Morning Report Monday 7 July 2014
Iron ore stocks have bounced strongly in recent weeks following the price of the mineral holding above the US$90/t area - the lowest since 2009. Unfortunately, Chart 1 demonstrates extremely clearly that trading the major Australian large iron ore producers is incredibly correlated to the price of the underlying commodity. As such, trading / investing in iron ore stocks currently is basically about second guessing how much stimulus the Chinese government will pump into their economy to maintain growth and hence support the iron pre price. Warren Buffet, arguably the most famous investor in the world, made the below comment with regards to investing in commodities:
“The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”
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