It's 5am on Robin Widdup's stock market clock, time for bears to wake up and get ready for the 6am boom!
It's 5am on Robin Widdup's stock market clock, time for bears to wake up and get ready for the 6am boom!
Not everyone will agree with that forecast on the clock which Widdup made famous when heading the research team at the stockbroking firm of J.B. Were and Son.
His clock, which tracks he cycles of the resource sector from boom to bust (and back again), went with him when he set up the Lion Selection investment group in 1997, and despite fading somewhat in terms of news-media interest, it provides a simple, but alarmingly accurate, snapshot of the resources market.
A trip around Widdup's dial starts at midnight (12 o'clock), the time of a crash, and moves through a series of predictable events which include company liquidations (around 1am), declining exploration (2am to 3am), mergers (4am) and cash takeover (5am), which is where we are now - and then the 6am boom.
The obvious shortcomings of the clock is pinning down the precise time, or knowing whether the clock might stop ticking for a while, remaining stuck somewhere on its circular trip.
Precision, however, is not the purpose of the clock. It is a guide to the direction in which the resources market is travelling and a chat with Widdup in his Melbourne office this week left no doubt about his enthusiasm for the outlook.
"Next year is looking very promising," he said. "We haven't yet seen the really good times that come with a boom. The junior companies in particular are yet to feel the full effects of rising commodity prices."
That view is supported by the optimistic forecast issued yesterday by the Australian Government's commodity-watching agency, ABARES, for continued strong demand from Asia for Australia's commodity exports, especially energy in the form of coal, oil, gas and uranium.
The Abares view is that demand for all commodities will continue to rise in 2011, albeit at a slower pace than 2010. An expected decline in iron ore prices, after an exceptional upward spike, is likely to be felt after April, 2011, while the coal price will remain high.
Banks are rushing to prepare for the likelihood of a return to a full-blown resources boom, recruiting staff laid off in 2008, and devising new investment products such as additional exchange-traded funds specialising in base metals.
It is bank activity which is believed to be playing a part in the price of copper and gold soaring to all-time record highs - and worrying some observers that too much is happening too quickly in anticipation of a boom, potentially creating a "bear trap" which could bite overly-enthusiastic investors.
The predictive nature of Widdup's clock allows for the odd hiccup as it turns full circle because there is no attempt to tip prices, merely to show the direction in which the market is travelling, a valuable investing tool because the trend is always an investor's friend.
Right now, the clock is saying that investors should flick the switch to aggressive buying, and cautious selling, because the best time is for resource stocks is yet to arrive.
What comes after the boom also moves to a natural rhythm with a flood of new floats hitting the market (7am), rising exploration (8am), a time when key people leave big companies to chase the cash in small companies (10am), followed by the run down signs of paper (shares-only takeover offers) and big floats - a time to be a cautious buyer and an aggressive seller.
Apart from his enthusiasm, and a track record of accurately tipping the phases of the resources cycle, Widdup's clock is interesting for one other reason - the almost predictable regularity of busts.
On the latest version of his clock Widdup points out that busts have started at almost exactly 10-year intervals -- October 1987, May, 1997, and May, 2008.
On that timetable, the next bust isn't due until 2018, which is plenty of time to get set for the 6am boom, enjoy the ride - and get out before the next crash.
