BHP, RIO, FMG hit with futures plunge

Big iron ore is taking it in the team but not as much as it should or will with BHP and RIO only down 2% plus and FMG down 4%:

1

Fundies are in state of shock, clearly, there is much further to fall ahead. Indeed, idiocy spreads have stalled owing to iron ore falling so much faster than equity, and yes, I expect them to fully close by the time this is over:

2

Juniors have resumed falls today with BCI approaching all time lows:3

Dalian is unchanged from the overnight limit down -7.9 position at 439. I was under the impression that limits were 4% but that has clearly changed. There’s very good chance that we will see iron ore at new record lows tomorrow and the full 8% fall would deliver about $45.

Comments

    • Every super fund in Australia? The problem is that nothing looks like it is good buying in our market, with the exception of perhaps certain gold stocks. This is the inherent problem with ZIRP, everything looks cheap when you measure it on an IR metric, even though it is completely distorted. I wouldn’t feel comfortable buying BHP in the medium term unless it is $20 and under.

      • The Patrician

        +1 grossly underpricing the cost of money, distorts the price of everything and dangerously destabilises the economy

    • David, specifically how do you see the pain transmitting to REITs?

      I’m not saying I disagree but retail REITs have already recognised the new normal of lower mall rents and the online threat, markets have already priced/recognised the office glut in the pipeline, and there isn’t that much industrial property around with all the reclaimed industrial property being converted into houses and apartments. Lets leave the resi-REITs out of the equation as the answer there is pretty obvious to anyone who reads this site.

      • HnN they haven’t. Prices have risen ahead of rents. They look cheap versus fixed income, but that’s because of ZIRP.

      • PantoneMEMBER

        Rubbish. Name one reit that’s trading below book value and isn’t under crippling amounts of debt.

      • There is no shortage of industrial property (or land).
        Urban renewal at the fringe will change the shape of the market, but not the quantum of space.

      • US already had its bust and it wasn’t that bad for REITs – look at a chart of Simon Property Group over the last 10 years. Way above GFC prices.

        I’m not saying Australian REITs would track exactly that experience, but if currencies are getting debased, it may not be totally irrational to invest in REITs.

        Playing devil’s advocate, you have massively expensive residential housing and it’s inevitable the government will do anything to prop that up. Could it actually be rational to invest in a more reasonably valued asset class ( even if its expensive on traditional measures) that will benefit from those same policy measures – rate cuts, QE (if they can get away with it), more population growth, stymied development outside the capital cities etc.

      • The RBA even recently noted the outrageous divergence between commercial property prices and vacancy/rent reality. Brisbane is at 15% vacancy in the CBD and valuations are holding.

        Simon is the prime retail trust in the USA – Westfield equivalent centres.

        The GFC destroyed a huge number of REITS across a number of industries.

        Macquarie sent a couple to almost zero (after Bill Moss made the greatest timed retirement in market history), Rubicon * 2, Centro etc

        Ask a financial planner about how their ‘unlisted REIT’ portfolio performed and you will watch them turn white and possibly punch you.

        The sector admittedly had a lot more debt back then but they were also paying 300bps more in interest costs.

        Commercial property is a derivative of interest rates and credit availability. I don’t think credit availability is something I would be bullish on once these banks start copping it.

        See the early 90s for how the commercial property sector fares in a recession.

      • Yeah I was thinking the Westfield end of quality. But on balance I think you’re right.

  1. Even BHP got sucked in by the debt sirens this time, bur surely Vale will find those US Dollar payments starting next year a lot harder to make than BHP’s debt payments. By the way BHP shares peaked in Feb 1888 at 413 pounds.

    http://cuffelinks.com.au/personal-perspective-10-years-mining-boom/

    I remember people losing money on BHP shares from 1966 to 1981. BHP shares are like Australian house prices, they never go down unless you look at them closely.

  2. Commodities and energy will take a hit regardless: Greece, China, USA and global growth uncertainties.

  3. Stocks, schmocks. Buy bitcoin or something, all this euro turmoil and global economy clowns will turn people to other alternative assets.