Insightful Insights

Learn Roger Montgomery’s insights into the latest 2012 results announcements in this discussion on ABC1’s Inside Business broadcast 2 September 2012.  Watch here. 

by Roger Montgomery Posted in Insightful Insights, TV Appearances.

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The following article was contributed by Harley, and gives a very detailed account of Funtastic as a possible turnaround story. If you have the skill to identify them, turnarounds can be very profitable investments, although its not an area of focus for us at Montgomery Investment Management. In 2006, Funtastic fell to a B5 on our quality and performance ratings, and since that time has been outside the range that we would normally consider “investment grade”.  However, as Harley points out, Funtastic may enjoy better times ahead if its portfolio of toys appears on enough Christmas shopping lists.

Funtastic is in the business of fun. As a leading toy distributor with domestic and international operations, as well an entertainment arm, Funtastic (ASX:FUN) make money by selling products that make us happy. The question is, would an investment in Funtastic at today’s prices set us up for pleasant future returns or is this one turnaround story that is worth avoiding?

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by Harley Grosser Posted in Companies, Insightful Insights, Manufacturing.

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We have just written our monthly report to investors of The Montgomery Private Fund and the outlook for the large Materials stocks is not expected, in our view, to improve in the short term. Chinese steel mills don’t see demand picking up. Daily steel production falling 5% every two weeks. While blast furnaces are slowing down, capacity is high and shut downs not happening. We have noted already that inventory remains double that of 2007.

WHat does this mean? Prices can, and we expect will, continue to go down. Not is straight line of course but the outlook appears to be deteriorating even further for the widely held Materials stocks.

In China, steel prices are already hitting 2008 lows.Observers say Iron ore inventory levels at ports is still quite high

Our reading on Steel demand and after breaky with a member of the team at one of the the worlds largest short selling fund is that steel demand will continue to be weak into 2013. I think expectations for a recovery in the short term simply represent wishful thinking by those in denial.

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by Roger Montgomery Posted in Energy / Resources, Insightful Insights.

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You might recall back in December (Dec 8, 2011) with FMG trading at $4.84 (now $2.94), BHP at $37.00 ($31.36 today) and RIO at $66.09 ($50.19 today) we warned

“I now wonder whether we are seeing the bubble slip over the precipice? Falling property prices (10 per cent of the Chinese economy) leads to lower construction activity, leads to declining demand for Australian commodities, leads to falling commodity prices, leads to big drops in margins for a sizeable portion of the [Australian stock] market index…”

Since the start of 2012, commodities have, on average, fallen more than 20%, and in some cases much more. This is a pace of decline matched only by that experienced during the financial crisis of 2008.

At current prices many mining companies will now be making losses. As analysts we question the viability of some companies and Atlas Iron for example, one of the largest Iron Ore producers outside of BHP and RIO, may not be without outside help – should prices remain at or below present levels.

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by Roger Montgomery Posted in Companies, Energy / Resources, Insightful Insights.

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by Roger Montgomery Posted in Insightful Insights, Investing Education, Value.able.

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Last night the US markets rallied. There was no good news. In fact the reason for the rally was that the US economy was floundering. A floundering economy means more stimulus and stimulus is good because it should eventually lead to a better economy.

In other words an unhealthy patient is about to receive another sugar hit which might make them better. Buy!

Clearly the irony was not lost on traders of Fortescue shares this morning. FMG’s share price rallied several percent on the open in response to FMG’s announcement that it will significantly cut back on capex and production targets. Apparently, investors in a pure play iron ore company are pleased that the company will be less exposed to iron ore. Evidently the company is worth more if it does less. Taken to its extreme, it worth the most if it does nothing.

We believe that over the long term, equity markets work effectively as a weighing machine. In the short term, however, they can sometimes seem a little odd – and thats putting it mildly!

Stay tuned we are cooking something mind boggling about FMG and its peers…

by Roger Montgomery Posted in Energy / Resources, Insightful Insights, Investing Education.

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http://www.theaustralian.com.au/business/markets/iron-ore-price-squeeze-more-dire-for-miners-than-thought/story-e6frg91x-1226462535319

On December we explained that just as Gerry Harvey needs to sell more plasma tvs at deflated prices to generate the same profit because of margin squeeze, the same laws of arithmetic would apply to miners of ore and coal.

It’s not difficult to imagine a world where a company like Atlas Iron ore (AGO) will need a bailout!

One of our brokers wrote to us today;

“Big downgrades to our FY13 expectations are coming. On our estimates for FY13 and against market consensus we believe there could be downgrades to NPAT estimates of 31 – 96% for the producers”

It comes from the same analyst that told us to buy mining services businesses in April.

You might recall Vale’s massive June quarter slump. Aussie market investors seem to be in denial or just hoping for iron ore price to bounce. Neither strategy preserves retirement savings.

Stay tuned.

by Roger Montgomery Posted in Energy / Resources, Insightful Insights.

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Learn of Roger Montgomery’s thoughts on the latest changes to the Carbon Scheme announced by the Gillard government in the this edition of ABC1’s Inside Business broadcast 2 September 2012.  Watch here.

by Roger Montgomery Posted in Insightful Insights, TV Appearances.

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For all you budding economists: Unemployment rose in the Euro-zone in July. There was also a jump in inflation above expectations in August. Inflation rose for the first time in a year, from 2.4% to 2.6% and above consensus. The view now is that the downturn in household spending will worsen in the second half of this year. There were 88,000 additional people unemployed leaving the unemployment rate at an unchanged record high of 11.3%. June’s number was revised higher from 11.2% to 11.3%. Unemployment is worst in Spain where the proportion of people without a job is a staggering 25% or more. But French, Dutch and Belgian rates all rose too. It all suggests consumer spending will continue to fall over the next few months at least. Many now expect the ECB will adopt additional measures to support the economy either this week or in the next few.

by Roger Montgomery Posted in Insightful Insights.

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Roger Montgomery discusses why earnings are not all equal in this Australian article published on 1 September 2012. Read here.

by Roger Montgomery Posted in In the Press, Insightful Insights.

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