Business leaders increasingly see a year of punctured assets ahead, or dreaded stagflation, before the planet catches oxygen overdrive and battles supra-inflationary forces.
The puncture part, most would agree, has been happening the past 18 months in worldwide shipping, small and large companies, metals miners, energy companies, banks, housing and … ad infinitum … for 18 months already. A friend and I marveled Thursday morning at the prices of several life science and mining companies in particular, all trooping off to les toilettes.
Home prices in major North American and European cities are down about 25% from a year ago. Shipping activity is slumping across the Middle East and Asia. Petrol and gasoline sales are declining in major metro areas worldwide. Air passengers, Fed-Ex shipments, chemical sales, spa memberships replete with massages and facials: all DOWN.
On Thursday morning, brokerages in New York, London, Toronto, Paris, Frankfurt … ad infinitum … were expecting a wave of forced sales hoisted upon customers who no longer can cover their ownership of margined securities. Many of those brokers are working O.T. to get the equity ownership balances above 50%.
Dow Chemical’s CEO, Andrew N. Liveris, just forecast a global recession through most of next year. The fact he did so with confidence in his economic team’s forecast is unsettling.
This just in from one metals pioneer, Robert M. Friedland, founder of Ivanhoe Mines (NYSE: IVN, Stock Forum) in Mongolia and Asia: “We are passing through a financial valley of scary monsters,” he told me Thursday. “The 2009 stagflation, then intense re-flation, will be most historic. Share prices will not have any meaning until forced selling abates.”
Ivanhoe Mines, tending to a vast gold and copper find at Oyu Tolgoi across the steppe lands of Mongolia, has seen its share price devastated. One friend checked in to tell me, “The Mines below $2, how can this be?” (Rising dollar, nervous nellies, forces stock sales and gold in les toilettes is how right now, my friend.)
Mr. Friedland, speaking to me from Asia, says he is confident of his team’s strategy for the next several years. “Our response, like others, will be to hunker down, preserve our cash pools and cut a deal with the Mongolians, who are getting a sudden education. In our case, extraordinary corporate developments are possible, even likely, due to asset quality. Our company has never been this cheap, but others may say that, too.”
What sparks the ultimate re-flation, or oxygen hit to the brain of portfolio assets? In my view, ‘tis one and the same as the reason why Ivanhoe’s Mongolia spread is almost certain to become the world’s largest producer of copper and gold one day: China. I believe this, having been there and seen it all.
Even today, as the Chinese fret their economy’s growth rate might fall below 8% a year, even now, China is lining up future sources of raw material for future construction/development/improvement of life.
China owns some $2 trillion of foreign exchange reserves, the most of any one nation on our planet. When the country with all of that oxygen starts breathing heavy again, and it will as it considers kicking its workers in the pants and getting them to spend some money once in a while, well, all I can say is, “I breathe oxygen, you breathe it and we all breathe it.”
China almost surely will continue to nurture the foreigners who have staked their generational futures to that nation. The question, which I think will be answered with a resounding “YES quite soon!” is when the Chinese will start dumpster diving in a search for depressed stakes in North American, Latin American, and European companies. Mongolia anyone? See THOMWATCH articles.
That’s it for now. I’ll be back Monday, Nov. 3, with a map of The New World, known here at Stockhouse.com as ThomWatch Deluxe, The Calandra Initiative or Turbo ThomWatch, all names for the subscription service that begins with a splash (hopefully not in the mud) in mid-November. As stated here in ThomWatch, I believe we will experience a return to sensible asset values soon … and indeed, some small companies in life sciences already are showing some life.
CORRECTION: Our beloved Uncle Mario, described in an elegy here Monday, was in fact a roofer. My uncle helped put roofs over folks’ heads, and these days it seems there are many people out to extract those folks from their homes. See: A Beloved Everyman and The Market.
Note: Thom’s cosmos of holdings is listed for free Stockhouse members on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. We do not own Ivanhoe Mines (IVN in Canada and U.S.). We own some gold coins minted after 2000. We no longer own the ETF for silver (SLV is the U.S. ticker) in the wake of the dollar and yen-surge this week. (Translation: Bad purchase!) We have inflation-indexed bonds in a retirement fund at T. Rowe Price. For more ThomWatch, please see Stockhouse and ThomCalandra.blogspot.com.
TURBO THOMWATCH: For investors who profited from a meteoric rise of commodities, mining and life sciences companies, Thom Calandra acted as a beacon. Thom helped his audience find value in a quagmire of investment choices. He is not a titled investment adviser. Thom co-founded and was the driving editorial force and spirit of CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom fancied $300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and scores of thin-crust pie joints across the planet in a search for profit, fashion and pizze de trippa gorgonzola. Thom's latest project, the novel PABLO BY NUMBERS, was completed in summer 2008. He and Stockhouse this autumn will offer a DELUXE VERSION of ThomWatch as a subscription report for a select audience.