Mining and Energy

Fresh data from the Australian Bureau of Agricultural and Resource Economics (ABARE) shows exploration in the mining and energy sector reached record highs in the 2007-08 financial year.

The figures show $5.5 billion was spent scouting for new projects, with petroleum and iron ore the favourite commodities because of high global prices. read more

And hence why cycles exist. As prices and returns increase more capital floods reducing future profits. Couple that with decreasing demand and more falls are possible for mining and energy.
Still the master wave rider, Warren Buffett, bought a lot of integrated oil company COP in the last quarter. Plenty of people seem in love with energy companies these days. Value investors are feasting in that area.
I’d prefer to risk my money with Suntech. It comes with the free bonus of a fuzzy warm feel good factor.

Here is my cycle for the mining and energy industries.

Lots of people don’t believe in super cycles, but to me it is simple economics and the pattern repeats over and over again. It is called supply and demand. At the moment resources are in high demand and supply is in short demand so prices shooting higher. The higher prices lead to increased exploration and development. It takes many years to develop mines, wells etc and even longer if you have to discover them first. When the current resources under development start to come on line then the supply will increase and prices will start to fall. Eventually so much supply comes on line that there is over supply and prices start to quickly fall. Exploration stops, development stops, some mines and wells are uneconomical at the lower prices and are closed. Slowly supply become tighter and tighter and then demand begins to outstrip supply and off the cycle goes again. Read original column. Originally posted July 07 at TMF and then here in Oct08

Property
From a post on TMF-BWM Method board
Property Clock This is not my clock!
Property, like most assets and plenty of other stuff, moves in waves. I see great value in studying the property market now in preparation for the next property upswing.
I posted an update on home builders 2 weeks ago.

http://www.fusioninvesting.com/2008/11/homebuilders/

There are many cycles that are worth familiarising yourself with. Supply and demand is the common but not exclusive thread.

Related posts:

1. BHP, Investing in Cyclical Companies
2. Energy Vs Commodities
3. LEAPS and Option Cycles
4. Investing is Simple – Start Buying
5. It is Never Different This Time
6. Bubbles Always Pop