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It's not just oil, there is a worldwide commodity crash
Old 01-08-2016, 01:13 PM   #1
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It's not just oil, there is a worldwide commodity crash

We can't really blame the Saudis for the crashes in copper and zinc, or iron ore, or natural gas, or fertilizers or many other formerly high priced commodities. If we need someone to blame, I guess those formerly world beating Chinese might do.

If you are getting tired of losing money in oil and gas, you could do as I did and diversify into base metal and fertilizer miners. You'll lose just as much, but at least you'll be diversified.

I keep reciting-it's not different this time- but a deep thought sometimes intrudes, "Say Ha, did God promise you this?" Unfortunately no, it's just the way I think. I tend to think that all things are at base cyclical. But giant changes do happen very occasionally.

On a personal "retired guy who likes his life level", I did have the sense or luck to really lighten up on commodity companies in late 2013 and early 2014, but I left enough committed for the exposure to be very meaningful. And I have re-invested some but only some of this money. I have also high-graded the O&G portfolio by trading some perhaps questionable survivors for more secure issues which have been similarly price damaged by the crash. But I can say that I likely won't be buying a Mercedes or giving my Honey a diamond bracelet this Valentine's Day. For the first time in my life, my equity exposure is less than 50%-partly from earlier sales, but also partly from price erosion. However I still believe that the best way out is the way through.

Ha
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Old 01-08-2016, 01:34 PM   #2
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This has been a painful commodity cycle. The strengthening US$ sure hasn't helped much. An old Spanish saying comes to mind, No hay mal que dure cien aņos, ni cuerpo lo que resista. Nothing lasts forever. Not high commodity prices, but not low commodity prices either. Resource investments are not timely but I think they currently offer a better risk / reward opportunity than the US stock market or fixed income.
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Old 01-08-2016, 02:10 PM   #3
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I've been getting hammered in TGLDX....so this is a "buy"?
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Old 01-08-2016, 02:55 PM   #4
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We are in the beginning stages of a long-term global deflationary period. Globally, wages are falling, or staying stagnant, and have been for a long time.

When a countries wages start to climb, there is always a cheaper country willing to use their workers for less. A company can set up a business quickly in a lower cost country almost overnight.

When wages get too high, technology can also replace workers. Look for more of this to come.

I stay with S&P for the most part. I am not as gutsy as the gold bugs.
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Old 01-08-2016, 04:05 PM   #5
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Good point, HAHA. This hasn't been just a decline in Oil. Lots of areas have been getting slaughtered.

My exposure to commodities is very specific. My only bet is on the US midstream MLP sector. I have been keeping up with what's going on with the MLPs in the AMLP index and everything seems to still be fine. Maybe they are all lying...

EPD is planing to raise their div by 5% or so in 2016. Oneok came out with improved guidance recently. Marathon Petroleum recently acquired Mark West with their drop down MPL company MPLX. They are very bullish on the MLP business.

I have not seen any bad news in the midstream MLP companies making up AMLP. Maybe they are lying
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Old 01-08-2016, 04:25 PM   #6
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We are in the beginning stages of a long-term global deflationary period. Globally, wages are falling, or staying stagnant, and have been for a long time.

I agree. The world birthrate has dropped dramatically over the past few decades. If we look at Japan as an example I believe their birth rate decline is one reason why they have been stuck in recession for so long.

Wages started to stagnate in the 1980s which in my opinion is due to globalization. I believe that globalization puts a cap on wage growth.

Robotics will also be an area of massive job/wage destruction.

My expectation is that the world will be in deflation for several decades. I believe interest rates will stay low. To make money I think people should use leverage indirectly by buying into leveraged industries and by buying CEFs which use leverage. You can find CEFs for just about every asset class.

Cash will also be important. For retirement savings I think a significant portion could be kept in cash. People that want to retire are going to have to save significantly more money. That will also feedback on the system and keep deflation going.

EDIT: When I say deflation, I actually mean stagnation. I don't think prices will decline much and I don't think there will be any inflation.
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Old 01-08-2016, 04:32 PM   #7
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I agree. The world birthrate has dropped dramatically over the past few decades. If we look at Japan as an example I believe their birth rate decline is one reason why they have been stuck in recession for so long.
It's not just the birth rate that has dropped. The demographics have also shifted. Higher wage countries birth rates have dropped quite a bit, and lower wage countries birth rates have increased or have had less mortality.

In the long run, it's an economically losing equation.
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Old 01-08-2016, 04:36 PM   #8
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We are in the beginning stages of a long-term global deflationary period. Globally, wages are falling, or staying stagnant, and have been for a long time.

When a countries wages start to climb, there is always a cheaper country willing to use their workers for less. A company can set up a business quickly in a lower cost country almost overnight.

When wages get too high, technology can also replace workers. Look for more of this to come.

I stay with S&P for the most part. I am not as gutsy as the gold bugs.

I share the same thesis and have for a couple years. I am not a commodities player, but am slowly adding into a commodity thesis..."Food"... Though playing the convertible preferred angle for higher yield, the main giant ag processors have been smacked good. The beauty is they still stay profitable during down cycles, and will jump when the inevitable up cycle growth occurs. Who knows if oil will be a growth commodity 20 years from now. But rest assured food will be a growth commodity. With this commodity it isn't about long term needs, its all about appropriate price entry points...Bunge has been around for 200 years...It isn't going anywhere...Now drop a little bit more for me please. :$


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Old 01-08-2016, 04:37 PM   #9
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It's not just the birth rate that has dropped. The demographics have also shifted. Higher wage countries birth rates have dropped quite a bit, and lower wage countries birth rates have increased or have had less mortality.

In the long run, it's an economically losing equation.

We will live in interesting times for sure...
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Old 01-08-2016, 05:12 PM   #10
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Manufacturing is en route to repeat what happened in farming. It will grow and become more efficient, and will require vastly fewer people. It is even now happening in places like China.
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Old 01-08-2016, 05:27 PM   #11
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Manufacturing is en route to repeat what happened in farming. It will grow and become more efficient, and will require vastly fewer people. It is even now happening in places like China.

Very true....But that isn't the major segment of Ag that is of my attention. In fact that can help the companies I am looking at... The products are still going to have to be transported and shipped. But, Im just a small timer... No hedge fund managers are worried I am taking their job.


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Old 01-08-2016, 06:04 PM   #12
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Natural gas producers, who are in need of immediate cash flow, are currently selling assets (mostly producing) at attractive prices to private equity firms and better capitalized producers. Since last summer, I have seen some very large deals close in Pennsylvania, West Virginia and New Mexico/Colorado.

Believe it or not, Anadarko Petroleum is drilling several new wells in North Dakota with a plan to complete them and immediately shut them in for future production. They are taking advantage of the drop in the drilling cost. Are they crazy?

Like all other commodities, when times are tough (over production, low prices), the producers pull back and hole up until a new day arises. All this pain has to be good for somebody, the likely benefactors are the consumers. Need a new truck?
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Old 01-08-2016, 06:22 PM   #13
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......Marathon Petroleum recently acquired Mark West with their drop down MPL company MPLX.


Mark West, former NBA player (and, a pretty good one) worked, after his playing days, in the Phoenix Suns front office. Apparently, he has recently switched careers and is now working in the oil industry.
Good luck, Mark !!!


edit: to clarify
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Old 01-08-2016, 09:29 PM   #14
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Wages being stagnant, and the number of people employed dropping due to declining younger populations, must be opposing forces. At some point if you have fewer people seeking jobs, wage pressures must start to rise.
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Old 01-08-2016, 11:40 PM   #15
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Ha - I will state only what I know - 1st it appears you have made some investments that did not work out but which you had a good thesis, that is all you can ask in investing, the risk of being wrong is always there, in order to be very right you have to take the chance on being very wrong. Otherwise you probably would not have gotten to the position in which you are today.

2nd no matter how bad it looks to you today, it could be far worse. I believe you know the possibility exists even if not a very likely one-- most investors do not allow themselves to believe in such possibilities as somehow this will effect their actual performance. I myself have never much cared for Ostrich investing.

Yet for all of that you need to invest as you think best and not let a downturn in your portfolio become a distraction to your thinking, it is not the thinking that is wrong but the outcome, which is just a result of probabilities of interactions. I know from listening to it over the years that it is very solid thinking you are capable of so think about what you think investing should be, the probabilities you are willing to face and don't be afraid to stay with your mindset.
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Old 01-08-2016, 11:41 PM   #16
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Wages being stagnant, and the number of people employed dropping due to declining younger populations, must be opposing forces. At some point if you have fewer people seeking jobs, wage pressures must start to rise.
Yes, but it means paying someone in India $1.25 per hour instead of $1.12
So for Westerner's it will still be a situation of falling/stagnation on wages.

Throw in robotics and there will literally be less jobs available, local pharmacists can be replaced by a robot, so can bar-tenders, both are done now.
In perhaps 20 years, taxi drivers will be obsolete as self driving cars will be automated to take credit cards.
It just keeps on going where jobs are being removed, but most folks don't see it until it happens to them.

Once the world equalizes pay to maybe $3.00/hr, then everyone will have a chance to get a wage increase. But the robots work 24/7/365 so their price efficiency will be a limiting factor.
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Old 01-08-2016, 11:51 PM   #17
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........If you are getting tired of losing money in oil and gas, you could do as I did and diversify into base metal and fertilizer miners. You'll lose just as much, but at least you'll be diversified.....
Ha
I'm in a bit of the same boat, thought the weakness in potash was an opportunity to get in on the food demand that must surely increase. Then it fell

The O&G weakness was another good opportunity, until it fell and fell further.

While I did drop my JOY at a profit before it cratered to $12, it was because coal seemed like a hard sell, but I failed to realize how about all the other Minerals

Finally, I had a significant bunch of investments in another country, and wanted to wait until retirement to pull them back here when income is low. Then the currency value fell off a cliff

It is certainly interesting times.
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Old 01-08-2016, 11:54 PM   #18
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We can't really blame the Saudis for the crashes in copper and zinc, or iron ore, or natural gas, or fertilizers or many other formerly high priced commodities. If we need someone to blame, I guess those formerly world beating Chinese might do.

If you are getting tired of losing money in oil and gas, you could do as I did and diversify into base metal and fertilizer miners. You'll lose just as much, but at least you'll be diversified...
Yes, the world is suddenly awash in raw material, compared to the shortage of oil, nat gas, copper, steel, fertilizer, Portland cement and everything else in the early 2000s. The supply has grown to meet the demand and then some, while the demand slacks off. The Chinese are finally getting tired of building ghost cities.

When will demand grow and the supply shrink so the two shall meet again? It may be a while, I am afraid.
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Old 01-09-2016, 01:05 AM   #19
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Globally, wages are falling, or staying stagnant, and have been for a long time.
In the US, yes. Worldwide slightly different picture, real growth of 1% per annum.

Global Wage Report 2014/15: How much wages have changed around the world, year on year

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When a countries wages start to climb, there is always a cheaper country willing to use their workers for less. A company can set up a business quickly in a lower cost country almost overnight.
The world is fast running out of cheaper countries. Indonesia, Vietnam, and now that game is almost over too. Only Africa is left but not all countries there have the infrastructure to run stable businesses yet.

That said, I took a hard hit on steel manufacturing (-70%), but stay put on the shares I did buy (not doubling down though, don't have the steel nerves for that). Trust in cycles and anti-trust measures I guess. Hope it works out in the end. It's definitely educational.

It's not only China stopped buying, they started selling below cost to Europe. grmbl.
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Old 01-09-2016, 07:49 AM   #20
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In the US, yes. Worldwide slightly different picture, real growth of 1% per annum.

Global Wage Report 2014/15: How much wages have changed around the world, year on year

The world is fast running out of cheaper countries. Indonesia, Vietnam, and now that game is almost over too. Only Africa is left but not all countries there have the infrastructure to run stable businesses yet.
We are in the beginning stages of global wage equalization. When labor costs are equal throughout the world, all wages will go up. It's inevitable. Along with wage equalization will also come living standard equalization. Hopefully we will all be up to western living standards, but I am not sure that will be the case.
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