MPS 'Elliot Wave' for the Australian Resource Sector

Speaker: Barry Dawes
Release Date: 20 November 2009

Those of you who have seen me speak in public over the last year would have seen our modified wave count for the resource sector, and those of you who are familiar with Elliot wave know that the market generally moves up in three legs the first leg, a correction, the next leg up, a correction and then a final fling into a euphoric stage and then you get a sharp correction after that.

Thats roughly the Elliot wave concept , but what weve found is that it important to think of the market psychology at each stage in that wave count, and the first leg is disbelief because it is a move up after something has happened where the market has moved down, so its marked by disbelief, people say yeah its a false dawn, its not going to last very long and then we get the pull back into wave two and thats usually pessimism

The mood of the market is decidedly pessimistic. We certainly saw that late last year and the beginning of this year. Once that bottoms out it moves up into the optimism leg and thats when people become more conformable and the market has been climbing a wall of worry but it gets through that and people start to feel optimistic and we run through this optimism leg

We then get a pullback, which people see as an opportunity of buying in the dips, it becomes the opportunity leg and people are comfortable, theyre not worried about the end of the world, they say oh well the markets have come back, what a great opportunity to get on board and then we go for the final euphoric run.

We get a pull back, and its not a good pull back in terms of market psychology because usually its the first pull back, people think theyre going to buy in the dips but the markets really run its course, we get a rally which doesnt quite make sense then it turns over and runs into that pessimism stage again and then the markets start all over again.

Whats been really fascinating has been looking at where we stand, because last year clearly finished something and when we look at those various stages of the market we definitely did not have euphoria

At the beginning of last year definitely not, because the market breadth was so poor, institutions werent on board, the public wasnt on board, the market had already started to turn down well before we started to see the highs in gold, oil and BHP and those other large stocks.

Then if we go back there is no way that people would have regarded January ,February, March of this year as an opportunity because the sentiment was just full of pessimism

So when we think about the end of 2008 finishing something, it didnt finish an optimism leg because, again, we just didnt see the market breadth. We saw the big cap stocks up, but we didnt see the little caps there, they just did not participate so we come back and clearly that period last year was definitely pessimism country

So if it was pessimism country its finished that disbelief upleg, and the most fascinating thing is that if you look at the major commodity prices: oil , major commodities like oil, gold they made their lows, in the case of oil in October of 98 in the case of gold , very very important low, which was retested later, in march of 99, so we basically had 10 years of bull markets , 10 years of bull markets where theres really not a lot of people on board, and a lot of disbelief if you like, and weve had that pessimism, now people are more comfortable with the fact that hey theres a driving factor like the American dollar weakening, or the china being strong, or India coming through or brazil being very strong, those sort of things are building up for the optimism leg and thats where we are. Weve had our first leg up , which was again disbelief,. Weve had a correction there for a while people worried about things , now were turning up and I think things will be very very strong from here

Lets see where were going to be in 12 months time, but I think that the pessimism call back there in December last year has been the right one, were now in the optimism leg and theres going to be a lot of excitement for investors over the next several years (because remember that first leg was 10 years of bull market before we got the pull back) were going to have five or 6 in this leg , its not going to be straight up of course, and then weve got the next leg as I see it anyway giving rise to that 15-20 years that many other people are talking about in industry where they say hey, the demand for our raw materials Is such that its going to underpin the market

So watch this, its a good road map and I think its going to take us where we want to go

Gold Outlook - Gold is still driving the market

Speaker: Barry Dawes
Release Date: 19 November 2009

Those of you who have been watching these videos in the past will not be surprised to hear me say that weve got more of the same coming.

All the way through weve talked about the gold price being quite strong and really leading the resource sector. And thats reflecting all the inbalances in the world in respect of debt levels in a lot of the OECD countries. Now were seeing that strong gold price, were seeing gold over 1150 over night, and I think were going to see move up to the 12,13, 14 hundred dollars an ounce, reasonable soon, certainly thats what it looks like.

The demand for gold is still very robust and were seeing the major gold stocks starting to really perform and look as if theyre going to make a major upside breakout.

Now the gold price is moving because of a whole range of reasons. Mine production has been declining for the last 10 years, and that has a minor impact, weve seen India buy that 200tonnes of gold from the IMF and Im sure that other central banks around the world of smaller nations are looking to buy more gold as well. The American dollar is weakening, it has been quite weak over the past few months, and that certainly is helping things. The decision by the US fed to keep interest rates low for another year or so basically means that the US dollar will be much weaker against other currencies, and the so called carry-trade where people borrow low interest rates costs (US$) and buy assets will continue.

The weight of money in the United States banking system also certainly thinks, suggests, that well see flows of funds out of bank cash management into equities, weve seen the American equity market being very strong, itll flow into commodities, but particularly commodity sector stocks

One of the things weve been talking about over the last couple of weeks is a very long term share price chart for the S&P gold index, which has been put together going back to 1921, and this is from Eric de Groot and published on the jsmineset webpage. Now thats an outstanding chart that basically shows for the last 28 years the gold index in the United States , the Philadelphia gold index, has been going side ways, sideways for 28 years.and now its about to make a break, and in doing so were going to see very robust performances in the major gold stocks, and quite fantastic performances in some of the smaller gold stocks.

So gold is really driving this market.

The Outlook for Capital Raisings

Speaker: Barry Dawes
Release Date: 19 November 2009

Theres a lot of capital raising going on in the (Australian) resource market at the moment.

This is really very very good because weve had the best part of two years where companies just havent been able to raise money, particularly at the smaller end, and its the smaller end companies that have the really big impact on things like exploration and development.

One of the things weve been talking about for the last 10 years is that exploration as a sector is really undervalued, there is no optionality value in the tenements, there is no real value for the tenements, they still seem to almost be a liability, but going forward as these companies get more money youll start to see the increases in resources that were already seeing in things like nickel and iron ore, and gold to a lesser degree. Copper has also moved up , obviously with the things that are going on in Queensland.

But the dollars that have been spent, the new resources are coming through, the new projects are coming through, and theyre all adding to our export revenues.

The other thing I like to point out: the oil and gas sector, which we have been very very keen on, in terms of on shore exploration in Australia, particularly the northern territory, is going to be very very big in 2010.

Weve got the Falcon discovery in the Bedaloo Basin, you must look at our website (www.mpsecurities.com.au ) to look at the significance of that. Weve already got Central Petroleum in the Armadus Basin, and were going to see a couple of others in the Georgina Basin, so theres going to be a lot of activity. The results of that will be far, far bigger than anyone might have imagined, even three months ago, but youre going to hear a lot more about that, were very excited.

So just watch whats happening and keep in touch with people at MPS.

Thanks for your time.

Outlook for the Commodities Sector

Speaker: Barry Dawes
Release Date: 19 November 2009

Now when we look at the other commodities, Copper, has made a good upmove recently above $3 a pound and I think that will go much higher. Oil prices are looking very robust around $80 a barrel and I think we probably might get around $85-$90 a barrel by the end of this year, and much higher next year.

Oil and copper are leading the performances of zinc and nickel and aluminum as laggards, but theyre also looking very very strong, and the minor metals , and if we can call silver a minor metal, things like tungsten, the rare earths, lithium, are all performing quite well, and that means a lot of the smaller stocks will be performing extremely well.

When we step back and look at the economic side of things we like to focus on the steel industry, and the Chinese steel industry at the moment is still running around 620-625million tones per annum, annualized rate, and now remember that the US is only doing about 57million tones per annum, so the Chinese steel industry is 11 times bigger than the US steel industry, and that show that the demand for raw materials will be robust and will lead to very strong exports for Australia, good export revenues. Now, at the same time were seeing the coal market showing good signs of recovery.

So all these points are reinforcing the concepts that weve had all through this difficult year, which is ending very well, that the weakness in the market last year was a real aberration, and it was an inventory adjustment on the downside, going into the lows that we saw at the end of the year then an inventory adjustment for the first 6 -9 months but now were starting to see economic recovery continuing.

All these things bode well for commodities in all currencies, not just in the US$ but growing and performing very very well.

Now, the impact on the A$ youve seen weve been trading around 93c against a weaking US dollar, I think were going to get to parity, probably in the first quarter of next year, and possibly much higher going forward as we see both the effect of a weaker American dollar and very strong revenues.

Youll also note our correlation of the A$ against the Philadelphia gold index , over the last 15years the correlation is really quite remarkable and that says that both the A$ and gold shares are going to go to significant highs over the next couple of years.

Diggers and Dealers

Speaker: Barry Dawes
Release Date: 24 Aug 2009

Barry Dawes offers the insights gained from the recent Diggers & Dealers conference.

Resources Sector Update: August 2009

Speaker: Barry Dawes
Release Date: 19 Aug 2009

You can see that the markets, since the last one of these, have preformed very very well, particularly the resource sector, the gold price has held fairly steady in US dollar terms (in A$ its fallen because we had a much stronger $A) but we’ve seen quite good performances out of the base metals over the few months, reflecting the Chinese restocking and a realization that probably we’re not going to see a rerun of the 30’s even though Wall St economists and analysts are very much influenced by perhaps what’s happening in their banking system and in their economy generally.

But there are other places we should be looking.

China, clearly is growing very well, we’ve seen steel production exceed 600million tones, that’s a new record level over the last couple of months, so higher than the level of 2008, and that’s a great contrast with what’s happening in the United States, where its only running at about 55miilion tones, so it’s more than 10 times the size there in china at moment and it dwarfs whatever is happening in the United States.

The performance of the stocks, really the base metal stocks, things like the Mincors and Independence Groups, and the Kagara Zincs all those have done very well at that mid cap range, and what we’re seeing also now is some of the smaller stocks are starting to perform as people recognise that these things are really extremely cheap, they’re coming off the floor so we’re seeing very good percentage rises. We should see a lot more of these things particularly for the gold and base metal players.

The Iron Sector has been also buoyed by the iron or shipments into China at very high levels they’re record levels of imports into china and the prices of Iron ore above the benchmark prices achieved and set earlier this year. So a lot of those little Iron Ore companies are positioning themselves quite well. In the coal sector we see a parallel, and improvement there, and some mines have been reopened, we’ve still got the navies of ships sitting off the ports, all waiting to pick up on the coal and the numbers we’re starting to see for thermal coal demand going out two or three years are still quite substantial, we’re looking at about 5% per annum over the next 2-3 years increase in seaborne trade, most of that income really has to come from Australia. So the Australian resource sector is looking quite good, and it’s assisted by the US equity market rallying.

The driving force is obviously the very large level of liquidity, easing monetary conditions, and we’re seeing the American dollar weaken as a result of the increase in supply of dollars, the American bond market weakening, as a reflection of the increase in the supply in bonds, and with the deficits continuing hitting 1.8trillion dollars or there about for the next year or two, that’s a lot of bonds that need to be rolled over or issued. So we must see lower bond prices, higher yields and I think we’re also going to see quite strong inflationary pressures picking up, particularly in the United States. That will come back and impact the gold price, reasonably soon.

I think the next two or three weeks will be the critical stage, however we look at it, the driving force of China, India, South America, middle East with a rise in demand for raw materials, and that those monetary issues effecting the US and UK as well, weakness in currencies, all those are just going to push money into the resource sector.

We saw 10 years of commodity bull market, from the December quarter ’98, up until the big correction last year, but should be seen as a correction. We saw the low in November 98, in terms of commodity stocks, they didn’t participate in the new lows that we saw in March, and they look as if they’ve probably got another five to six years of bull market ahead of us.

Sure it’s not going to be straight up, there’ll be rocky bits, but it has been robust from here and I think it’s going to be robust for a bit longer, and then we’ll get some sort of correction, of some sort of sector rotation and then probably a very strong market again, probably in early 2010. But I think most of 2009 will be good before we start getting that correction. But if the gold price does what I think it might do we may in fact find that correction is really only a matter of rotation within the market, gold market and the speculative should have a very good run up until Christmas.

Basis for Resources Outlook

Speaker: Barry Dawes
Release Date: 10 Jun 2009

Barry Dawes, Managing Director of Martin Place Securities, speaks on the Australian Resource Sector and the Economic Recovery:

This week weve seen quite good encouragement from the markets showing us that the recovery that weve expected pretty much looks as if its well underway. The markets are telling us that commodity prices have risen and will go higher and were particular encouraged by the way the gold price in US$ has been strengthening again as we had expected. The A$ has been very strong and that in itself is good confirmation in a big market that the recovery is underway.....

Australia's Strengthening Market

Speaker: Barry Dawes
Release Date: 6 May 2009

Its good to see that MPS's positive outlook on the Australian Resource sector is being confirmed by the increasing strength of the Australian market. The resource sector is recovering reasonably well and is being supported by commodities, with the copper and oil prices in particular leading everything higher.
Barry Dawes is the Managing Director of Martin Place Securities, a resource investment firm based in Sydney, Australia.

The Start of the Economic Recovery

Speaker: Barry Dawes
Release Date: 16 April 2009

The world economic outlook may be clouded, but the Australian financial markets are showing solid signs of a recovery. At MPS our focus and expertise is the resource sector and currently the markets are telling us the Australian resource and commodity sectors are improving, particularly in comparison to the broader financial markets, with copper, oil, zinc, nickel prices doing well. Stocks like BHP and many commodity stocks have all done well so far in 2009 and the Australian dollar has made a six month high against the US dollar. Barry Dawes, Managing Director of Martin Place Securities, in Sydney, talks about the financial outlook in the face of the "Global Economic Crisis", and the effect of the resource inventories and current market trends on the Australian and Resources markets.

Gold is the Driving Force

Speaker: Barry Dawes
Release Date: 6 February 2009

The economic outlook for the world is difficult and may be suggesting further falls in the major indices in 2009 but the strength of gold strongly indicates that clients will not only preserve capital but should achieve outstanding returns as gold prices surge to levels well in excess of US$1500/oz. .

Australian Opportunity

Speaker: Barry Dawes
Release Date:December 2008

Barry Dawes speaks about investing in Australia, the Australian economy and Australia's outlook in the current market

Commodity Outlook

Speaker: Barry Dawes
Release Date: December 2008

Barry Dawes on commodity investment, demand, inventory stocks and the future outlook for commodities.

BHP December 2008

Speaker: Barry Dawes
Release Date: December 2008

Asia's growth, the steel industry, the effect of the steel boom on BHP, and an forecast for BHP.

Gold Market Outlook

Speaker: Barry Dawes
Release Date: December 2008

The outlook for gold has never been better. Barry Dawes analyses the world market for gold.