it's own advantage.
Asset values and consumer prices in the USA are cheap compared to Brazil... I'm preparing to sell here and go back north.
Great post. I wish I had the time to give it a just response.
I think you are really onto something with the bottom fishing theory. Finding companies like SDA, which will likely survive, but that have PPSs building in the fear that they are knocking on insolvency's door is probably the way to go.
I actually made a decent trade on this principle on DRYS last week. The problem is there that the CEO is a scoundrel. After scouring a bunch of stocks last night, I also came up with VE, MIC, and TBSI. CAT seems like a riskier play on this principle. SIRI is extreme high risk.
On the other hand, most Brazilian utilities (especially electric) and PDA are examples of companies that are so well financed, that they have "only" fallen around 50% of their high.
As for oil rigs, still a bit confusing for me to delve into. I understand the contract pricing but that can be overcome if we see a decent pullback in crude and on NOV/RIG/DO.
POT gave back a little today. After hearing about SQM's lithium supply, I am anxiously waiting for that to do the same.