Tuesday, 10 July 2012

Falling . . . .

Iluka Resources is a miner of mineral sands in Australia. The stock fell 24% yesterday when they failed to meet their forecasts. I mention this because Iluka's output goes directly into housing and of that much of it goes into China for the manufacture of various building tiles. Since the beginning of the year I've been pointing out the likely severity of a Chinese slowdown. Clearly now such a slowdown is upon us and the inability for the Keynesian shift to stop such an event will once account cast a pall over GDP numbers globally.

Coincidentally in the UK JJB Sports also fell 24% indicating that consumer discretionary retailers are suffering the impact of the European malaise. The surprise continues to be the luxury end of the market where the continual demand for label goods by the growing upper classes in the developing world is pushing ever more store openings in Chinese cities that hardly existed 20years ago. Surely this bubble too will be popped by a communist party that rules with the consent of the many who aspire to climb the greasy pole to condominium nirvana in either Beijing or Shanghai.

What's the conclusion? Well obviously stay short the most liquid correlated asset to the China bubble the AUD, but that's a little too easy. The real question now is how long the US treasury bond market can hang on. I don't think it's time to short just yet . . . Though it's tempting to buy some longer dated put spreads or even put back spreads just in case it all happens in a rush. Stocks to buy? Well you'll want to stay out of the fast money casino that is the financials and look towards the petroleum space soon. Oil will drop with economic activity, but at around $60bbl and a whiff of money printing/inflation the likes of Exxon and Shell will buy you a nice glass of your favorite red sometime in the next 12 months.

On a cycling note I'm still anxiously waiting for the first of my bikes to arrive. Most riders here seem to be up and finished their workouts by 0730hrs. Wednesday is popular as a number of clubs host midweek rides and their's plenty of nice frames out on the roads. I think most of the commuter activity in Sydney is concentrated in the inner western suburbs, so as I'm on the east side I haven't seen much. What I have heard is complaints about bikes blocking lanes and jumping red lights. Honestly I could understand the red light complaint if drivers were afraid of hitting a cyclist and going to gaol, but listening to talk-back the line of thinking seems to be more along the lines of "why can't I run red lights like that". Mmmm .... Well I don't know, maybe because if you do, then 2 tons of car going 40kmh is more likely to do damage than an 80kg rider on a 10kg bike doing 20kmh?... Just a thought?

In terms of the TdF it looks like it's Wiggins to lose after the stage 9 time trial. A great ride by he and Froome. I really enjoyed Froomes ride at Vuelta last year and anyone who saw him then can appreciate his position on the GC leader board now. One question though? Is it me or has Froomes body shape undergone a radical change in the last 9 months. 

His arms are almost non-existent now and he looks like a refugee. OK I know that's the body type and all, but he looks so different to 12 months ago. Wiggins looked similar last year and has at least done some work at the gym to make his chest less concave. If Froome falls he'll brake a bone in his upper body. It's not good. Wiggins himself said the doctors who examined him after his own exit from last years race warned him about upper body strength and the link to survivability.

Unlike other bloggers I don't believe Sky is doping, but looking at the two GC riders and Cavendish at 5kg's below his body weight from last year there's definitely some dangerous dieting going on.


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