FYI | Jan 24 2007
‘Passionate about financial news’ it says on our business cards and on our website, but FNArena is –of course- much more than simply a financial news service.
We’ve done some thinking over the Christmas holiday break and come up with a way to summarise the ‘essence’ of our project, or should I use the French expression ‘raison d’etre’? (sounds so much more interesting, doesn’t it?).
We’re still passionate about financial news, and we’ll probably always remain so, but from now on we will start presenting ourselves as ‘data, news and analysis’, which I think provides the outside world with a much better picture of what we are, what we do and what we want to achieve.
It is our view that these three core elements should be integrated as closely and as deeply as possible and we are working hard towards achieving this.
FNArena is largely built around the premise that nobody –no matter how smart- has all the answers or is always right. So we’ve come up with the idea of tapping into the world of expert opinions and views on a regular basis to see if there are any new and interesting ideas. If we spot one, we report it. It’s a pretty straightforward process.
‘News’ can also mean we found something before anyone else did. 2007 is still young but we already triggered a first speeding ticket from the ASX (not that that is by any means our goal).
And ‘news’ is, of course, our daily Australian Broker Call Report wherein we amalgamate all our stories on expert views, changes in opinions and recommendations, calculations of shares valuations and targets and estimates for future earnings and dividends.
On top of all this we conduct our own analyses. Since we operate very closely to the world of expert views and opinions, we often spot changes in market sentiment in a relatively early stage. Each market has its gaps and hiatuses and so does the Australian market. We like to think that our own analyses have been able to fill some of these gaps in the past.
In addition, we are developing and building our own indicators and applications which we believe make the market more transparent. These ‘tools’ provide us with answers to questions such as which stocks are enjoying a positive market bias? Which ones are in the sin bin? For which stocks is sentiment shifting? And what’s the projected upside behind the Buy ratings?
We use these indicators and applications for our own analysis, but we make them also available to our subscribers. At FNArena we don’t believe in a one way relationship with our readers and subscribers. We like to think we’re serving an audience of independent investors –small and large- who dare to make up their own mind.
We see our role as providing these investors with information, insights and tools that assist them while making investment decisions. The one thing we don’t do is giving investment advice. If we would it would contradict all of the above.
It is within this framework that I have the pleasure this week of presenting a view which has been largely absent in the financial markets over the past three-four years. However, with share prices of the likes of BHP Billiton (BHP) and Rio Tinto (RIO) seriously lagging the rest of the market, plus the heavy correction on commodities markets in January, the view is unmistakably resurfacing across the globe.
We’ve dubbed it the ‘theory of the marginal cost of production’. We now pass on the baton to the freethinkers at GaveKal:
“In almost every single meeting, clients would tell us: “Hold on: you’re telling me that global growth in 2007 will remain decent, that Asia will have a massive infrastructure boom, that Chinese real estate is going to go gangbusters and yet, at the same time, you tell me that I should not own commodities? This just doesn’t add up”.
“Given that we fielded this question in almost every meeting, our answer became well-rehearsed: “Imagine that we are in 1946 and we describe to you a world of air-conditioners, neon lights, electrical appliances, computers, jet airplanes, pleasure yachts, three car garages and the SUVs that go in them…
“Imagine we also show you how the world will grow from a total population of 1.5bn people to 6.5bn people… Imagine then that, in our great foresight, we see how central banks will lose the plots, allow monetary aggregates to explode, move everyone to fiat-money, etc… Then you and I would have probably agreed that the best thing to own would have been commodities. In fact, we probably would have wanted to own nothing but commodities!”
“And, of course, adjusted for inflation, commodities would have been one of the worst investments we could have made.”
[…]
“So why, despite the great fundamental environment, did commodities fare so poorly? The answer is, we believe, that commodities over the long-term tend to return to their marginal cost of production. And that thanks to technology, freer trade, lack of full-scale wars, etc… the marginal cost of production of almost all commodities has spent the past fifty years falling.
“Which leaves us with an important question. Today, commodity prices stand far above their cost of production (allowing producers to capture an inordinate rent). Can this last? Bears (like us) argue that it can’t; it never has in the past, and it won’t start now. Bulls (like many of our clients) argue that, this time, and contrary to recent history, the marginal cost of production will rise (because of qualified labour shortages, supply constraints, environmental laws…). This is an interesting debate, whose answer will determine whether we indeed have started a “commodity super-cycle” or another typical “boom-bust” cycle.”
FNArena is making a lot of progress into the new year, even though most of it would have happened unnoticed for the majority of our readers. Our (more) Sources of Wisdom section now contains all three main providers of internet video content in Australia (we believe this is rather uncommon).
Following the big success of ‘Investing in the great uranium bull market’, we have been asked to contribute to another book which should be released later this year. Our stories can now be accessed on Dow Jones’s Factiva platform, which we regard as a huge compliment.
And two of our team members became fathers this month, both for the very first time.
(There’s more, but let’s keep that for another time).
Till next week!
Your happy as ever editor,
Rudi Filapek-Vandyck
(steadfastly supported by the Fab Three: Greg, Chris and Terry)