re: headed down the cr.pper.andrewe
Just trying to call it like it is Andrewe.
I have no problem with zinc as a long term play as its the basis for most of my investment strategies atm.But you also have to take into account the reasons for the zinc prices short to mid term behaviour as well to be comfortable with that investment.
If the zinc price behaved perfectly to the long term fundamentals then we'd see a nice climb up the flagpole then a flattening of the price for a few years then a nice gradual decline as new mines came on-line and demand was gradually met.
But the LME,in its wisdom(?),allowed funds unprecedented access to the base metals as an investment vehicle,not that there have ever been controls to my knowledege anyway.And it has not been restricted to the base metals.Just have a look at the new Barclays initiated silver investment vehilce.Im all for freedom of movement of money but when it jeopardises whole industries demand then it gets beyond the ridiculous as evidenced by the number of meetings that the Copper Consumers Association had with the LME during the recent spike.
Their fears were well founded as they saw the problems with the prices of these base metals starting to seriously hurt base metals consumer costs/demand(reflected in the large decline of zinc stockpile drawdown rate-in zincs case),which in the short to medium term was always going to have a drastic correcting effect on the zinc price rather than that perfect world scenario.Copper has not been so easy to "read" as zinc as the stockpile drawdown rate has been all over the place as of late,but the overall long term trend has been that the copper stockpile has been gradually turning surplus if one has a look at the 1 year and 5 year copper stockpile charts.
And this is a very useful tool in itself when looking to a good longer term investment.Imo I wouldnt have gotten into an unhedged copper producer in recent times if you'd offered them too me on a barge pole as the prices(for most)of these stocks will be inflated.Thats not to say there arnt still some good bargains in these companies on a growth curve(AVM) being one,and no Im not investsed in AVM before you all start crying ramper!
A generalisation?But like I say there are some stocks worth being in and others you wouldnt awabt to be in.
It appears the investment community never learns when looking at commodity cycles.The last microcosmic metal cycle was in fact tantalum and it illustrated perfectly just what can happen to a metals price when it becomes overheated.It nearly had the effect of destroying the tantalum supply chain as it just became so ridiculously expensive it was only because there were certain applications in stressful conditions that kept its demand above water.It also drove the major user of the metal,capacitor manufacturers,to investigate cheaper(?)ceramic technologies,that have subsequently taken a significant market share of this metals use as the ceramic technology gradually became more dependable in these conditions due to technological advances in the capacitor field.
What has been so worrying though with base metals is that it had the potential to seriously hurt world growth via the upward movement of ALL base metal prices as a complex.In other words there were no alternatives to a rising metals price as all the others were rising at the same time.The base metals COMPLEX effect.
In ra "perfect" market reality the price of these metals should always reflect the BASE fundamental factors but the prices had become so super sensitive to every small fundamental change(individual mine strikes,etc)due to a dramatic restriction of the number of sell contracts on offer on the LME-Comex markets which had the consequent effect of gradually spreading the difference between the buy and sell prices and hence the nasty swings we were seeing in base metals prices as a complex prior to the recent corrections.
Interestingly gold has been no different.It has been a real learning curve for me in that when you start to see large swings in a particular markets prices(or indices) its time to ring the warning bells and in fact it can be strongly argued that once this level for prices has been reached you are beyond the point of no return.
The basic premise behind the technical traders over- bought condition.And its why the technical guys on HC called the correction and us fundamentalists blindly kept our heads in the sand saying "oh no its got much futher to go yet".
Yes I hate to say it but the techies were right in this instance,and always will be when price/indice behaviour starts to react this way to fundamentals.
The reason I have been a little negative on zinc has been therefore to try and balance the over exhuberance of some posters.I too am guilty of this attitude to zinc but looking at some of the problems some HCites find themselves in in terms of likely further margin calls on the likes of downward moves in the sp's of BHP,RIO,ZFX et al at some time in the near future we owe it to others to at least turn this potentail loss making experience into a learning process so that the same mistake is not made a second time around.
Its in actual fact the combination of the unprecedented investor access to credit in terms of margin loans in combination with a lck of understanding of this so-called metals supercycle(which has now proven to be not so SUPER)that has resulted in some here being put under some nasty financial pressure in the last few days,and the days ahead,as these companies react negatively to this news.
Not our problem you might say.
Well I disagree.I think we owe it to each other to have a better understanding of all thats gone on the last week/months so that we can make better pre-emptive moves in our invetments.
As I have said before,I am extremely lucky in that I have been able to invest with a line of credit against assets so I am relatively immune to such swings in shares sp's apart from the eventual effect of interest rate increases.But one can much more easily adjust ones finances to these,or give oneself there own margin call if you like,well prior to such negative financial events by adjusting just how much you have in the markets and therefore how committed you are financially.
Due to the fact I also work on capital gains rather than a shorter term trader gain,its much more prudent for me to hold longer than the year anyway,even if the stock does drop more than 30% in value.
So there you have it.
Im not going the subtle down-ramp on zinc stocks atm, my investment ethics are not that way inclined.As I have said I like to invest for the longer term and in this instance I believe I have found myself invested in a company that will primarily become relatively immune to such swings in the zinc price due to having the price for their zinc locked in via the recent strong offtake agreements taking place.The companies grade in the resource,their cheap production costs and hence margins will be very healthy as well.Forecasting a dividend two years out!How many specs can boast this potential,Now I am ramping if you can put 2 and 2 together!
Thats not to say I have my head that deep in the sand in regards to this stock and how the zinc price reflects on it too.There will ultimately be some kind of effect on its price Monday after this last correction,but my TRUE belief is that its rapidly appraoching time when this effect will be minimalised realative to other zinc plays.
Time will tell,as it always nearly does.But the more info one can absorb an understand the dynamics of how that info effects the market(and the company/s) your invested in the more powerful you become as an investor,dont you think?
(20min delay)