Investment banks are suggesting we are close to the peak in the current commodity price cycle.
FORECASTING, especially about the weather, share prices and horse races, is the modern world’s equivalent of gazing into a crystal ball, and about as accurate; but add the word ‘modelling’ to your prediction and everyone seems to get sucked in.
Last week we saw the great game of guessing (also known as forecasting) hit a new high, perhaps because we really are at a financial, political and social turning point.
The first big guess came from the prime minister, Kevin Rudd, who said extra money extracted from the states would fix Australia’s medical system, totally overlooking the fact that every example of throwing money at a problem simply expands the problem.
For proof, look what happens when a city’s road system is expanded; it is quickly clogged with more cars, and then the road system has to be expanded again. As with roads so it will be with medicine, a sort of build it and they will come, even if they have to limp in.
That was followed by weather forecasters in Britain and Europe disagreeing over their ‘models’ about volcanic ash, with the result that global aviation ground to a halt until the Europeans called the bluff of their Brit friends, sent up a few planes and found – wait for it, nothing.
After that came economic and social tips from Australia’s top science organisation, the CSIRO, making forecasts about the five ‘mega trends’ that will shape our future world.
Those global trends are said to be: limited natural resources (yippee for WA because we’ve got plenty); personalisation of products and services; more urbanisation and greater mobility; older, hungrier and more demanding populations; and digital and natural convergence.
Bystander will not go through the detail, but reckons the smart chaps at CSIRO are hitting a few winners with those forecasts, even if they are so rubbery that they fall into the category of predicting that the sun will rise in the east – wow, imagine the brainpower it took to predict an ageing population.
But, within those long-range forecasts are some pearls of wisdom, especially about the decline in natural resources which includes less high-grade ores, less fish, less oil and less available agricultural land.
Missing from every one of the tips is the time factor. When, for example, will the world really run low on oil, given that the great shale gas discovery has turned North America from a gas importer into a prospective gas exporter.
Now for an even more interesting forecast from the financial world, with an increasing number of investment banks suggesting that we are already close to the peak in this commodity price cycle.
JBWere is plugging into its financial models numbers, which show iron ore prices peaking right now at $US170 a tonne for a category of ore known as Pilbara fines, falling to $US160/t in the June quarter, then down to $US150/t by early next year – before tumbling away to $US100/t by 2012.
It is a similar story with coal, peaking now and then declining, predictions which add weight to the theory that right now might be as good as it gets in the mining world as the global economy moves off artificial government stimulus and reaches out for the ‘new normal’.
Incidentally, that final comment is an observation from Bystander, which falls into the forecasting category and perhaps should be forgotten as quickly as it was made – like most forecasts, perhaps even those on global warming, which is totally dependent on computer modelling.
Price perspective
ON the question of mining and mineral prices, does anyone know the real price of gold? A trick question with an educational answer.
The correct answer is that the gold price depends entirely on the paper currency of the buyer.
In a remarkable example of the power of gold as the ultimate reserve currency recognised around the world, it was observed a few weeks ago that gold had hit an all-time record high – if measured in British pounds or euros.
In US dollars, gold was down slightly. In Australian dollars it was down a lot.
The point of these observations, highlighted in the attached graphs from the World Gold Council, is that gold is not the commodity bouncing around, it’s the paper currencies doing the moving.
Comparing currencies with gold is a useful way of measuring the world’s sick economies. and right now they are in Europe.
It’s what you know
IT is amazing how many people refuse to learn from the past, with the latest example being the ‘golly gosh’ reaction to allegations of Chinese spying on Australian iron ore and coal exporters, such as Rio Tinto and BHP Billiton.
Bystander has been studying business long enough to know that it would have been more surprising to be told that the Chinese were not spying, because knowing what’s happening (or about to happen) is the secret to great fortunes.
There is no better example of getting a hot tip than that acquired by the Rothschild family, which had an observer (spy, actually) at the battle of Waterloo. The company man on the scene was first to relay on the news that Napoleon had been defeated, the war was over, and now was a good time to play the financial markets – such as an alleged enormous Rothschild punt on government bonds, and by selling stocks of wool and metals no longer needed by the army.
That’s why this motto is linked to the Rothschilds: “Information is power. Advance information is profit”.
Lithium rethink
INVESTORS thinking of betting the farm on making a fortune from lithium as a future wonder metal for storing electricity in batteries might soon have to think again.
Magnesium, another ultra-light metal, is making a return thanks to discoveries in Canada and Israel that magnesium is a perfect substitute for lithium, and perhaps better.
In theory, the heat producing properties of magnesium (which burns on contact with water) are being harnessed in a number of clever ways, and while they might never work as promised, the discoveries being made are a wake-up call for lithium lovers.
“The only function of economic forecasting is to make astrology look respectable.”
John Kenneth Galbraith
