Supply picture points to downward pressure on iron ore prices for the next five years

The worry is in the long-term.

Australia’s Bureau of Resources and Energy Economics bucked the recent Wall Street trend by upping its forecast for iron ore prices in 2013. Today, the bureau raised its forecast to an average of $119 a metric ton for 2013, up from a December forecast of $106 a ton. (The bureau forecasts prices at Australian ports.) Iron ore shipments will rise to 554 million metric tons in 2013 from 488 million tons in 2012.

Yesterday Goldman Sachs cut its estimate to $139 a metric ton and on March 7 Morgan Stanley projected that the price of iron ore had peaked and would decline for the rest of 2013. (Goldman Sachs uses a price pegged to iron ore delivered in China so its figure of $139 a ton isn’t comparable to the Australian $119 a ton.)

Shares of the world’s big iron ore miners, which have been under pressure lately, are—mostly–up today on the Australian projections (and on optimism that the crisis in Cyprus won’t take down the global economy.) Shares of BHP Billiton (BHP) are off 0.5% as of noon New York time, but shares of Rio Tinto (RIO) and Vale (VALE) are each up 1.2%.

But to me the big news out of the Bureau of Resources and Energy Economics isn’t the optimism on this year’s price for iron ore but the bureau’s longer-term pessimism. Read more

5 below-the-radar-screen global stock market trends

Meanwhile in the rest of the world…

For what seems a lifetime—but is actually only the duration of the Euro debt crisis, the slowdown in Chinese economic growth (with fears of a hard landing), and the Federal Reserve led wave of global central bank intervention—price trends in global financial markets have been driven by macro trends. The price action in global financial markets have been dominated by swings between fear—the U.S. economy is about to slip back into recession—and hope—China’s new leaders will launch a big new high-profile economic stimulus package.

But although it’s been hard for individual stocks or industries or sectors or countries to buck the macro trends and the big swings they’re produced in the price of assets that doesn’t mean nothing has been happening at those lower levels while global money has been sloshing hither and yon. There’s been big changes going on off the radar while traders and investor have been obsessed with will we/won’t we go over the fiscal cliff, break up the euro, sink below 7% growth in China. Maybe the best way to think about the current macro driven pricing for assets and continued fundamental change at the individual company, industry, sector, or county levels is that the good and bad of those changes, the power of those changes to drive stock prices higher or lower, is being stored up right now for the day when the market is ready to pay attention to these types of fundamentals again.

Which means, I think, that if you can manage to divert some of your own attention from the present domination of global asset prices by the big macro trends to figure out what changes are taking place at other levels while the financial markets aren’t paying attention, then you’ve got a chance to pick up part of that store of change and stash it away in your portfolio for the day when prices move up to reflect it.

Some very disciplined long-term investors are at work doing that now. Warren Buffett, for example, has been buying shares of DaVita (DVA), a provider of kidney dialysis services. In late October Buffett’s Berkshire Hathaway (BRK.A or BRK.B) bought another 63,928 shares of DaVita at somewhere in the vicinity of $110 a share. That was Buffett’s fourth buy of DaVita shares in less than a less than a month and brought his holdings to 10,547,040 shares.

For Buffett the domestic and global growth in the number of diabetes patients requiring dialysis services at one of DaVita’s clinics is a long-term fundamental story that will get eventually get heard and drive the stock price higher no matter what macro trends do to the overall financial markets. Not that Buffett has done too badly with DaVita recently: the shares are up 40% in the last year. (For more on the global plague of diabetes and on diabetes stocks such as Novo Nordisk (NOVOB.DC in Copenhagen or NVO in New York) see my post http://jubakpicks.com/2012/04/06/excitement-in-drug-stocks-yes-in-drugs-for-diabetes-hepatitis-and-weight-loss/ )

Okay, so let’s say you have the patience, discipline, and foresight of a Warren Buffett—Don’t we all? What other trends are developing beneath the radar in this macro dominated financial market?

Let me point you at five. Read more

A barbell of stock picks–U.S. and China–for the last months of 2012

Time for some heavy lifting for the last months of 2012.

You’ve heard of a barbell strategy? Where you load a portfolio with stocks clustered at opposing ends (supposedly) of a spectrum? Well, for the remainder of 2012 I’m suggesting a barbell strategy heavy on U.S. domestic stocks that match up with my call (see my October 15 post http://jubakpicks.com/2012/10/16/slow-but-better-than-expected-growth-thats-my-forecast-for-the-u-s-and-here-are-five-picks-for-that-economy/ ) for slow but better than expected economic growth in the United States and at the other end of the barbell I’m suggesting overseas stocks that match up well with my call (see my October 24 post for more evidence of that turn http://jubakpicks.com/2012/10/24/another-sign-of-a-growth-bottom-in-china/ ) for a slow but clearly discernable reacceleration of China’s economy. At each end of that barbell, though, I’m going to add a little extra weight in the form of a few U.S. technology stocks and in the form of a few global commodity stocks.

Why is this super-weighted barbell strategy attractive? Well, let’s take a look at where we are in the market.

Right now the U.S. market is in the midst of a mild but worrying retreat amounting to 3.7% (so far) from the 1466 high on the Standard & Poor’s 500 for 2012 on September 14 to the 1412 close on October 25. Read more

BHP’s decision to postpone approval on $68 billion in projects pushes mining equipment turn down the road

Bad news for BHP Billiton (BHP), of course. Today the company announced that net income for the six months ended on June 30 fell to $5.5 billion from $13.1 billion, a 58% drop, on lower prices for metals and coal and higher costs.

Bad news too for the world’s makers of mining equipment such as Joy Global (JOY) and Caterpillar (CAT). BHP Billiton announced that it had put approval for $68 billion of mining projects on hold and doesn’t expect to approve any spending on major projects this year.

That has taken a bite out of shares of Joy Global—down 0.93% as of noon New York time today—and Caterpillar—down 2.54%. Both stocks had rallied recently—with Joy and Caterpillar up 12.36% and 11.54%, respectively, in the last month as of the close on August 21. But both stocks are still down for the year to date with Joy down 22.29% and Caterpillar down 2.54%.

BHP Billiton joins peers such as Xstrata (XSRAY) in cutting spending plans. Earlier this month Xstrata had cut its spending budget for 2012 by 12.2%.

It’s not that BHP Billiton will spend nothing in the next 12 month. The company has 20 major projects with a capital budget of $22.8 billion committed for that period. It’s just that investors looking for a turnaround in the mining sector—and in prices for everything from coal to iron ore—will have to push the timing of that turnaround further into the future. The price of iron ore, for example, fell to a 32-month low on August 21 as demand from China slackened on a fall in Chinese exports to struggling EuroZone economies.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Joy Global as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

Hey, there are stocks beyond the headlines from China, Europe, and the U.S.–here are 6 from elswhere

So what’s happening everywhere else in the world?

Eyeballs are glued to the euro/Spanish/French/Greek debt crisis. Investors are shifting every data dump from the Federal Reserve, the Bureau of Labor Statistics, and corporate earnings in the hope of figuring out if the U.S. economy is slowing—and how quickly. China’s momentum mavens are busy calculating how close the Chinese economy might be to a bottom and the odds that each piece of bad news might be the one to lead to the next round of stimulus from the People’s Bank of China.

But what about the rest of the world? What stock markets and what stocks should investors be watching—and maybe putting some money into–that aren’t Europe, or the United States, or China?

Investing somewhere besides the markets in the headlines assumes that you believe that none of the current crop of potential bad news rises to the level of catastrophe. If one of the world’s big economies and financial markets goes down hard, the likelihood is that it will take down everything. If China really hits a hard landing—with 5% growth and increased social unrest, for instance—it’s unlikely that you’ll be able to find safety—let alone profits—in one of the world’s other financial markets. One lesson from the post-Lehman crisis is that if it’s a big enough crisis, everything heads down at once.

If on the other hand, these potential crises don’t either turn into great big crises or really into a crisis at all, then the “everywhere else” markets could be either 1) profitable ways to leverage a positive result from any of the world’s headline grabbers, or 2) profitable ways to diversify a portfolio. Let me give the names of six stocks that exemplify those two groups. Read more