{"id":61990,"date":"2014-10-16T00:34:46","date_gmt":"2014-10-16T04:34:46","guid":{"rendered":"http:\/\/countingpips.com\/?p=61990"},"modified":"2014-10-16T00:34:46","modified_gmt":"2014-10-16T04:34:46","slug":"could-this-be-rock-bottom-for-resources","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/could-this-be-rock-bottom-for-resources\/","title":{"rendered":"Could This Be Rock Bottom For Resources?"},"content":{"rendered":"
October 16, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

The resources sector<\/strong><\/a> is bruised, battered and beaten.<\/p>\n

Almost every mining company in Australia is sporting a black eye or two.<\/p>\n

And with iron ore<\/a> down near US$80 per tonne, many of them are spitting teeth onto the canvas…or have gone down for the count.<\/p>\n

As an Aussie investor, you can’t ignore this. <\/p>\n

But not all is lost.<\/p>

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Commodity prices can’t fall forever.<\/p>\n

And if you take the right steps before the market realises this…you could be in for huge gains<\/a>.<\/p>\n

Unless you’ve just emerged from a cave or a coma, you’ll know the Aussie resources sector<\/a> has endured more than three years of unprecedented pain.<\/p>\n

This four-year chart of the S&P\/ASX 200 Resources Index [ASX:XJR]<\/strong> tells the story. <\/p>\n

It shows how badly the share prices of Australia’s largest energy, mining and metals producers and explorers have languished. Since October 2010, the resources index has lost more than 30% of its value.<\/p>\n

\"ASX<\/a>
\nSource: nabtrade<\/em>
\nClick to enlarge<\/a><\/em><\/div>\n<\/p>\n

That chart doesn’t show the rich, valuable veins of minerals that flow from coast to coast. They should be a source of national pride. <\/p>\n

But gyrating global markets, stricter access to capital and rising cost pressures have turned the miners into a source of fear and loathing.<\/p>\n

Shareholders don’t want to own them. <\/p>\n

Lenders don’t want to fund them. <\/p>\n

And workers have wrung every drop out of their union-bargained agreements.<\/p>\n

None of that bothers me. <\/p>\n

Because those factors are transient. They’re cyclical.<\/p>\n

And a far-sighted investor<\/a> can always look through short-term pain.<\/p>\n

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Of pendulums and coils<\/strong><\/h2>\n<\/p>\n

You can think of investor sentiment towards the Aussie resource sector as a giant pendulum.<\/p>\n

It’s free to swing in any direction…but right now, the factors conspiring against resources have pushed this pendulum almost as far as it will go.<\/p>\n

All it will take is for investors to hate this sector just a little less. Then the ‘resources pendulum’ will swing back into the green…and it could bring fast, outsized gains to nimble profit-hunters.<\/p>\n

Here’s the powerful thing about how this kind of influence works.<\/p>\n

I learned this in pursuit of my university physics degree. But it applies just as much to the forces driving stock markets<\/a> as it does to the natural world.<\/p>\n

When a pendulum has swung far away from normal, it takes much less force to get it swinging back in the opposite direction than it would to get it moving from a standstill.<\/p>\n

The same principle drives the financial markets.<\/p>\n

Right now, when I look at the Aussie resources sector, I don’t see a victim. <\/p>\n

I certainly don’t see a basket case, as most of the mainstream press cast it.<\/p>\n

Rather, I see a coiled spring.<\/p>\n

And this spring is just waiting for a reason to uncoil…<\/p>\n

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Stronger forces<\/strong><\/h2>\n<\/p>\n

When investors see that reason, this spring will go off.<\/p>\n

And if the market does as I expect, it will be a quick move when the spring uncoils. When this market moves it will move fast.<\/p>\n

So what kind of forces could entice the market to set resource stocks back on a positive path?<\/p>\n

There are several potential canaries in the coalmine.<\/p>\n

One is the seasonal lift that tends to come when Chinese steel mills restock their ore inventory into year-end.<\/p>\n

Right now, the average Chinese steel mill has just 24 days of inventory. In recent years, this seasonal lift has nearly doubled that inventory level.<\/p>\n

The arm wrestle between resource buyers and sellers will tip back in favour of the sellers. That means higher prices down the track.<\/p>\n

Investors will see that momentum shifting. When it does, they’ll pile back into mining stocks<\/a>. They’ll start with the highest-cost producers, who were at the most risk of failure.<\/p>\n

If you act quickly and you’re willing to take a risk, you could scoop double-digit percentage gains in a matter of days.<\/p>\n

But to be frank, the restocking bounce can only drive resource prices so far.<\/p>\n

For coal, iron ore, crude oil and the other building blocks of the global economy to come back into vogue, it will take much stronger forces.<\/p>\n

You don’t have to look too far to find a potential culprit.<\/p>\n

Just switch on the nightly news.<\/p>\n

Radical Islamists are fighting a bloody war in Syria. Meanwhile, fierce zealots are approaching the gates of Baghdad. And Ukraine seems no less war-torn now than when MH17 went down. It’s a mess.<\/p>\n

I won’t pretend to know exactly how all of this will play out.<\/p>\n

But I do know that every crisis — whether it’s real or perceived — brings opportunity<\/a>.<\/p>\n

It just depends on which side of the trade you take.<\/p>\n

Our Resources Analyst, Jason Stevenson, has strong views on this topic. You can read some of those in today’s second Money Morning<\/em> article.<\/p>\n

Jason sees things getting much worse before they get better. And his views on the iron ore market will certainly open your eyes.<\/p>\n

But if Jason is right, the price of one commodity will boom more than any other.<\/p>\n

That commodity is crude oil<\/a>.<\/p>\n

That makes now a rare short-term chance to invest in the oil stocks best placed to benefit.<\/p>\n

It’s a resource investor’s dream.<\/p>\n

Jason has picked four of the best and most underappreciated energy stocks on the Aussie market for his Diggers & Drillers<\/em> readers.<\/p>\n

The resources bloodbath has shaken out the losers. Now the winners are set to scoop the spoils.<\/p>\n

Cheers,<\/strong><\/p>\n


\n Tim Dohrmann+<\/a>
\n Editor, Money Morning<\/em><\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Could This Be Rock Bottom For Resources?<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au The resources sector is bruised, battered and beaten. Almost every mining company in Australia is sporting a black eye or two. And with iron ore down near US$80 per tonne, many of them are spitting teeth onto the canvas…or have gone down for the count. As an Aussie investor, you can’t ignore this. […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-61990","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/61990","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=61990"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/61990\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=61990"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=61990"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=61990"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}