Anyone care to comment on the recent 60 Minutes piece on China housing. Nothing I didn't already know but when I took a few minutes to REALLY think about it, I was spooked.
The bursting of a China housing bubble would naturally impact copper prices/producers especially with more capacity coming on line …... but, IMHO that would be minor when compared to the more far-reaching potential impact on the world economy. Given the weak economies in much of the developed world it could trigger a world-wide recession.
Now ya gotta think about who'd get hurt. China's people many of whom invested generations of ACTUAL savings, all the displaced workers and the bankrupt builders? What about all the western (etc) businesses now investing/building in China? Manufacturers of construction equipment and materials? Coal, Oil? It goes on and on.
Now ask yourself who's left holding all the vacant properties after a bubble bursts. What happened in the US. The banks ….. but in this case China owns the bank and they didn't sell CDS (etc.) to cover their butts (I don't think). So, if I'm right (?) the government ends up with the assets that they could use to help calm public outrage in China (i.e. free/cheap rent, etc). Naturally they'd probably have to stop funding OUR DEBT for some period of time. Think about that ….. can anyone say interest rates.
Just some random thoughts. What think youse.
I see that I have engendered no interest in the China post.
I also recognize that sometimes my posts on certain subjects seem to have no direct relationship to either SCCO or your investments. That's probably my fault for being too vague (I've been accused of that in the past) ….. or maybe I'm just trying to stimulate some thinking and trying to draw-out opinions from some who have real knowledge that they are willing to contribute to help me shape my views. Devious eh?
So, without writing a tome, how about I elaborate a little on China and some other matters that may impact SCCO. I'm not saying that I'm a genius but I do a lot wondering and asking myself “what if”?
What if the China housing bubble bursts? How will that impact China copper demand and lets say, China steel production. Significantly I think. China construction has already slowed. Has that already impacted copper prices? What's happened to moly prices? SCCO gets about 9% of its revenue from moly so if moly prices drop another 25% does that equate to a 2.25% drop in SCCO revenue? Who is a big user of moly, the military and the steel industry. What's happened to forecast military spending (unrelated to China). Price drops in copper and moly have already happened and without the China housing bubble bursting and its potentially huge roll-on effects.
Do some of these events account for SCCO share price YTD?
Think about it and maybe you can see why I'm getting a little spooked ….. or, maybe I'm just a nervous old man who sees the bogy may behind every tree.
IMO you are asking the right questions. The China "miracle" will burst. Command economies do not work. They may appear to be working, even spectacularly so, for very long periods of time. But they will always crash.
A few thoughts...
Thanks to the Chinese "miracle" and deregulation of our futures markets, we're in a massive commodity bubble. Copper is very much a part of that. Oil and gold have a higher profile, but copper has not been immune from the bubble. This has been a disaster for the global economy.
When China goes down and investors pull out of commodities there will be pain, but it will be concentrated in things like oil, gold, and copper. Oil will fall below $50. Gold and copper will fall at least 50% from here. As a result, the global economy will soar.
Check out the last commodity bubble from the 1970s and early 1980s. The current bubble has been very similar. See the nearly two-decade slide in commodities in the 1980s and 1990s. The coming commodity slide will be similar. See the sub-par economy and stock market from the 1970s and early 1980s. The last dozen years or so have been similarly bad. The coming years will be a golden period for both the economy and stocks. (As an aside, people will stop stealing the copper out of homes and gold prospecting reality shows will be cancelled.)
SCCO has benefited enormously from the bubble. It will be hit very hard when the music stops. It's hard to say exactly where SCCO might end up, but it will be horrible. The oil and gas industry will suffer calamities last seen in the 1980s.
You are right to be spooked.
"Given the weak economies in much of the developed world it could trigger a worl-wide recession" No it won't, at least not China. China's trade with neighboring countries exceeded the total that China trade with Europe and the United States to reach 1.2 trillion U.S. dollars, Foreign Minister Yang Jiechi said last Saturday.
As for China's housing bubble to bursts, this is a westerners wish for the past years but never come true. China has a populations of 1.38 billions and less than 25% of them own a house, this why the Chinese government discourage any unscrupulous flippers to own more than one house.
Seems to me that if there are multiple CITIES in China with almost NO inhabtiants and entire shopping centers with NO TENANTS there is probably something slightly amiss. What would you call it if this same situation existed in the U.S.?
If I use your numbers that less than 25% of the Chinese don't own a place to live and there are hundreds of thousands of new places vacant then why aren't they being bought and/or rented/occupied? Could it be that Joe Wang six-pack can't afford them and if so, what do you think could eventually happen to the value of those places? What about those few people who invested generations of family savings to buy some of them or the many who are building them? Again, if this same situation existed anywhere else in the world what you call it?
Now I realize that the Chinese government can do a lot of things that we in the U.S. can't even dream about to forestall the housing bubble bursting and maybe, just maybe, the Chinese government figured that it was a better investment to loan money to their own businessmen to build VACANT cities rather than to lend that money to other countries to help finance their debt.. What would that tell you?
Face it ...... there IS a housing bubble in China. The only questions are: will it burst and when, can the Chinese government avoid a burst and if so, how do they do it (gradually slowing construction or keep financing it etc.), and lastly what could be the impact on the U.S. and/or SCCO?
Smaller cities in China are emptying out. Where are they going? To the large cities on the coast where real estate is still rising in price. Communists have a 5 year economic plan. Currently that beats the US 'cause Obama ain't got any plan.
We have build cities in the USA from scratch (Reston, MD; Columbia, MD for example) that have worked out. The "Build It and they will come" (Fields of Green) approach wil also work for China because of their "command capitalism". Our two party system often lacks the ability to make quick, important decisions.
What's your point?
I agree that there have been many "planned communities" built in the U.S. ....... but, most have been occupied in a short period of time and those that weren't ultimately put their builders out of business as it should have (i.e. some Las Vegas developments) which led to a lower housing prices in the area and a sharp pull-back in area construction and economic activity.
This situation now exists in many areas in China on a scale not before seen in the world (I think) and only time will tell how this bubble impacts us (if at all). Something (or several things) is holding back SCCO/copper YTD performance when compared to the overall market and I suspect that the China housing bubble has something (or maybe a lot) to do with it.
There is something called supply and demand. When supply is demand driven there are usually no bad results but when supply is driven by something other than demand (i.e. speculation or government edict) bad things often happen (can anyone say solar) and that spooks me and tends to shape my investment strategy.
If anyone has any "bright ideas" on what's holding back SCCO YTD I'll be a willing listener. The passage of time tends to have a healing effect and that's why I'm not selling SCCO at this time but if I were a speculator I'd not be betting on a 30% rise in SCCO in the short to mid-term. That being said, if SCCO dropped to below 30 my trigger finger would get awfully itchy ..... all other things being equal.
What say you doubters now?
You were given a 3 1/2 month warning and what did you do?
That being said ...... me thinks that SCCO is becoming a screaming bargain for long-term investors. I'm only sorry that I bought another lot of SCCO at 29 ...... that just goes to prove that even my crystal ball is not always as accurate as I would like.
Hmmm ..... what to do now? I'm pondering that question. When I come up with an answer I'll let you know.
Any one else have any bright ideas?
Sure, buy the companies minimally affected by the rate increase. This is usual lemming panic led by computer traders.
NRF, SUI, GOOD, SNH......dominated by fixed rate debt have negligible decrease in cash flow due to rate increase. NRF will raise to 20 cents in Aug and 21 in Nov. It's already baked in. Buy the bargain.