The macro-economic implications of the strategic metal supply

  • 1,146 views
Uploaded on

Objective Capital's Rare Earths, Speciality & Strategic Metals …

Objective Capital's Rare Earths, Speciality & Strategic Metals
Investment Summit 2012
Ironmongers' Hall, City of London
13-14 March 2012
Speaker: Chris Watling, Longview Economics

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
    Be the first to like this
No Downloads

Views

Total Views
1,146
On Slideshare
0
From Embeds
0
Number of Embeds
1

Actions

Shares
Downloads
16
Comments
0
Likes
0

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. RARE EARTHS, SPECIALITY& STRATEGIC METALSINVESTMENT SUMMIT The macro-economic implications of the strategic metal supply Chris Watling – CEO, Longview Economics IRONMONGERS’ HALL, CITY OF LONDON ● TUESDAY-WEDNESDAY, 13-14 MARCH 2012 www.ObjectiveCapitalConferences.com
  • 2. The Macro Picture Presentation to Objective Capital conference Chris Watling, CEO, Longview Economics 13th March 2012Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 2Website: www.longvieweconomics.com
  • 3. Contents 3. Kondratieff Long Cycles 4. Western Deleveraging – judging the unwind 5. Asia & Commodities 6. China & Rare Earths 7. ConclusionTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 3Website: www.longvieweconomics.com
  • 4. 1. The Kondratieff Long Cycles
  • 5. ‘Super Cycles’: BONDS US 10 year bond yields 17.5 Sept 81 peak 16.05% 15.0 12.5 US 10 year bond yields (%) 32 yr 31 yrs so uptrend far 10.0 8 yrs sideways May 1920 peak move... 7.5 5.58% 29 years Down trend (incl 8 yrs 5.0 sideways) Trough 1941 - 49 2.5 currently 1.94% 0.0 00 05 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 00 05 10 Source: Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 5Website: www.longvieweconomics.com
  • 6. Long cycles: Bonds, Equities & Commodities Table 1: Secular Long Cycles – Bonds, Equities & Commodities Secular US Length Equity bull Equity Bear Commodity Commodity bond cycle Bear Bull Falling 1920 - 1949 29 yrs 1920-29 1929-1951 1920-1932 1932-1951 yields Rising 1949-1981 32 yrs 1949-68 1968-82 1951-68 1968-80 yields Falling 1981- 31 yrs (so far) 1982-2000 2000 - 1980-2000 2000-present yields present present Rising ? Yields Source: Longview EconomicsTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 6Website: www.longvieweconomics.com
  • 7. Western Secular Bear Market - Ongoing S&P500 & Dow Jones Industrial Average (both in real terms) 1910 - present 1600 Long term secular BULL Evidence for 20 – 25 800 & BEAR year long ‘super’ cycles cycles exists in the rebased to 100 (1940) bull 400 history of equity bear bull bear markets in the 200 bull Western economies bear 100 50 25 1920 1935 1950 1965 1980 1995 2010 S&P500 (real terms) DJIA (Real terms) Source: Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 7Website: www.longvieweconomics.com
  • 8. Long term ‘Super Cycles’: COMMODITIES The commodity super cycle (1910 – 2011, CRB index) 640 320 1980 bear Commodity CRB commodity index (logarithmic) bull super cycles are 1951 1999- ‘negatively’ 160 bear bull 2001 correlated with 1920 Western Equity 80 1968- 71 super cycles… bull 40 bear 1932 20 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 World, CRB, Spot Index, End of Period, USD CRB index long term Monthly Source: CRB, Longview Economics, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 8Website: www.longvieweconomics.com
  • 9. Secular De-rating Western Equities (based on Shiller PE ratio) Table 1: Long term Secular trends – Equities & Commodities (& equity re-rating/de-rating periods)Equity When? Commodity When? Equity valuation When? PE highs/lows Leveraging/Trend Trend rerating/derating? Deleveraging*Bear 1896 - 1920 Bull 1896 - 1920 derating 1901 - 1920 25.2x to 4.8x N/ABull 1920 - 1929 Bear 1920 – 1932 rerating 1920 - 1929 4.8x to 32.6 148% to 185%Bear 1929 - 1932 or Bull 1932 - 1951 derating 1929 - 1932 or 32.6x to 9.0x 185% to 167%** alternatively to alternatively to 1949 1949Bull 1949 - 1968 Bear 1951 - 1968 rerating 1949 - 1965 9.0x to 23.9x **149% to 148%Bear 1968 - 1982 Bull 1968 - 1980 derating 1965 - 1982 23.9x to 6.6x 148% to 174%Bull 1982 - 2000 Bear 1980 - rerating 1982 - 2000 6.6x to 44.2x 174% to 267% 1999/2001Bear 2000 - present Bull 1999/2001 to derating 2000 – present 44.2x to 21.9x 267% to 355% present (current) Source: Longview Economics, Shiller, CRB commodities index – for further detailed analysis of the commodity super cycle see Longview Letter no 26 June 2008: “Commodity Super Cycle: Myth or Reality?” *Leveraging measured as total economy wide debt (excl financial debt) % of nominal GDP **NB different data sets pre 1949 & post 1949
  • 10. Long term valuations suggest: Secular Bear continues Long term valuation ratios (US equities) – Shiller PE ratio Secular bull 45 markets start with 2000 peak widespread 40 1929 negative 35 Peak PE ratio (cyclically adjusted) sentiment 30 1901 towards equities, peak 1937 1965 25 peak structurally low peak equity ownership 20 levels and Shiller 15 PERs of sub 10 10 currently @ 21x - above ratios (e.g. 1920 6.6 long term average 5 & 1982) 5x 1920 6x 1932 1982 x levels 0 1890 1905 1920 1935 1950 1965 1980 1995 2010 S&P500 PE ratio calculated by the Shiller method (i.e. based on 10 year rolling historical earnings) Long term average Source: Shiller, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 10Website: www.longvieweconomics.com
  • 11. Contrasting Return Profiles: BEAR & BULL SUPER CYCLES Investment approach shld be contrasted in each period In secular bears = important to trade on 3 – 6 month+ view Period Bull/ Returns Returns (real Real DJIA index Approx Average real Bear (nominal terms) numbers (start to compound GDP growth terms) finish) annual rates 1920 -29 BULL +429% +495% 35.5 to 210.3 +21.9% N/A 1929 – BEAR -56% -68% 210.3 to 67.2 -5.5% 3.9% p.a. 1949/51 1949/51 – BULL +487% +426% 67.2 to 295.8 +9.1% 4.2% p.a. 1966 1966 – 1982 BEAR -17.8% -73.1% 295.8 to 79.4 -7.9% 3.2% p.a. 1982 – 2000 BULL 1,322% +724.2% 79.4 to 654.4 +12.4% 3.7% p.a. 2000 - BEAR FLAT -18.4% (so far) 654.4 to present n/k 1.6% p.a. current (currently 533.8)Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 11Website: www.longvieweconomics.com
  • 12. Real Yields – negative (bubble valuation) US 5 year, real, break-even & UK 10 year & 2016, real, break- nominal yields even yields 3.0 2.0 2.5 1.5 2.0 1.0 1.5 0.5 1.0 0.0 0.5 -0.5 0.0 -0.5 -1.0Implieddeflation -1.0 -1.5 -1.5 -2.0 Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb 09 10 11 12 Constant Maturity Inflation-indexed, Breakeven Inflation Bid, Yield 2009 2010 2011 2012 Constant Maturity Inflation-indexed, Yield 0 UK 10 year index linked real yield series UK 2016 index linked real yields 0 Source: Reuters EcoWin Source: Reuters EcoWin Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome 03/17/12 12 Website: www.longvieweconomics.com
  • 13. McKinsey Country Debt totalsTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 13Website: www.longvieweconomics.com
  • 14. 2. Western Secular Bear Market – Ongoing until: Overarching theme: Bubbles need to be fully deflated – Excess removed/cleaned out of System – i.e. System needs to be reset, including: • Full deflation of Western Housing Bubbles (growth headwind) • Government finances – back on (path) to sound footing (growth headwind) • Households deleveraged (back to pre-bubble levels) – (growth headwind) • Financial sector – Fixed/deleveraged/profit as % of GDP downsized – (growth headwind)Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 14Website: www.longvieweconomics.com
  • 15. 2a. Western Housing bubbles: many still deflating
  • 16. 2a. House Bubble Deflation Adjustment Trend to Fall from peak Fall from peak Peak Source Inventory rel to trend lows (i.e. (real terms, %) (nominal adjustment (% overshoot terms) complete) downside) US - FHFA 91% 17.5% 24 16% 2006q4 FHFA 7 months supply (further from (normal range 4 – trend) 6 mos) – peak 12.4 US – Case 83.5% 17.5% (from 39 32% Jun 2006 Case As above Shiller trend) Shiller UK - 72.9% 44.4% (from 26 20 2007 Q3 Halifax/ N/A (shortage of Halifax trend) HBOS rental property) UK – 45.1% 49.1% (from 18 10 2007 Q3 Nationwide N/A (as above) Nationwide trend) Spain 72.7% 58.2% (from 23 18 2007 Q3 Ministry of trend) Housing Ireland n/a n/a 46 45 Feb 2007 TSB/CSOTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 16Website: www.longvieweconomics.com
  • 17. Structural western economic growth headwinds: 2a. US Housing bubble – continues to deflate US House price index (real terms, FHFA) US House price index (real terms, Case-Shiller) 170 Peak 200 peak of 06 199.1 in 190 Rebased to 100 I Jan 1987 (10 C ities composite) 24.3% 06 160 fall (real 180 terms) 150 170 US real house price index +58% 160 140 rise 150 Currently 130 140 120.5 Current 130 real terms 120 Peak Peak Aug 89 fall from 79 peak 89 120 peak = +16% +16% 8% Trend? 39.5% latest 14% Total fall 35% 120.5 110 rise fall rise fall 110 peak to trough in real 100 terms Trough 100 95 Trough Trough 90 Feb 97 75 82 90 80 trough 1975 1980 1985 1990 1995 2000 2005 2010 86 88 90 92 94 96 98 00 02 04 06 08 10 12 US real house price index (rebased to 100 @ 1 Jan 1975) S&P composite 10 cities Case Shiller index in real terms (rebased to 100 in 1987) Source: Reuters EcoWin Source: Case Shiller/S&P, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 17Website: www.longvieweconomics.com
  • 18. 1. UK House prices – Bubble deflation UK Real house prices London (real) house prices) 300 Real house price indices (Rebased to 100 @ 1 Jan 1983) 2007 350 London house prices index (real & rebased to 100 1984) peak 275 167% trough 300 250 to peak boom - 1996 thro to 225 2007 250 200 Peak 200 175 89 76% 150 trough to 38% bust +26% peak 80s 150 boom in boom Peak 125 70s 79 100 100 15% Trough fall Trough 96 Trough 82 75 77 50 1975 1980 1985 1990 1995 2000 2005 2010 2015 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Real House prices index (using Halifax & GDP deflator, rebased to 100 1 Jan 1983) London house prices (Nwide) - inflation adjusted Real House prices index (using Nationwide & GDP deflator, rebased to 100 1 Jan 1974) London house prices (Halifax) - inflation adjusted Source: Reuters EcoWin, HBOS, Nationwide, Longview Economics Source: Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 18Website: www.longvieweconomics.com
  • 19. UK House price adjustment UK house prices to average earnings (xs) 6.0 Years for UK house price/earnings ratio to return to 3xs (under various assumptions 5.5 for annual house price falls and wage inflation)House prices to average earnings 5.0 Annual house price falls 4.5 ZERO -3% -5% Wage 1.00% 35.0 9.9 5.3 inflation 4.0 2.50% 14.3 7.1 4.6 (Y-o-Y %) 4.00% 8.9 5.1 3.8 3.5 Source: Longview Economics, Reuters EcoWin Back to 3xs earnings? 3.0 1985 1990 1995 2000 2005 2010 2015 2020 mean Source: Longview Economics, Reuters EcoWin Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome 03/17/12 19 Website: www.longvieweconomics.com
  • 20. 2a. Irish House price bubble…still deflating Irish house prices – still declining in ….and nominal terms real terms 110 140 325 Peak @ 100 130 100 300 120 275 90 Average price (E UR) (thousands)A ll rebased to 100 @ Jan 2007 110 250 80 100 225 70 90 Index 200 60 80 175 70 50 150 60 40 125 50 30 40 100 30 75 20 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 1996 1998 2000 2002 2004 2006 2008 2010 2012 National house price average (EUR) - series Discontinued Dublin (inflation adjusted - discontinued series) Real national hse prices Permanent tsb, national, 2003=100, Discontinued National (inflation adjusted) Dublin rebased (100 Jan 2007) Residential property prices, national, houses, 2005M1=100 Source: Reuters EcoWin Residential property prices, Dublin, all residential properties, 2005M1=100 Source: Reuters EcoWin
  • 21. 2a. Spanish House price bubble…still deflating/Housing still expensive Spain, Housing Market Indicators: Price of Spain, House Prices, Appraised housing, total housing/gross household income 2250 2095 8.0 high... 2000 7.5 19% off latest 7.0 1750 1701 highs 6.5EUR/Square metre 1500 multiple (x) ???? 6.0 1250 5.5 1000 5.0 750 4.5 500 4.0 250 3.5 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 Source: Reuters EcoWin Source: Reuters EcoWin
  • 22. 2b. Households deleveraging
  • 23. 2. Deleveraging Studies The Swedish Comparison • “Another important driver of the cycle is the leverage of the private sector. In the decade prior to a crisis, domestic credit/GDP climbs about 38 percent and external indebtedness soars. Credit/GDP declines by an amount comparable to the surge (38 percent) after the crisis (our emphasis). However, deleveraging is often delayed and is a lengthy process lasting about seven years. The decade that preceded the onset of the 2007 crisis fits the historic pattern. If deleveraging of private debt follows the tracks of previous crises as well, credit restraint will damp employment and growth for some time to come.” Reinhart & Reinhart (R&R), August 2010 :‘After The Fall’ - R&R analysis of “fifteen severe post-World War II financial crises in advanced and emerging economies and three synchronous global contractions”. 4. “the UK and Spain have made less progress (than the US) and could be a decade away from reducing their private sector debt to pre-bubble levels”. McKinsey Global Institute Jan 2012 Debt & DeleveragingTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 23Website: www.longvieweconomics.com
  • 24. 2b. Western Household Indebtedness – deleveraging has begun US Household debt as % of UK Household debt as % of GDP GDP 100 105 90 ?? 100 Total US household debt as % of GDP 25 year rising trend ????? 80 95 Hhold debt as % of GDP 70 90 60 with an acceleration 85 since 2000 50 20 year sideways trend 80 40 75 13 year 30 rising 70 trend 20 65 10 60 1950 1960 1970 1980 1990 2000 2010 94 96 98 00 02 04 06 08 10 12 14 16 18 20 US total household debt as % of GDP Source: Reuters EcoWin Source: Federal Reserve flow of funds, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 24Website: www.longvieweconomics.com
  • 25. 2b. UK Household deleveraging Debt to GDP ratio (%, nominal GDP vs. real GDP since Q4 2009) Peak in debt/GDP (@105%) 106% Years of household deleveraging (under 104% various assumptions for inflation & debt 102% 101% repayment)* to achieve a 65% debt/GDP ratio 100% 98% Debt repayment (annual %) 96% ZERO 1% 3% 96% 94% 2.00% 11.3 8.5 6.0 92% GDP deflator 3.50% 7.8 6.5 4.8 (Y-o-Y) 90% 5.00% 6.0 5.3 4.0 2006 Q3 2006 Q4 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4 2011 Q1 2011 Q2 2011 Q3 2011 Q4 Source: Longview Economics *NB we assume real GDP growth of 1.50% p.a. Debt to nominal GDP Debt to real GDP Source: Longview Economics, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 25Website: www.longvieweconomics.com
  • 26. 2c. Financial sector - downsizing
  • 27. Asset growth – various Western Banks European Total assets, US$bn 1998 2000 2005 2010 Latest when US$bn US$bn US$bn US$bn US$bn published German Deutsche Bank French 1 BNP PARIBAS 407 654 1,490 2,673 2,793 Q211 GB 2 HSBC 483 674 1,502 2,455 2,716 Q311 GB 3 BARCLAYS 363 473 1,591 2,324 2,396 Q211 GB 4 RBS GROUP 132 479 1,337 2,267 2,505 Q311 French 5 CREDIT AGRICOLE n/a n/a 1,386 2,315 2,530 Q311 Spanish 6 BANCO SANTANDER 301 329 958 1,629 1,673 Q311 French 7 SOCIETE GENERALE 449 429 1,004 1,514 1,669 Q311 GB 8 LLOYDS 278 326 533 1,547 1,534 Q311 Swiss 9 UBS AG 687 675 1,569 1,411 1,594 Q311 US banks US 1 JP Morgan 366 715 1,199 2,118 2,289 Q311 US 2 BoA 618 642 1,292 2,265 2,220 Q311 US 3 Goldmans 217 290 707 911 949 Q311 US 4 Morgan Stanley 318 427 899 808 795 Q311 US 5 Wells Fargo 208 250 482 1,258 1,281 Q311Twitter: US Chris@Longview6 Citi 740 902 1,494 1,914 1,936 Q311LinkedIn Group: Longview Economics – all welcome 03/17/12 27Website: www.longvieweconomics.com
  • 28. Example: RBS’s B-S…. RBS’s Funded & unfunded B/STwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 28Website: www.longvieweconomics.com
  • 29. 2c. Leveraged US (&UK) financial system (now deleveraging) US financial sector debt as a % of GDP 130 122% of GDP 120 peak q109 accelerating rate of 110 financial sector Financial sector debt as % of GDP 100 indebtedness (in recent decades) in 90 particular since the Asian crisis in now 88% 80 1997 1950s - heavily regulated banking & 70 financial system - banks stuck to core 60 intermediary business - 1997 @ taking in deposits and 50 lending them onwards 62% 40 30 1952 2.7% 20 of GDP Beginning of financial 10 deregulation 1970s & early 80s 0 1950 1960 1970 1980 1990 2000 2010 Source: Longview Economics, Federal Reserve flow of funds, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome Website: 03/17/12 29Website: www.longvieweconomics.com www.longvieweconomics.com
  • 30. 2c. Rapid growth of Western financial sector rel to GDP US commercial bank assets as % Euro zone bank assets as % of of GDP commercial banks assets as a % of GDP US GDP 90 350 347% GDP peak 2010q2 85 325 deleveraging? 80 EZ Banking Assets as % of GDP Asian crisis - 300 75 start of easy money & % of GDP 70 widening of US current a/c deficit 275 65 250 60 55 225 50 200 1975 1980 1985 1990 1995 2000 2005 2010 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Source: Reuters EcoWin Source: Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 30Website: www.longvieweconomics.com
  • 31. 3. Why BUY Commodities? - The Demand driversTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 31Website: www.longvieweconomics.com
  • 32. Demand Drivers: Developing (& industrialising) Asia: A 3 billion elephant Largest non developed Asian economies Asia (Population rank in GDP GDP per capita population Long term Real size relative to RoW) ($bn 2008) (US$2010) (bn; % of ASIAN total) growth rates Asia (23) (a) $7,239bn 4,070 3.60 (100.0%) China (1st) $3,206bn 3,999 1.33 (36.9%) 9.1% (1997-2007) India (2nd) $1,200bn 1,124 1.13 (31.4%) 9.7% (1997-2007) Indonesia (4th) $433bn 2,858 0.23 (6.4%) 5.9% (2001-2010) Pakistan (6th) $143bn 1,067 0.164 (4.6%) 4.8% (2000-2009) Bangladesh (7th) $68.4bn 624 0.147(4.1%) 7.4 % (1997-2007) Vietnam (12th) $68.6bn 1,168 0.086 (2.4%) 10.0% (1997-2007) a: excludes HK, Japan, Singapore, South Korea & Taiwan NB USA = 3rd 304mn pop; Brazil =5th 191mn; Russia = 8th 142mn; Nigeria = 9th 137mn; Japan = 10th 128mn; Mexico = 11th 110mn17/03/12 www.longvieweconomics.com 32
  • 33. Emerging Markets & Say’s Law (i.e. supply creates its own demand) Investment rates (i.e. as % of GDP) vs. Real average GDP growth rates (2000-2011) Real GDP growth (2000-2011) 12 y = 0.2398x - 0.5613 2 China R = 0.6148 A cross section of 24 10 Asian, Latam & Middle S Korea in 80s Eastern emerging market 8 economies shows a clear India relationship between Vietnam higher investment rates of 6 GDP & higher trend GDP Russia growth. Turkey 4 2 Mexico 0 0 10 20 30 40 50 Inv e stme nt Rate of GDP (2000-2011) Source: Longview Economics, IMFTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 33Website: www.longvieweconomics.com
  • 34. Funding higher Investment rates India – Investment and Savings rate (as % of GDP) 45 Both India’s saving 40 and investment rates DP have accelerated ings rate as %of G upwards since 2001 – 35 reflecting the accumulated reform momentum (beginning 30 with Manmohan Singh’s reform budget Investm & sav of 1991) ent 25 20 15 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Gross national savings Investment Source: Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 34Website: www.longvieweconomics.com
  • 35. China’s Coming Car growth Japan 900 China Industriali France 800 Spain US sation & 700 Mexico vehicles Motor vehicles per 1000 people 600 South Korea 500 Italy Norway per 1000 per 1,000 The number of vehicles 400 Chile Germany people India (15), Brazil (198), people in China is relatively low (32) - NB Canada (597) & US (820) 300 Netherlands UK 200 Canada If China industrialises with the same Russia vehicle intensity of GDP growth as 100 Brazil other emerging markets the 0 India number of vehicles per 1,000 people in 2030 should still be at low levels (at 170 vehicles) - 10,000 20,000 30,000 40,000 50,000 Real GDP per head Source: Longview Economics, Reuters EcoWinTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 35Website: www.longvieweconomics.com
  • 36. China’s share of world energy reserves Energy resources: Share of proven world reserves (%) – key countries 35.0 28.9 30.0 23.4 25.0 % of world total proven reserves 20.0 19.0 15.0 13.9 10.0 7.1 6.3 5.0 3.6 2.4 1.2 1.3 1.0 0.9 0.6 0.2 0.5 0.0 China Brazil Russia India USA Oil Gas CoalTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 36Website: www.longvieweconomics.com
  • 37. China’s Strategic Overseas Investments (2005 – 2011) Summary by Sector Outward Chinese Investment Sector Total Invested (2005 - 2011) Share of total (%) US$bn Agriculture 7.0 2.7% Energy 114.6 43.6% Finance 34.3 13.1% Industry 5.1 2.0% Metals 69.4 26.4% Power 8.1 3.1% Real Estate 11.2 4.2% Technology 4.5 1.7% Transport 8.4 3.2% Total 262.7 Source: Heritage Foundation, China Global Investment TrackerTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 37Website: www.longvieweconomics.com
  • 38. China - Expanding Trade Relationships China’s global reach has expanded significantly in the last decade Share of selected countries/regions trade (imports plus exports) with China last 12 last 12 last 12   2000 2009 months* 2000 2009 months* 2000 2009 months* G20       Other Significant trading partners Other Significant trading partners South Korea 9% 20% 23% Mongolia 33% 48% 61% Africa 3% 12% 14% Australia 7% 20% 21%   Kyrgyz Republic 8% 64% 57% Ghana 3% 13% 14% Japan 10% 20% 21%   North Korea 17% 42% 46% Bangladesh 5% 10% 13% United States 6% 14% 15%   Sudan 27% 39% 45% Iraq 5% 8% 13% Brazil 2% 13% 14%   Angola 18% 30% 37% Thailand 5% 12% 12% South Africa 3% 14% 14%   Tajikistan 1% 19% 33% Zimbabwe 2% 7% 11% Indonesia 5% 12% 13%   Myanmar 13% 24% 29% Middle East 4% 10% 11% Saudi Arabia 3% 12% 13%   Congo 5% 20% 25% Singapore 5% 10% 11% India 2% 9% 11%   Kazakhstan 6% 21% 24% Sri Lanka 2% 10% 10% Argentina 4% 9% 11%   Uzbekistan 1% 15% 18% CIS and Mongolia 4% 10% 10% Russia 5% 9% 9%   Nepal 5% 12% 18% Venezuela 0% 7% 8% Canada 2% 7% 7%   Malaysia 3% 13% 17% Syrian Arab Republic 2% 7% 7% Turkey 2% 6% 7%   Iran 5% 15% 17% Nigeria 1% 7% 7% UK 2% 6% 6%   Zambia 1% 8% 17% Somalia 0% 5% 5% Germany 2% 6% 6%   Philippines 2% 8% 15% Spain 2% 4% 4% Italy 2% 4% 5%   Turkmenistan 1% 11% 15% Qatar 3% 3% 4% EU-25 2% 4% 5%   Pakistan 4% 10% 15% Azerbaijan 1% 3% 3% Mexico 1% 8% 5%   APEC 7% 14% 14% Afghanistan 4% 3% 2% France 2% 3% 4%   * from Dec 2009 to Nov 2010. Calculated as each countrys total exports to China + total imports from China / the countrys total exports + total importsTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 38 Source: Longview Economics, Reuters EcowinWebsite: www.longvieweconomics.com
  • 39. China’s Tentacles (EurAsia, Africa & beyond)Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 39Website: www.longvieweconomics.com
  • 40. China – Geopolitics & rare earths as a political toolbal trade chokepoints/bottlenecks Twitter: Chris@Longview LinkedIn Group: Longview Economics – all welcome 03/17/12 40 Website: www.longvieweconomics.com
  • 41. China & Rare Earths 1. Rare earth deposits approx 35% of world total 2. China = 90% of global output of 17 rare earth metals 3. Miao Wei (minister for industray and IT) – China to retain limits on rare earth export quotas (2012 = 2011) 4. Miao: Domestic industry value: $6.4bn 5. Japan – providing ¥5bn in subsidies for R-E projects (Feb statement MITI) 6. Chinese Industry Rare Earth Association expected soonTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 41Website: www.longvieweconomics.com
  • 42. Conclusion – Overview (Long term) • Western Equities – in secular bear market – Driven by: b) Ongoing housing bubble deflation c) Financial system deleveraging d) Fiscal austerity • Emerging equities – in secular bull market – Driven by: b) Industrialisation c) Income catch-up/rapid productivituy development d) Economic Liberalisation/Opening up of/deregulation of economies e) Financial liberalisation (after decades of financial respression) f) Commodity wealth • Commodities – in secular super bull cycle – but facing some near term cyclical challenges – related primarily to China’s housing market – Long term supply shortages – with emergence of China & India (amongst others) • Western equities – rally possible through into Q2 2012 – based on excess pessimism @ lows… (indicators) – dependent on nr term EURO sol’n/patch (which is now in place) • Key Long Term issue: Inflation or Deflation • UK Dire Decade – adjustment approx half way throughTwitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 42Website: www.longvieweconomics.com
  • 43. Disclosure: This Publication is protected by U.K. and International Copyright laws. All rights are reserved. No license is granted to the user except for the users personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted, or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means, except with prior written permission from Longview Economics Ltd. This publication is proprietary and limited to the sole use of Longview Economics’ clients and trial subscribers. Each reproduction of any part of this publication or its contents must contain notice of Longview Economics’ copyright. This agreement shall be governed and construed in accordance with U.K. Copyright law and the parties hereto irrevocably submit to the exclusive jurisdiction of the English courts in respect of any dispute or matter arising out of or connected with this Agreement. Any disclosure or use, distribution, dissemination or copying of any information received from Longview Economics Ltd. is strictly prohibited, whether derived from the reports or from any oral or written communication by way of opinion, advice, or otherwise with a principal of the company; is not warranted in any manner whatsoever; and is for the use of our clients and trial subscribers only. Longview Economics Limited will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to the accuracy or completeness. All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Some investments may not be readily realisable since the market in securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Futures and options trading is considered risky. Past performance of an investment is no guarantee for its future performance. Some investments may be subject to sudden and large falls in values and on realisation you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. Longview Economics Ltd. is not authorised nor regulated by the Financial Services Authority. If you have received this communication in error, please notify us immediately by electronic mail to info@longvieweconomics.com or by telephone at (0044) 0870 225 1388Twitter: Chris@LongviewLinkedIn Group: Longview Economics – all welcome 03/17/12 43Website: www.longvieweconomics.com