Here’s a good sign for what I believe is just the start of an almighty asset price boom (more below). USA Today reports:
‘Walmart beat Wall Street expectations for the third quarter and executives say they’re optimistic about a successful holiday season heading into the fourth quarter.
‘Walmart shares finished up 4.72% to $82.94 Thursday.
‘The company reported earnings per share of $1.15, or $3.71 billion, Thursday. Revenue was $119 billion, better than analyst expectations of $118.35 billion.’
OK. Walmart didn’t beat estimates by a country mile. It’s more of a close shave than that.
But the stock reaction tells you how negative investors and the market are right now on stocks. For the company to be that close and for the share price to skyrocket by nearly 5%, it says that most investors expected Walmart to miss estimates…and miss them big.
Walmart’s results helped push the US S&P 500 index to within a sniff of another record close. Even an average evening on Wall Street tonight should see the index beat that record.
As for the Aussie market, the word ‘dull’ springs to mind.
The one market you can’t call dull continues to be the oil market…
The boom is coming
It may be an exaggeration to call it a bloodbath, but heck, what’s wrong with a little exaggeration now and then?
The falling oil price is a subject we’ve covered in depth. We make no apology for that. The oil priceis the key to everything. It’s the most important commodity there is.
Forget gold or even iron ore. There will always be a demand for iron ore. Building developers need iron ore all the time. Building projects around the globe are going at breakneck speed.
Controversial economist Phillip J Anderson explained as much in his latest research report forCycles, Trends & Forecasts:
‘Today, we have huge railway projects around the world, in planning or soon to be under construction. This time will be no different. Some of these rail lines are large — no, huge — engineering projects. The gains will be astonishing.’
He goes on to talk about the building projects in China, Japan, South and Central America, and even Europe. If you don’t already get Phil’s commentary on economic cycles and trends, you can find out how to get it here.
There’s no shortage of demand for iron ore. Folks will build things whether iron ore is US$50 a tonne or US$150 a tonne.
In a way, the same has been proven true for oil. Despite the oil price climbing from US$20 to over US$140 in 10 years, the demand for and supply of oil kept rising.
The following chart shows the quarterly world demand for oil since 2012…a period of relatively high oil prices: Source: International Energy Agency
As you can see, demand increased from just below 90 million barrels per day in the first quarter of 2012, to an expected level above 92 million barrels per day in the first quarter of 2015.
However, here’s the difference. And this is really important…
99% of the Aussie population — scratch that, the world’s population — couldn’t give a stuff about iron ore prices. No one cares.
No one drives to work, looking at the price of iron ore on big price boards every two or three kilometres. No one decides to shop at Aldi instead of Woolworths because iron ore has jumped from US$80 to US$140.
No one decides to downsize their car because of high iron ore prices.
But they do when oil and petrol prices are high.
This is why the oil price is so important. It has an impact on consumer sentiment like no other commodity. Providing the oil price stays around this level, or even goes lower, I see this as the starting point for the next stock market boom…
…a boom few others can see coming.
Ahead of the curve
If and when the market does boom, some of the biggest gainers will be the small-cap speculative stocks.
Small-caps generally do well in a boom because investors are always looking for the next big thing.
In fact, it’s this drive to find better and better stocks that leads to share prices becoming overvalued.
You see this happening all the time. The best stocks in a sector take off first. The natural reaction for investors is to look for the next best stocks. So they start buying up those.
Then investors who missed out on that wave start looking for the next best…and so on. Eventually, ‘best’ becomes a rather inappropriate word. It’s more a case of ‘what’s left’.
This story has played out a lot in the commodities sector in recent years. It happened with rare earths, uranium, potash, graphene, gold, and many others.
One company finds a bumper resource, and suddenly every man and his dog claims that they too have found a huge resource.
I remember the uranium boom of the early to mid-2000s. Punters were so desperate to back uranium stocks that even companies with nothing more than a permit to explore for uranium saw their stock prices double, triple, quadruple and more.
Soon after, prices collapsed.
Surely that sort of madcap boom and bust market couldn’t happen again, could it? Are you kidding! Of course it could…and it will.
This is the scenario I painted in the October issue of Tactical Wealth. When oil prices fall, consumers will feel as though they’ve gotten a pay rise. What follows will be rising confidence, the willingness to take more risks with their higher disposable income, and higher asset prices.
That’s why investors can’t afford to sit on the sidelines. They have to invest…they have to speculate. But they also have to know when it’s time to get out. Kris Sayce,
FAR Price at posting:
8.8¢ Sentiment: Buy Disclosure: Held
(20min delay)