What the top end of town recommends.
In short resources and more resources.
As I mentioned in my last post I attended a retirement seminar last week. The seminar was about borrowing by superannuation (retirement) funds (DIY Super Funds). While the presentation was of some interest, I found my discussion over drinks with Andrew Smith and David Bruty from the Equity Trustees Asset Management Team of more interest.
Their view was the best place for new investments remained the resource sector. They believed the resources boom had ten years more to go and that a slow down or recession in the U.S. would not slow the boom. Their opinion was that internal consumption in China and to a lesser extent India would pick up any slack form a slowing U.S.
I asked whether that meant it was different this time? They felt that indeed it was, as unlike the internet boom the resources boom is based on real consumption and changing global population and structure. I thought to myself that is exactly what I heard during the late nineties.
Yesterday a friend came to see me desperate to setup a share trading account so they could buy Origin Energy, ORG.AX, due to their massive gas reserves. The last time my friend was interested in buying shares was mid 1999.
So the top end of town is still pushing resource companies, while I continue to amass cash and look for opportunities in undervalued blue chips and small technology companies. I enjoyed this post on the Motley Fool Liquid Lounge about Tech equalling Value.
I think the Western world is talking itself into a recession. Anecdotally, consumers in the UK are tightening their belts, as are Australians and North Americans. As developed Western countries consume the vast majority of global resources any slowdown in these countries will have a large impact on the global economy. Globally the one Billion people on the highest incomes consume 80% of the worlds resources.
If you consider the all important Beer Consumption world rankings you’ll see China and India do not even make the list.
More seriously while China consumes the second most oil per day after the U.S. and India is sixth on the list it is unlikely that they can pick up the slack from a slowing global economy.
I have no idea how long the resources boom will continue. Boom cycles generally go for longer and prices rise higher than most participants expect. However, I doubt this boom will last ten more years and I currently hold very little exposure to resources. When, not if, this bubble bursts prices will collapse very quickly. I think the odds are high a global recession combined with newly developed resources coming online is the pin to prick the bubble.
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