Geoff Cutmore - Morning Thoughts

A True Commodities Believer


Are you still a believer in the secular commodities boom? Our guest host this morning, Greg Smith from Fat Prophets thinks we will see many commodities make new highs this year. It was a good day to exercise that viewpoint, given the turbulence for investors in gold, copper or oil in recent days. Have you felt your faith tested? Sit tight, says Greg, and remember you are an investor and not a speculator.

The twist in the tail in his analysis: the U.S. economy will see flat to negative growth this year. But the robust demand story in Asia for commodities will offset demand-side weakness in America. Greg restated 18-month targets of $100 a barrel oil and $1000 an ounce gold. The extent of gain for non-dollar based investors may be capped by Greg’s expectation the dollar will visit $1.40 per euro, but he still thinks they’re worth buying.

Stocks he likes: BHP, Anglo American, BP, GSK, BT Group.

As always do your own research before parting with your own money. 

Dare to Imagine

Have you cleared a space for some brain time this year? Information overload and busy work schedules are the enemy of clear thought. See if you can find a space to do nothing else but think about your investments, and what might work this year.

Consensus abounds about the outlook for growth and markets in 2007. It goes something like this: the U.S. sees a moderation in growth but no dramatic slowdown; growth prospects in Europe and Asia remain good. This creates a benign environment for equity markets which do high single digit or low double digit but not as well as last year. Buy Europe and Asia over the U.S., and don’t get too worried about emerging markets because they are strong enough to survive and prosper on their own fundamentals (mostly) so long as the U.S. does between 2%-3% GDP. Sounds OK, doesn’t it?

The problem is the consensus is never going to give you superior returns. In fact the consensus is, one might argue, already priced into this market which ought to change your optimism about buying, holding and collecting your 10% at the end of the year. If it’s already in the market, where is the next 10% (that people aren’t expecting) going to come from?

I don’t have a good answer for that -- but I do urge you to re-examine your own predictions/expectations for 2007 and challenge whatever you consider a foregone conclusion. In other words, dare to imagine other outcomes for stocks, sectors and markets that aren’t priced in … only then are you going to stand a better chance of beating the market.

Shall I start the ball rolling? Here’s an interesting thought gleaned in conversation with Simon Goodfellow from ING, yesterday's guest host. What if France and Germany were able to produce 4%-5% GDP growth or even better? Is that unfeasible? What order of re-rating would the CAC and the DAX enjoy? Are you among the shoulder-shruggers who can barely conceive of growth rates of this size for two economies which have struggled to shine over the last decade. And let’s throw in a couple more thoughts. What if the 35-hour working week rule were rescinded? Or, what if Angela Merkel presided over the privatization of the German banking sector?