Poor old Stevie J and his AFR advice yesterday – that it is too late to sell miners – lasted about 12 hours. For those bottom-feeders looking to buy, think again. We are the verge of something not seen in Australia in over 100 years and if you want to play with that possibility then you need your head read.
This is not any ordinary global commodities bear market. It is shaping up as one to greatest bubbles, mis-allocations of capital and busts in the history of capitalism. The macro dynamics at work in the global economy virtually ensure commodity prices will continue to fall as China slows and the US speeds up, boosting its dollar. This is exacerbated by other nations like Europe and Japan doing QE. That is a double hit to commodity prices in the form of weakening demand and a monetary headwind. In turn, commodity exporting emerging markets (EM) are double-smashed via falling exports and capital flight. At some point one these EMs is going to default big and unleash a credit panic around commodities and EM debt (that is, if Glencore doesn’t do it first). That will bring on the final great crash in the commodities complex.
As we survey mining and energy equity today we find many wounds but not yet blood in the streets. In fact, if the above happens and a commodity debt freeze arrives in earnest, we will see a very large slice of the medium sized commodity sector in Australia – FMG, ARI, STO and ORG – go bust almost simultaneously. I am not kidding.
BHP is today down 6% and in free fall:
Its large bearish descending triangle pattern is long busted. The next support is around the GFC low at $18 then its $15. My own view is it won’t stop until retraces fully to 2003 around $10-$12.
RIO has exactly the same chart pattern:
And the same result as far as I’m concerned looking for an ultimate bottom in the mid $20s around the GFC low.
FMG has an even larger descending triangle and when it breaks its GFC low I reckon it’ll be on its way to the knackers:
In energy, WPL is holding marvelously well for no obvious reason, though it too has that same horrible pattern:
Again I expect a return to 2003 levels, and soon enough a swift backtracking on its bid for OSH.
Which will leave that firm with terrific downside having clearly violated its long uptrend:
STO is, of course, already at 2003 but it’s real battle is also with the knackery:
Finally there is ORG and a target around $3, as well as possible bankruptcy:
Around the time that you recognise that the miners are so stuffed, so completely rooted that there is actually no point in you owning them after waiting for so long for them to be cheap enough to buy, is when it will be time to think about picking some off.
Until then, shorting rallies remains the only way to go.
