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Money matters: Why you should invest in commodities
Part 1
Graham Macdonald
MBMG International Ltd.
Considering that people depend on commodities every day
of the week it is somewhat surprising that so few actually invest in
them. Whilst most will contemplate putting money into equities and
property hardly anyone will think about foodstuffs, metals, energy
products or things for making clothes – basically everything you need to
survive on this planet. Long term readers of this column will know that
we have been bullish on commodities, and especially gold, for quite a
while now.
Every so often though, commodities force their way to the fore. When raw
materials are in great demand and supplies are not what they should or
could be then prices go up through the roof.
As anyone who takes a look at the Financial Times commodity page can
see, commodities have done rather well over recent times and it is safe
to say that the bull market is going to be with us for quite a while.
The really good news is that when a commodity bull market appears then
it is with us for quite a while. Over the last two hundred years there
have been five bull markets, the shortest of which lasted fifteen years.
This one, if you look at when commodities last bottomed out, started in
2001. Just out of interest, the longest one continued for over 40 years.
So, whilst it may be tempting to cut back on exposure to commodities the
opposite is true. Joanne Baynham, the head of fundamental research at
Miton Optimal says that the commodity “cycle has still much further to
go”.
The reason that commodity bull markets last much longer than those
driven by direct money is the old A-Level Economics conundrum of supply
and demand. When demand is on the up then supply lags behind because
there has been no recent investment in research, maintenance or
purchasing new equipment. It takes years for supply to catch up as it
cannot be increased overnight.
Taking up Joanne again, she stated in a recent article that “investors
will increasingly shift their focus on the supply side of the equation
in 2006”. We would definitely expect to see a surge in merger &
acquisition activity as the big miners buy out smaller exploration
companies. This is a good short term answer but does not solve the
longer term fundamentals whereby the fact is that there are only a
finite number of smaller companies out there and someone, sometime soon
is going to have to bite the bullet and invest in exploration
themselves. But the important thing here is that the longer they hold
out for short term profit and ignore long term gains then the longer the
commodity cycle will go on.
Also, the mining companies have to look at the short term returns for
their own shareholders. BHP Billiton has gone on record and said,
“Industry wide, the supply side response to continued strong global
demand for new materials remains constrained by a shortage of people,
equipment and supplies.” This has led to tight labour markets and
difficulty in sourcing construction and drilling plant and machinery,
which in turn has led to rising input costs. Credit Suisse First Boston
states that to justify a return in investment on a new copper mine, the
long term copper price needs to be around USD1.50 per pound compared
with current industry thinking of USD0.90 per pound. There is a similar
thinking for nickel, zinc and platinum. However, despite all of this,
people need all of the above in ever greater quantities at the moment
and this is why they will do more than hold their own in the markets
over the next few years, especially when companies like Caterpillar come
out and say in the Financial Times, “mining equipment is sold out
through 2007 and that the cycle has legs and looks stronger than the
upturns in the 1980’s and 1990’s”.
Currency strength against the US Dollar is also adding further pressure.
With the onset of a weak US Dollar in 2002, commodity currencies began
to grow stronger and strengthened even more when physical commodity
prices started to go up in 2004. Currencies such as the Rand, Chilean
Peso and Australian Dollar have appreciated by between 25% and 50% since
2002.
We can also look at oil. Just think that one billion people live in the
developed world and, out of the remaining five billion, over two billion
live in two countries – India and China. These two nations are playing
catch up with the West and need as many commodities as they can get
their hands on – especially oil. However, the problem here lies in two
factors. Firstly, there are not enough refineries in the world to
process what we are producing at the moment. Even when there are, then
the demand curve will have increased even more. Also, the lack of
development in new large oil fields has been very obvious over since the
early 1980s. This means that even if one is found tomorrow then it will
take years to get everything necessary in place. So, unless there is a
large investment in the basic infrastructure of oil and all that goes
with it then the world will be continuing to play catch up for many
years to come.
To be continued next week…
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The above data and research was compiled from sources believed to be
reliable. However, neither MBMG International Ltd nor its officers can accept
any liability for any errors or omissions in the above article nor bear any
responsibility for any losses achieved as a result of any actions taken or not
taken as a consequence of reading the above article. For more information please
contact Graham Macdonald on [email protected]
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Snap Shots: Help! I’ve been framed!
by Harry Flashman
Imagine
if you had one or more of your photographs framed and hanging in an art
gallery somewhere. You would probably think you had “made it” as a
photographer, and could sit back with justifiable pride. However, you do
not need to have your work accepted by some exclusive gallery somewhere
to get that warm inner glow. You can do the same from the comfort of
your lounge room.
There is a certain type of photo which is suitable for framing and
hanging and I like to call these kinds of photographs “wall art”. This
is something any photographer can achieve, without any special equipment
or even special training (other than reading this article, I suppose).
The secret is in thinking color as well as the subject, taking your time
to compose and then sitting back and letting your local photo-shop do
the rest. Here’s how.
Take a look at the photograph with this week’s article, and you will
soon see that this could have easily been taken by you. No tricky
exposure details either. Whilst I usually run my camera in ‘Manual’
mode, for this exercise I let my Mr. Nikon do the work instead, sticking
it on Auto mode, just to see what would come out. If you can view this
page in color, you will see that it worked fine. (Go to the web version
of the paper and it’s in glorious technicolour!)
This photo was taken of a Halloween pumpkin that was sitting on the bar
at a pub. By getting up close, the candle light of the pumpkin was
enough for the photo, so the flash was not used, which in turn gives it
that predominantly orange color. The end result is an eye-catching
orange object on a black background. There is a red candle in there too,
but orange is what hits the eye.
Since the object of the exercise is to end up with a photograph you can
hang on the wall, get as close as possible to the subject – make it fill
the frame! The pumpkin almost does that, doesn’t it?
However, make sure that you are not too close for the camera to be able
to focus. With compact point and shooters you may have to do some rough
estimations of how close you really are. With SLR’s you can directly see
if you are in focus. It is always safer to be a little further away, but
still in focus, than too close and ‘soft’ and blurred.
The secret is to very much decide just what is the ‘hero’ in the image
and get close enough to ensure the ‘hero’ is not swamped with annoying
and distracting other details.
The next job for the budding wall artist is to select the best image (be
that print or digital, it makes no difference) and return to your local
friendly photoshop and ask for an enlargement. While 10x8 (inches) is
easily done, called an 8R in the trade, for wall art I think you should
look at 11x14 or even larger, if the image is sharp enough. Size does
matter, don’t let them tell you anything different! With the larger
prints you will have to wait a couple of days to get the print back.
Remember too that is you have not been able to get close enough at the
time of capturing the image, you can get the photoshop to crop, to make
the central image dominant. However, you will lose some sharpness by
this method.
Now there is the (not so) simple matter of the frame. Do not fall into
the trap of trying to make your art look larger and more imposing by
having a larger frame. All this does is take away from the subject
matter. Those awful gold, ornate frames are definitely the worst. Go
into any of the art galleries around and see what the artists have done.
The vast majority will display their work in very simple frames (or even
no frame at all, just the canvas).
Since the photo I have chosen here is orange on black, I would frame
this with a narrow orange matte and a thin black frame around it. In
this way you are accentuating the orange on black of the image. Great
wall art!
Modern Medicine: And a pox on your chickens!
by Dr. Iain Corness, Consultant
With Bird Flu from chickens being the medical press buzz
words at present, I felt that this week we should review another chicken
disease. Chicken pox!
Of course, chicken pox (AKA Varicella) is not really caused by chickens, nor
even carried by them. Chicken pox is a common disease caused by the
varicella zoster virus which is a member of the herpes virus family. It is
very contagious and all communities experience epidemics.
A couple of years back there was a real outbreak in Thailand, with 22,833
patients with the complaint between January and May. This nasty condition
never actually leaves the community, lying quiet for a while and then
attacking in epidemic proportions. Make no mistake about this one, it is a
most aggressive disease that sweeps through schools and institutions and
while generally a disease of children, it can attack adults too with
devastating results.
The varicella zoster virus is known for the characteristic chickenpox
lesions. These come out very quickly after an initial period of vague
symptoms such as fever and aches in muscles and joints. The lesions
(vesicles) are very superficial on the skin and grow like a mini-Vesuvius,
burst and then crust over. That cycle of events takes around four days, but
new crops of vesicles come up in waves in the first three or four days, so
you can have some vesicles growing bigger while earlier ones are drying up
and crusting over.
The vesicles generally come out on the trunk and face first, but can spread
to all over the body and even inside the mouth and on the tongue. Now while
scarring is always a worry for the Mums of this world, there are far worse
effects from this little virus. There is a distinct possibility of an
encephalitis in older children and adults can actually develop a varicella
pneumonia. Pregnant women who get chickenpox also run the risk of infecting
the unborn child, and this can run as high as 10 percent. Very often,
especially if the child scratches the lesions, there can be an added
infection by an opportunistic bacterium on top of the viral lesions, so you
get a double problem.
So what do you do when chickenpox is doing the rounds? The first thing is to
keep away from those who have the disease. It is highly contagious and is
spread by inhalation of micro droplets in the air, or by direct contact with
weeping vesicles. In a family, this means that little Johnny gets his own
towel that no-one else must use and a bed-time kiss is strictly forbidden.
Calomine lotion does help with itchy and weeping vesicles and trim the
fingernails in young children to lessen the chances of scratching. With very
little ones, I even suggest putting their hands in socks, just as you do
with little babies.
If the temperature is raised (more than 37.5) then a little paracetamol will
help (but not aspirin as this drug should not be used with children), and if
there is the “super-infection” by a bacterium it will be necessary for your
doctor to prescribe an appropriate antibiotic.
The other important duty that you have as a parent is do not send little
Johnny back to school until the very last vesicle has dried up. This is
generally around a week to ten days, but is so important in trying to stop
the epidemic.
The other nasty part of this virus is that it lies dormant in your system
and can strike back many years later as Shingles, or as we medico’s call it,
Herpes Zoster. No, chickenpox is not fun, and to those of you who are
struggling with it right now, you have my sympathies.
However, we do have a varicella vaccine these days, and vaccination is
recommended from about 12 months of age. Like all vaccination programs, this
will radically reduce the impact of epidemics.
Heart to Heart with Hillary
Dear Hillary,
Everyone else seems to be having their say about double pricing in Thailand,
so let me have mine, please. I know that the readers letters section is
where most of the complaints go, but I think there is more sense in your
column than in many of the others. People at least read your stuff, Petal!
We all know that double pricing exists all over Thailand, from national
parks, baht busses, tourist attractions etc, and it doesn’t happen in the
UK, but since the tourist can afford it, and it is still cheaper than
similar attractions, or taxis in his home town, what’s the beef? For sure
the local Thai people can’t afford the higher price, so that’s why there has
to be two scales of charges. What do you think, Hillary? Am I right or not?
Or is this too simple for people to cotton onto?
Double-price Dave
Dear Double-price Dave,
You have sort of got it right, my Petal. Thai wages are such that many Thai
families could not afford to get into some of Thailand’s spectacular
attractions like the glitzy transvestite shows, for example, if they had to
pay the tourist price. Where everyone has got it wrong is this thinking that
the tourists are having to pay double. They don’t. Look at it this way, for
a moment. The tourists are actually paying the “standard” price, whilst the
Thais are enjoying a 50 percent discount. I think that if the price
structure were plainly stated as that, nobody would object. Having said
that, I am in complete disagreement with the sneaky way used by some
entrepreneurs to advertise their “Thai” prices by using Thai numbers, hoping
that the foreigners cannot understand the notice. A little honesty would
quickly defuse the situation, and the resultant anger, brought on by
“double” pricing. I do not believe that you can use the same principle that
Thais when they travel to the UK for example, pay the same “standard” price
as the locals, therefore visitors here should pay the same as locals. Thais
who travel to the UK are not the Thais who go to national parks here with
their children for the weekend. Those Thais could never afford an overseas
trip, like the foreign tourists who come here.
Dear Hillary,
You really must take care when accepting gifts of chocolate and champagne
from Antipodean types. A “decent bubbly” will probably be a well shaken
ice-cold tinny and a box of soft-centres may have been gathered from the
rear end of a koala!
Mistersingha
Dear Mistersingha,
I am so glad to see that the medications must have started to kick in, and
you have recovered your powers of rational thought, and in English too! What
a bonus, my Petal. However, I do think you have to be careful when you
(especially you) point the finger at anyone. Your concept of a “decent
bubbly” which you dropped off was Californian “champagne” and was called
“extra dry” with a warning on the label that it contains “Sulfites”. This is
hardly a bottle of Krug or Veuve Cliquot, is it now? Your box of ‘soft
centers’ was a 10 baht packet of Rocklets. Choclatey enough, but hardly soft
centers, are they? I have never tried koala droppings as you apparently
have, so cannot comment on the Rocklet versus koala poo comparison.
Hello Hillary,
It is quite a while since I last contacted you. In fact I think it was when
I dropped off your Champagne and Belgium chocs. A lot has happened since
then; I have bought a house in Thailand, and a car. I gave up looking for an
honest car dealer as when I returned to a couple of dealers to look over a
car I fancied, to find they had disappeared, no cars just an empty lot. I
landed up buying one from an English guy who was selling up and going home.
I hope you did not get too wet over the Songkran period.
Man Looking for an Honest Car Dealer
Dear Man LHCD,
Thank you again for the champers and chocs. You are really a proper
gentleman, and I’m sorry that a nice man such as yourself had a needless
problem buying a car here. Mind you, it is the same all over the world. Used
car salesmen do not enjoy a reputation for honest dealing, do they. Yes, I
stayed dry over Songkran, other than on the last day, when I went out and
got white pasted and wet with the rest of my street. Being based in the
outlying suburbs, we were spared the loutish and aggressive behavior
exhibited by many of the tourists in the touristy areas. Accidents and
injuries result from much of this and it is all so inappropriate to use
Songkran as the excuse. It was always a peaceful festival.
Your other query (not printed because of space problems) I have referred
directly to the man in charge, as I know nothing, or even slightly less
about electronic media transmissions. That’s why I drive an automatic car,
Petal. I am glad you are enjoying life over here.
A Female Perspective: The Pianist
with Sharona Watson
Some weeks ago I wrote about the joy of
being asked to become a Godparent. On Easter Sunday, I found myself in a
place which I don’t always find comfortable – a church – as together with
the other Godparents, we gathered with our Godchild Hannah and her parents
for her Christening. The clouds had parted over the northern English
industrial town of Leek, allowing the sun to peak out for seemingly the
first time in ten days and thaw my freezing body, slightly. Born on
Christmas day, Hannah’s was an extraordinary baptism in many ways. Not
least, because her father is a Christian, her Mother a Muslim and her
Godparents represent a spectrum of global diversity; Muslim, Hindu, Jew,
Buddhist and Christian. It was, as Andy said, “As Jesus would have wanted
it.”
Emily
Segal: Living with music
Afterwards, we travelled south to London, where I had an appointment with a
woman of whom I had heard a great deal. Emily Segal is a concert pianist of
global reputation and co-founder of one of Europe’s fastest growing music
festivals in Nuremberg, Germany, where until last summer, she lived for six
years with her husband, the somewhat corpulent conductor Peter Selwyn, and
her two children, Martha and Dan. Had she found it easy, combining the roles
of female professional pianist and mother? “No. I’ll give you an example.
When I had my first child, at a concert as part of Jaqueline du Pré’s
memorial celebration, I had to breast feed between movements, not on stage,
by the way, unfortunately for the audience. I think it’s very, very
difficult because so much of music involves travelling. It’s very difficult
with a family.”
What I found incredible is that Emily has decided to re-train to become a
teacher. One of the main reasons for this is to provide some kind of stable
income, however paltry it might be, to sustain her family. I caught her
attempting one of a series of ridiculously difficult and apparently
necessary mental arithmetic tests, which all training teachers now have to
pass. A lot of people seem to assume that concert pianists are well paid.
Apparently not; “Someone once asked me how much I got paid for a particular
concert so I told them; a thousand pounds,” laughed Emily, who is very
beautiful, by the way. “He thought that was a lot for one night’s work. I
mean, apart from the thirty-six years worth of practice, on average I play
five to six hours a day, seven days a week. I once worked out that if I was
being paid ‘by the hour’ then it would be at a rate of less than half a
pence per hour.”
Emily is Jewish and I wondered what it had been like, spending the last six
years repopulating southern Germany with Jews? “Well, once a mother came up
to me and said, ‘Your daughter has been talking about lighting candles for
some festival – what’s that all about?’ and I said, ‘well it’s Hanukkah’ and
she asked, ‘well, what’s that?’ I explained that it’s a Jewish festival, at
which point she went bright red and walked off. So I went home and
proclaimed to my husband, ‘We’re not staying in this country! I can’t do
this anymore!’ But he reassured me, telling me that I’d probably just got
the wrong end of the stick and that she’d probably never met a Jewish person
in her life. And he was right. I saw her the following day and I asked her
why she had walked away from me. She said that she hadn’t known what to say.
She had been to Dachau, she knew that Germany was responsible for killing
six million Jews, that was about it. Actually, she became a good friend. I
think one of the main problems is that all German kids learn about is
concentration camps (it’s compulsory for them to visit one) so just about
the only thing they learn about Judaism is the fact that the Jews walked
into the gas chambers. Nothing about Jewish culture, nothing about Jewish
history and I think that’s what has to change in Germany. They’ve got to
stop flagellating and start appreciating. Actually, I brought the
celebration of Jewish festivals back into schools in the area.”
Another of Emily (and her husband’s) passions is their Music and Arts
festivals, which happens in Nuremburg each September. What kind of things
happen there? “We do six chamber music concerts, involving top performers
from twenty five different countries around the world and we do two
performances of an opera. We make use of lots of different kinds of venues
across the city; for instance, we did Britten’s ‘Rape of Lucretia’ in
Hitler’s private chamber, the first time it had been used for a performance,
which was a wonderful idea because the opera is all about the abuse of
power. Also, we introduce English music that hasn’t been heard in Germany
before and then we do a huge education project. (As Emily’s eyes lit up
perhaps I understood a little more about why she is determined to become a
teacher). Last year a hundred and fifty children performed Britten’s Noah’s
ark in a specially built circus tent in the zoo and this year, our project
involves five hundred children from Prague, Nuremburg and Hackney in London,
using poems from children of the holocaust. I think it’s going to be an
amazing event.”
At this point, I was delighted to hear of Emily’s enthusiasm for a trip to
Thailand, hopefully to perform in one of those magnificent Opera evenings in
Pattaya, arranged by impresario Khun Mongkol Chayasirisobhon. “That would be
wonderful” said Emily, “But it would have to fit in with half-term!”
The way Emily talks about things she loves, you can feel her passion. She
has played the piano since the age of five and her house is full of
manuscripts and instruments. No surprise then, that music means a
“helluvalot” to her. In fact, without any sense of melodrama, she added, “I
couldn’t live without it.”
Next week: A Different Tune
[email protected]
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