Meanwhile the IMF meetings were disrupted by the politics being played out by their Japanese hosts and the Chinese. Xie Xuren, China’s finance minister, and Zhou Xiaochuan, governor of the People’s Bank of China, decided not to attend because of the over a group of islands in the East China Sea. Yawn . . . .zzzzz.....
At least we have the start of the earnings season in the US to give us real numbers. As suspected things in corporate earnings land have slowed and the traditional leader of the season Alcoa reported a net loss of $143m which apparently was slightly better than expected. My favorite quote though comes from the CEO who said: ". . . he was “pretty confident” that the stimulus measures announced in China meant “demand will be picking up speed”. However, he said it was “probably going to take until the end of the fourth quarter” to show results." Doesn't sound too positive to me and I think the key here is that Alcoa’s revenue, at $5.83bn in the third quarter, was down 9%. Back in 2011 when I was more bullish we were getting flat to small positive revenue growth combined with massive attacks on business costs and this was justifying the rally in stocks. With said costs mostly squeezed out of businesses a fall at the revenue line cannot be sufficiently offset any longer therefore putting pressure on the bottom-line from which dividends are paid and debt is repaid. Watch the top line coming from these reports.
Just because some of my mates think I'm too bearish I want to mention the post Chinese Golden week bounce in Iron Ore prices. This is good news for Australia and its currency and clearly resulted in the bounce back over 1.02. The government here looks hard pressed to meet it's balanced budget target this year so an uptick in commodity prices will be greeted with a sigh of relief in Canberra.
As readers know, I have always been an Xstrata bull and a Glencore admirer. So I was interested to read the comments by Tim Lane, deputy Governor of the Bank of Canada, who posed the question in a recent speech as to whether some commodity trading companies had become too big to fail? It's a great question and in theory they shouldn't be, but with the growth of leveraged structures based on their core sectors it is entirely possible. Personally I have never thought of Glencore or Vitol and alike in such a light, but it's certainly worth considering as an adjunct to the worries surrounding the securitization of certain important metals such as gold by the major ETF "structurers" in recent years. I suspect Mr Lane is laying the groundwork aimed at preventing further vertical integration in the commodities world and will for many of my friends in risk arbitrage hedge funds add yet another risk factor in their calculation of likely returns in the strategy.
One commodity that had me thinking today was rubber, or more specifically bike tires. As I wrote recently my Cannondale is out of action with a cracked stem.
Now Cannondale have been very proactive about the problem and I'll be taking the bike into one of their dealers tomorrow. In the meantime I took the Pinarello out today for a quick 30k's and I have to make a few observations:
- Tubular tires have rolling feel that is completely different to clinchers. It's as though you just glide above the road
- The Pinarello frame feels far less aggressive than the Cannondale, but really isn't much slower
- Acceleration wise the Cannondale feels like it transfers the power more directly to the ground
- Riding compact (50/34) rings after riding the big rings (53/39) is really strange . . . the power profile is obviously much steeper on the latter, but the slightly higher cadence you track at when riding on the former seems more relaxing