Hi Timetraveller,Hmmph, I mean Guru 2005.
The magic word is "supercycle"
write it down,
"Supercycle"
Resources go in cycles & recently resource stocks have hit quite high, highs. Usually that is time to take a profit. However,
Every once in a while commodities go through what are called "supercycles".
"Supercycles" have happened before & will happen again(another 30 years?). That is how they differ from Blind Bull markets such as the Internet boom of a few years ago.
While large diversified miners such as BHP & RIO are trading at quite high(on average) P/E ratio's the reason they do is that there is NO REASON for the ass to fall out of commodity prices.
In fact, commodity prices have every reason to go up even more.
Think for a minute what would happen if the Yuan was pegged to the U.S dollar but was in fact pegged to a number of currencies???
Of course the Yuan would go up in value!! Future markets already show this will happen & Fundamental reasons also support this analysis.
When a person considers that the chinese buying has been the main cause of commodities to increase, one would have to consider what the effect of a stronger Yuan will create.
The obvious conclusion is that a stronger Yuan would mean commodity prices will be cheaper for the Chinese(Basic maths).
In U.S dollars that means higher commodity prices.
A small backwater like Australia(economically not spiritually or intellectually), will be one of the countries that benifit the most.
Australia is one of the largest producers of commodities.
BHP may be up or down tommorow but in the short to medium term commodity producers such as BHP stand to gain more than just about anyone else.
I do not hold BHP.
Cheers.
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