Metals: Climb in or climb out?
Summary
We recently provided you with our fundamental view of what to do. Today, we polish these thoughts. but we keep gold and oil out of our thinking. Gold is "the" psychological asset of choice, and oil is driven very much by the politics of OPEC and of the Muddle East, as we all know.Topics Covered
- Fundamentals worth remembering
- How to save money off this idea
Background
1. Fundamentals worth remembering
More so than gold or oil, base metals prices "should" be driven mostly by supply-demand considerations. Not so of late. As everyone knows and we re-iterated in our recent piece, metals prices are jumping.
Yet stock markets are sliding. They are sliding because all of those "green shoots" are morphing into "parachutes". Put differently: the cost-cutting which propelled this year's earnings will come back to haunt next year's: unemployment has to keep rising, driving consumption and thus revenues down. Thus, top line growth will suffer severely in 2010's earnings outlook and subsequent realities.
Do you share our view that the global Economic Time® will remain characterized by an excess supply of goods? If so, do you agree that unemployment has to keep rising - or, at least, stay stuck at high levels? And do you agree that base metals prices fundamentally are driven by supply-demand considerations?
If you agree with all of these Socratic questions, need we spell out the answer? Once markets start tumbling off the back of a worsening global economic outlook, so will base metals prices. All the more so with Central Banks tightening the liquidity spigots and thus re-enforcing an excess demand of money. Indeed, imagine what happens when an excess demand for money is driven by two forces:
- Central banks stop supplying excess funds, and
- Banks continue to not lend to the real economy, especially to those vital small-and medium-sized enterprises.
The picture is not pretty; metals' sheen will be tarnished, as a result.
2. How to Save Money Off This Idea
- Always consult your financial adviser first.
- Avoid getting into base metals. If anything, get out and stay out.
