Insightful Insights

“Follow the steps outlined in Value.able, and I believe that over the long run, you cannot help but beat the market.”

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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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Fortescue Chief Nev Power yesterday said he was confident that the iron ore price would rebound to the US$120/tonne level following its recent weakness. We have been scanning the Chinese economy from a number of angles for some time now, and the indications we see are rather less optimistic. Remember, before 2002 the iron ore price averaged between US$15-$20/tonne. Currently US$90/tonne. History suggests that the maintainable price might be significantly below present levels, even after the large declines.

At the opposite end of the market to Fortescue, nano-cap Merchant House makes industrial boots in Tinajin, close to Beijing, and has been making them ever since Deng Xiaoping began the process of economic reform some 30 years ago. For FY2012, Chairperson Loretta Lee reports rising input costs, increasing wages, and new taxes and regulatory burdens. She states: “It is becoming increasingly obvious that China is no longer the world’s low cost factory”. The implications for China’s exports and the flow on into areas such as fixed investment should not be underestimated.

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

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From: http://www.bloomberg.com/news/2012-08-28/australia-mining-slowdown-hitting-economy-never-down-on-its-luck.html

“China’s iron-ore imports are going to slow down dramatically,” Xie, a former World Bank economist who researched globalization and bubbles, said in an interview from Hong Kong. “It’s not just because of the economic downturn; it’s because construction of property and infrastructure has peaked” in Australia’s No. 1 customer, he said.

Premier Wen Jiabao in March cut the government’s growth target for China to 7.5 percent for this year, the lowest since 2004, as policy makers there seek to reduce the role of large- scale fixed-asset investment in favor of greater consumer demand. China also has applied limited stimulus relative to 2008-09, as officials rein in property market speculation.

“I don’t think there’s ever been a miracle economy that ultimately lived up to its billing,” said Dylan Grice, global strategist at Societe Generale SA (GLE) in London, who cited the Japanese experience of the 1980s, Thailand before the 1997-1998 Asian financial crisis and Ireland’s “Emerald Tiger” period last decade. “This year’s miracle is next year’s disaster.”

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

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Do Gerard Lighting Group (GLG), Woodside Petroleum (WPL), Vocus Communications (VOC), CSL (CSL), Credit Corporation (CCP), Silex Systems (SLX), Boart Longyear (BLY), Mineral Holdings (MIN) and NRW Holdings (NWH) make the coveted Skaffold A1 score? Watch this edition of Sky Business’ Your Money Your Call broadcast 25 July 2012 to find out, and also learn Russell’s thoughts on the state of the Australian residential construction market. Watch here.

by Russell Muldoon Posted in Companies, Insightful Insights, Intrinsic Value, TV Appearances.

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Reporting season is a busy time for us at Montgomery Investment Management. Studying results announcements is one of the ways we try keep on top of what is happening in the market and identify economic trends and investment opportunities.

We do this in a fairly systematic way.  Every day we review, evaluate and catalogue every last results announcement made that day.  As I write, we have reviewed several hundred sets of financial statements and the accompanying commentary, representing around $700B of aggregate market capitalisation, with many more still to come.

This analysis draws our attention to individual companies that are performing well, and complements the automated stock screening tools we use, including Skaffold.  It also gives us a sense of broader economic trends and the relative health of different parts of the economy.

continue…

by Tim Kelley Posted in Companies, Insightful Insights, Market Valuation.

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