Wednesday, September 13, 2006

Left field

In baseball parlance, and in the context of the market, I have learned that I tend to hit to left field. For the cricketers amongst us, that means that I like to swing early, and being a right-handed hitter, I send the ball to the left. I see it coming and I want a piece of it before it's ripe. Indeed, I am so prone to anticipating the ball that I mostly tend to foul out to the left. It doesn't pay to know direction unless your timing is right, too.

That has been particlularly the case with
my observations of the dot.commodity boom, which I have railed against for at least a year. Anyone who had followed my view would have lost an awful lot of opportunity cost if not outright money. But, like the tombstone on the grave of the hypochondriac, "I told you so". Too bad that, coming as late as it has, the reality of my prognostication gives scant satisfaction.

Sky falling on resources boom

FALLING prices for metals and oil herald the end of the five-year commodities boom that has fuelled Australia's growth, according to Morgan Stanley.

The fall from May's record commodities prices has prompted Stephen Roach, US-based chief global economist at Morgan Stanley, to call the top of the market. "The mega-run for commodities has run its course," Mr Roach said. [But, of course, Mr Roach is a perma-bear.]

Since peaking on May 11 at 365.35, the Reuters/Jefferies CRB Futures Price Index, which tracks metals and agricultural commodities, has fallen 12 per cent.

Exxon Mobil Australia chairman Mark Nolan scoffed at claims the world's oil supply is in jeopardy. "The fact is that the world has an abundance of oil and there is little question, scientifically, that abundant energy resources exist," Mr Nolan told the Asia-Pacific region oil and gas conference in Adelaide.

Gold was down $US21.45 an ounce at $US596.30 at the close of Sydney trading, after Iranian and European negotiators reported progress in a second day of talks on their nuclear dispute. On May 12, gold traded as high as $US730.40.

"The raging bull that we did have is behind us," said Argo Investments managing director Rob Patterson.

The London Metals Index has fallen more than 7 per cent from its May 11 peak of 4111.2, but it is almost double the 1934.1 it registered on September 16 last year.

That medium-term growth continues to inspire Australian analysts, who stressed that demand from China and from capital markets would push investment. "It just gets a bit harder from here," Mr Patterson said. "It is probably a good thing. So many people are in the market these days who have never see a real shake-out."

Shares in BHP Billiton lost 94¢ yesterday to close at $26.13. Since its $32 peak, which coincided with the May 11 peak of commodity prices, BHP has lost more than 18 per cent.

Record commodities prices have established BHP as the key stock on the Australian Stock Exchange, and the benchmark S&P/ASX 200 has followed the miner's fall. Since the May 11 top of 5364.5, the index has fallen more than 6 per cent to 5026.0.

"There is quite a bit of evidence that the US economy has started to slow after the peak in the housing market," said ANZ chief economist Saul Eslake.

"There is growing evidence that, somewhat belatedly, the supply side of the commodity market is starting to respond to the inflated prices we have seen. To the extent that that is true, then that is also an argument for lower commodity prices."

Troubled commodities led to a weaker dollar. The Australian currency fell more than half a US cent from Friday's close of US75.74¢ to US75.15¢, its lowest point since July 21.

Commonwealth Bank commodities strategist Tobin Gorey said the state of commodities markets hinged on China's management of interest rates.

"The bigger question remains the Chinese economy," he said. "There is always a fear that there is going to be a straw that breaks the commodities' back — that it won't go from 11 per cent to 8 per cent, it will go from 11 per cent to 2 per cent."

See, too, On yer bikes, then


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