Tag Archives: Commodities

More evidence of a Bitcoin bubble

If this isn’t proof enough of a Bitcoin bubble, I don’t know what is:

2013 December Bitcoin

Actually you know what? I think there is better proof: THIS.

Frontier Markets Opportunities and Risks, Bloomberg Edition

As part of last month’s Bloomberg Dealmakers Summit in London, the following roundtable took place, featuring Timur Issatayev of Verny Capital, Parag Saxena of New Silk Route LLC and Danladi Verheijen of Verod Capital Management. It’s 22 minutes and all worth it, but if you want the single most profound statement for my time, fast-forward to 15:10, when Parag Saxena has the following to say when asked about investment risks in South Asia:

“If you stay away from purely government-granted things you can probably do all right but sometimes that is where the opportunity is so it’s hard. To me the big surprise that I learned in India, having been in the investment business for 31 years and thinking that I have made already most of the mistakes that I was going to make in my investment life, the one that surprised me in India, and I know it’s true in Pakistan and Bangladesh too, is the lack of talent. So when I invest in the U.S., which I continue to do, I know that even for a pretty tough to fill job, in 120 days to 180 days I can fill almost any job. And so typically now at my age, I get resumes from my friends’ children. I used to get them from my friends at one point and now I get them from my friends’ children. And in the US I think it’s going to be hard to actually place them because there is so much talent available for a limited number of jobs. In India, I find myself grabbing every resume because I can hire baristas for somebody that wants a summer internship job, we have a restaurant company and cellular tower company and we need CEOs, so I can hire CEOs for those companies, and everything in between. So the biggest surprise to me, and the opportunity, is training for lower level jobs. And that’s a real unexpected risk, because time is the enemy of internal rate of return and if it’s going to take you more time to fill these slots and you can’t get stuff done, you have a real problem.”

Here’s the video in full:

Charts of the Day: The Future Of Emerging And Frontier Markets

CarnacTheMagnificentThanks to Ernst & Young, I’ve got my retirement destination all picked out: Turkey.

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young,  which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector. 

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you  can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

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Making Sense Of Angola Stock Exchange Plans

Africa Stock Market Cap FiguresBloomberg had a story out late last week about plans for an Angola Stock Exchange, entitled, “Angola Plans 6th-Biggest Africa Bourse With Value at 10% of GDP”. Since we (and by we, I mean you and me, in an apparently small minority) are resolved to have a realistic approach in discussing economic prospects anywhere, here are the main points of interest from the article once we strip away all the spin and optimism:

  • Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
  • The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
  • The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
  • A secondary bond market will start this year to help develop a yield curve.
  • South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
  • Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:
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Map Of The Day: Global Shipping Routes

Thanks to CNI Group for this:

2013.04.16.Global Shipping Routes

I guess what strikes me the most about this map is the huge blank spaces among the world’s global shipping routes: the Bay of Bengal, southern Australia, the west coast of South America, and pretty much all of sub-Saharan Africa that isn’t connected to either South Africa or the Gulf of Guinea. Of these, Australia at least has a viable road network. Relative to the entirety of the world, these don’t look like large spaces, but the increased costs for closing these gaps via land are not insignificant.

Another thing that comes to mind here is imagining how the shifts in shipping patterns may have happened over the centuries. Never mind the obvious growth in gross number of journeys; what I’m thinking of here is the opening up of new routes.

I’m not a shipping person, but I try to be as much of a history person as I can. Off the top of my head, I would venture that China’s periodic bouts with isolationism over the centuries have had material effects on the Asia routes, the most recent probably being a massive dropoff during the 1950s through sometime in the 1970s as China re-opened and Japan started coming online. And transatlantic development from the Industrial Revolution forward has kind of been done to death.

There’s also this book, which I’ve yet to read but has been on my to-do list since it came out. I suppose where this all leads is, what’s the future of this map? More specifically, how much of south-south trade development will any of us live to see?

A Brief Review Of The Biggest Obstacles Facing Mexico’s Moment

2013.04.08.Pemex statsHuge kudos are in order for the FT’s Adam Thomson for finally coming around to spelling out the all-uphill battle Pemex faces. Kudos so huge, in fact, that I’m willing to forget all about this pandering portrayal of Mexico as “Aztec Tiger” at the beginning of the year. Some numbers from “Rusty wheels of Pemex require much oiling” that should give any go-go-pro-Mexico cheerleader pause:

  • Although Pemex reported sales last year of about 1.6 trillion pesos ($130bn), only exploration and production, one of its four subsidiaries, regularly turns a profit: 95.5bn pesos last year. Its other three subsidiaries racked up a combined net loss of 111.6bn pesos – about the same as the entire government budget of Bolivia.
  • Of the three lossmaking subsidiaries, the worst offender is Pemex Refining, which last year posted net losses of 100.5bn pesos. That helped increase the company’s net debt, which in December stood at $51.4bn, about 29 per cent higher than in 2008, though it has fallen as a percentage of revenues over the past three years.
  • Pemex pays the fourth-highest tax rate in a sample of 15 oil-producing nations, including the UK, Iraq, Venezuela and Norway. Little wonder the company provides more than one-third of the federal government’s revenue.
  • Mexico’s state oil company is woefully inefficient. The refining subsidiary accounts for about 40,000 of the company’s roughly 150,000 employees and the average workforce at a Pemex refinery is three times that of one with comparable output abroad. Refining capacity has not increased in years and Mexico today imports almost half of its gasoline needs.
  • Pension liabilities were a staggering $52.3bn at the end of 2011, only 8 per cent of which are funded, and with total contractual obligations standing at $141bn.
  • Contractual rigidities leave about 11,000 Pemex workers receiving salaries without actually having any work to do.
  • As the headcount swells – it has increased more than 10 per cent since 2001 – Pemex’s production figures have crumbled and today stand at less than 2.6m barrels a day compared with about 3.4m in 2004.

If the Peña Nieto Administration comes up with a way to fix this — and that’s HUGE if — you can be sure it will not happen without some well-positioned person behind some closed door to take a little extra for himself.

Related reading: I never thought I’d find myself in so much agreement with Counterpunch, but those looking for current run-down of all the other, non-Pemex reasons to be skeptical of the Aztec Tiger are strongly advised to read in full Paul Imison’s latest here.

Chart Of The Day: Food & Agriculture Demand And Supply

What this screams is the urgency of leveraging Africa’s arable land potential. I wonder how Africa would stack up against the righthand chart:

2013.04.03.Food-Agriculture demand supply

From @CamboRobert.

A Dissection Of Market Manipulation In The Diamond Industry

Priceonomics put up a stunning take last week on the market mechanics of diamonds which spurred a lot of reactions. Worth reading in full, and here are some excerpts to give you an idea:

“Americans exchange diamond rings as part of the engagement process, because in 1938 De Beers decided that they would like us to. Prior to a stunningly successful marketing campaign 1938, Americans occasionally exchanged engagement rings, but wasn’t a pervasive occurrence. Not only is the demand for diamonds a marketing invention, but diamonds aren’t actually that rare. Only by carefully restricting the supply has De Beers kept the price of a diamond high.”

And this:

“In finance, there is concept called intrinsic value. An asset’s value is essentially driven by the (discounted) value of the future cash that asset will generate…A diamond is a depreciating asset masquerading as an investment. There is a common misconception that jewelry and precious metals are assets that can store value, appreciate, and hedge against inflation. That’s not wholly untrue.

Gold and silver are commodities that can be purchased on financial markets. They can appreciate and hold value in times of inflation. You can even hoard gold under your bed and buy gold coins and bullion (albeit at a ~10% premium to market rates). If you want to hoard gold jewelry however, there is typically a 100-400% retail markup so that’s probably not a wise investment.

But with that caveat in mind, the market for gold is fairly liquid and gold is fungible – you can trade one large piece of gold for ten smalls ones like you can a ten dollar bill for a ten one dollar bills. These characteristics make it a feasible potential investment.

Diamonds, however, are not an investment. The market for them is neither liquid nor are they fungible.”

And this:

“We covet diamonds in America for a simple reason: the company that stands to profit from diamond sales decided that we should. De Beers’ marketing campaign single handedly made diamond rings the measure of one’s success in America. Despite its complete lack of inherent value, the company manufactured an image of diamonds as a status symbol. And to keep the price of diamonds high, despite the abundance of new diamond finds, De Beers executed the most effective monopoly of the 20th century.”

Read the rest here.