December 13, 2018

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Good Year for Investors

Good Year for Investors

Good Year for Investors

It Should Be a Good Year for Investors

It is important to have a game plan that shapes our investment tactics – to move forward beyond the short-term volatility of the markets, reduce the risk of emotion-driven wrong decisions, and make it easier to ignore the turbulence. [Read more…]

Ten investments to buy

Ten investments to buy

Gary Shilling - The Age of Deleveraging

Gary Shilling – The Age of Deleveraging

Here are the ten investment categories that Shilling favours for the long term: [Read more…]

Long-term Lock-up Investments

Long-term Lock-up Investments

Long-term lock-up Investments

Long-term lock-up Investments

My neighbor in Chiangmai, the well-known investment adviser Marc Faber, recently asked a panel in Moscow: “If tomorrow you were supposed to go to jail for ten years and were allowed to make only one investment, which you would not be able to touch for this period, what would you choose?”

High-profile American commentator Nouriel Roubini opted for a basket of stocks of Western multinationals geared to benefit from emerging markets. Nassim Taleb (he of “black swan” fame) suggested land in his native Lebanon, a country he said where every political party respects property rights. Scott Minerd of Guggenheim Partners chose works of art. Maria Gordon of the giant fund manager PIMCO preferred some large, high-return emerging-market stocks. Russel Napier, the well-known CLSA strategist, went for a basket of Asian currencies. Another UK figure, Hugh Hendry of Eclectica Asset Management, opted for tobacco stocks. Faber himself stuck with his favourite investment – gold.

My choice for a ten-year lock-up? Gold is tempting, but my choice would be Industrial & Commercial Bank of China , which is accessible to international investors through a listing in Hong Kong (the ticker is 1398).

It’s the world’s biggest bank by market capitalization, and is still largely owned by the Chinese government – so there’s no default risk. It currently offers a dividend yield of around 3.4 per cent, nearly three times covered, in the Chinese currency, which seems destined to be one of the strongest over the next ten years.

Unlike just about any of the world’s other major banks, it has had a strong and consistent record of earnings growth.

CopyRight – OnTarget February 2011 by Martin Spring

The only viable major alternative

The only viable major alternative

Electric Cars

Electric Cars

The current fad is for electric cars, hugely subsidized by governments. How much longer can they afford such subsidies? Besides, the electricity that substitutes for liquid fuels has to be generated. On balance there is no energy benefit relative to oil, and little or no benefit in reducing production of greenhouse gases.

The vehicles will continue to face consumer resistance because of their high cost (even after subsidies) and performance limitations.

I think electric cars do have a future — because of the immense government-driven policies to promote them, improving battery performance, and lower production costs that will come with greater volume. I just don’t think they can be a major alternative to traditional vehicles fuelled by petrol and diesel for the foreseeable future.

The most viable alternative to oil is natural gas.

It is far more abundant in terms of reserves relative to current demand, especially since technological breakthroughs in the US have made it possible to harvest gas from shale and similar previously largely-ignored resources. Huge reserves are also conveniently located in politically-favourable environments, such as America and Australia.

However, production of “tight gas” and shale gas formerly not viable to exploit has transformed the supply situation, halving US prices for natural gas, which have plummeted relative to oil, with which it competes in some uses.

In the US, the Energy Information Administration says its most likely forecast is for the annual average price of gas at the wellhead to remain below $5 per unit for the next decade. This means gas is likely to remain an attractively-priced alternative to oil for years to come. Perhaps. But low gas prices are also discouraging exploration.

Vehicles driven directly by compressed gas have been around a long time. But they haven’t made much of an impact.

Gas only becomes a serious competitor to oil when converted into liquid fuels. Sasol, the South African specialist, has been doing that successfully on a massive scale for half a century as the second stage of converting coal into oil, and is now exporting its expertise to the rest of the world. It is a partner in a Qatar gas-to-liquids project and has just paid $1 billion for a half-share in a Canadian gas-to-liquids venture.

However, the capital and current costs of converting gas to liquids will limit the potential to substitute natural gas for oil, especially as gas is in such strong demand for easier and more direct uses — power generation, heating, petrochemical feedstock.

Oil itself can be recovered from unconventional resources such as the tar sands of Canada and Venezuela. The deposits are enormous, but they are difficult and expensive to recover and process. Canada’s 170 billion barrels are the world’s second largest oil reserves after Saudi-Arabia. Current production is now about 1½ million barrels a day and announced investment plans should nearly double that before the end of the decade.

But opposition from the environment lobby grows stronger by the year. Recovering oil from the sands is a particularly dirty process and processing usually requires a lot of natural gas, which critics say would be better used directly as a clean fuel.

At prices around $100 or more a barrel, many unconventional resources are economic to exploit.

World reserves of conventional oil have risen by 23 per cent over the past decade – partly because of new discoveries such as offshore Brazil and offshore West Africa, but mainly because steady improvements in industry technology has made it possible to harvest commercially a higher proportion of known resources.

That has – so far – discredited the Peak Oil Theory that production would soon top out and then go into decline because there were no more giant new discoveries to be made.

this article is a continuation from – Investing in Liquid Sunshine

and is followed by – Where can extra supplies come from?

CopyRight – OnTarget February 2011 by Martin Spring