Archive for end of super cycle

The Big Short. Next movie version may cover Africa as a series of bad bond deals might unravel // Get a second opinion

EUROBOND FEVER

A few years ago, many African governments started issuing Eurobonds (bonds issued in a foreign currency) as a way to raise money. Nigeria, Zambia and Kenya are just a few to have tested their money-raising luck on global markets. Interest payments on some of these Eurobonds are due this year..

Important point… ….- most of those payments have to be paid in US dollars. That’s not great if your local currency has lost up to half of its value against the dollar.

Any one short these bonds?

Many investors have become increasingly worried about the ability of some African governments to repay their Eurobonds… …the credit ratings of many countries have been sliding to near-junk and junk status.

Need evidence?  CHECK OUT the related BBC report

Zambia issued its first Eurobond in 2012 at 5.4%. When they did, copper prices had already been falling. Where was the due diligence?

Falling copper prices, a power crisis and a credit rating downgrade now mean that investors who willingly lent money to Zambia in 2015 ignored the reality that these deals would actually be more risky than it had been in 2012.

When the country issued its third Eurobond last year, the rate was 8.5%. Now Zambia has to make those increased interest payments from declining tax revenues. And with much more expensive dollars. This will not end well.

Other projects from mines to railways and ports badly need due diligence second opinions.  When they don’t get them, buyers should beware.  Or the next Academy Award nominated best movie could be about you.

This includes massive mine/rail projects in Namibia, Botswana, South Africa, Senegal, and Mali…    …to name a few.

Most of these strategic plan paper projects lack due diligence pro forma assessments of their long term Income Statement outcomes against traffic risks projections ofrevenue volume being unrealistic.  Always get a second opinion.

Mind numbing, jaw bone breaking numbers

A Bloomberg commodities index that tracks returns from 22 raw materials has fallen 50 percent since a 2011 high

Down BY HALF!

Not by a crummy 3% to 5% . Or even Ten percent

By a jaw breaking 50% range.

Who is getting fired for these numbing numbers? Where was the due diligence? ————

What did your strategic plan assume?

To read the entire Bloomberg report, go to bloom.bg/1MKPHrc

Commodity Collapse — might last a lot longer than many think

From Alaska to Mongolia, and South Africa to Brazil, old strategic plans are being trashed.

“It would take a brave soul to wade in with both feet into commodities,” says Brian Barish, who helps oversee about $12.5 billion at Denver-based Cambiar Investors LLC. “There is far more capacity coming on (line) than there is demand physically.” — “the only way that you fix the problem is to basically shut capacity in, and you do that by starving commodity producers for capital.”

// Projects on the drawing boards for a decade are now being abandoned. From mines to ports to railways. Investors this year are clearly dumping future commodities based holdings.

The Bloomberg Commodity Index, a measure of returns for 22 components, is poised for a fifth straight annual loss

This news WAKE UP CALL harks back 24 years… This index slide is the longest slide since the data begin in 1991.

It’s a reversal from the previous decade, when booming growth across Asia fueled a synchronized surge in prices, dubbed the commodity super cycle. Now, that output is coming to the market just as global growth is slowing.

Investors need to brace for a “long winter,” with the commodities bear market predicted to last for many years and oil dropping to as low as $35 a barrel, said Ruchir Sharma, who helps manage $25 billion as the head of emerging markets at Morgan Stanley Investment Management in New York.

Goldman Sachs has an even dimmer outlook.

AMONG THE CONSEQUENTIAL STRATEGIC CHANGES… … are these two. 1) Chesapeake Energy Corp. has cut its workforce by 15 percent. 2) Caterpillar Inc. may shed 10,000 jobs as demand slows for mining and energy equipment. 3) The big railroad freight companies in the lower 48 are again storing locomotive power.

For more, see: www.bloomberg.com/news/articles/2015-10-05/commodity-collapse-has-more-to-go-as-goldman-to-citi-see-losses