Friday, September 17, 2010
One big industry event that has been on recently is the CLSA Conference which some of TMM have had the chance to attend. The sheer number of meetings and events is somewhat mind-boggling, so we are going to have to stick to the highlights at this point in time:
- Simon Schama gave a pretty compelling speech on the political risks to the global economy now. As some of the more ursine variety have noted, Act 1 of recovery: stimulus, capital injections to banks etc has been pretty successful. Its Act 2: don’t get hung drawn and quartered by the masses or have them take out their fury on others that is tricky.
- Everyone seems incredibly bulled up about anything that isn’t China, India, Australia (i.e. - the obvious carry and commodities stuff). Mongolia is about to start producing insane amounts of copper and coal and in the event it taps the market for sovereign debt looks like pretty compelling yield pickup. The Central Asian Sovereign market has previously had some horror stories (Kazakhstan) but TMM is of the view that a bird in the hand is worth two in the bush and Mongolia seems to be executing on its mining projects than Kazakhstan is at getting all that oil out of the Caspian. But TMM is sure that, eventually, those EM punters falling over themselves to buy those bonds will get Genghis Khan-ed (sorry, we couldn't resist). Robert “Toxic Bob” Friedland of Ivanhoe Mines gave a typically colorful presentation and is of the opinion that “it’s a good time to buy a house – if you build it out of copper bricks”. What does he mine again? Ah yes, copper. Nonetheless, his description if Chiquicamata and other mature Chilean mines as “a little old lady in bed, waiting to die” is geologically pretty accurate if in his characteristic bad taste.
- Dragon Capital’s Dominic Scriven gave a good talk on all things Vietnam, though why one should invest with them is less clear. After explaining how half the banking sector was being forced to consolidate and raise capital and faced more equity dilution one member of the audience asked why their holdings of banks was so high. Indeed, why?
- One standout presentation was from the head of the Central Bank of Sri Lanka, Ajith Nivard Cabraal. With a civil war behind them and a fairly credible inflation-targeting regime in place as well as sensible infrastructure spending Sri Lanka might not be a bad place to invest – had everyone else not found it already. The performance of the Colombo index screams one thing: early EM market with great fundamentals but way too much in the way of portfolio flows and not enough FDI. Beware the lessons of Vietnam and others: get some more private companies to be publicly listed or start thinking capital controls and real FDI incentives. Nonetheless, one country to watch.
- Michael Komesaroff of Urandaline Investment expounded on many of his favorite topics (Western China infrastructure spend – buy copper! Buy metallurgical coal!), but one thing that did catch TMM’s ear was his description of zinc and lead as “both dogs of a metal”. Coming from a natural commodities bull that is worth pondering. Some of TMM have been doing some work on Lead and the picture isn’t great – as soon as your average Chinese punter moves from lead acid batteries for his e-bike to lithium it's absolutely game over. The key hurdle here is that despite higher upfront costs lead acid is worse at a 10% IRR. If lithium drops 50% over the next 5 years as Gerbrand Ceder at MIT said in his presentation, that number moves to 30% odd. At that level TMM would happily leave the speculating business and move into making small auto loans.
- Marc Faber – the one and only – well, not much has changed here. Buy EM, buy gold, forget Japan and the US. Marc figures there is war on the horizon though between the US and China at some point and with the noise coming from the political peanut gallery that is US Congress it isn’t hard to imagine.