Commodities Making Good

Commodities Making Good

Commodities Making Good 354 244 AMA Team

Screen_Shot_2013_01_14_at_2.54.55_PM.1Greetings everyone. We hope you all had a wonderful weekend! We had a company retreat over the weekend to Anji Province to a nice mountain top resort with a small bunny hill to ski on, hot springs to soak in and lots of team building events to get involved in. The road trip out of Shanghai was certainly a welcome change of scenery and mini break for us all! Not to mention that one doesn’t expect that in China so it was a nice surprise and great experience! There hasn’t been much news over the past week but let’s still take a peek into the near future and what may lie ahead and what the markets have in store for us.
The US Treasury expects the debt ceiling to come about in early March, but knowing the US Treasury it might be more prudent to prepare forDebt Ceiling this in early to mid-February. As like the many times before when the US debt ceiling approaches, it usScreen_Shot_2013_01_14_at_2.23.02_PMually causes a small bout of turbulence in the markets before everything returns to normal. The last time this happened was in August last year when the US ran into debt ceiling issues, and within a month of temporarily resolving these issues, the markets went back to normal and on this basis, I think we can bet on similar circumstances this time around too.
In the mean time, oil is up compared to three months ago, as is iron ore, copper, as well as many of the other commodities. We’ve certainly been calling this for a long time so it’s nice to see the performance coming into fruition for us. And, as with any fundamental trading, you can usually see what will happen but not when it will happen.
OilScreen_Shot_2013_01_14_at_3.19.41_PMSomething else a lot of people ask is what’s the difference between Brent Oil and WTI Oil, as both are commonly shown? The difference is denominated in the price…. For instance, last Friday Brent Oil was around USD$ 112 per barrel and Crude around USD$ 93 per barrel. We could spend all day on this but no one wants to do that so here’s the basics… Brent Oil comes out of the UK and WTI (West Texas Intermediate) out of Texas. Besides the slight difference in the quality of the oil, there are two main factors that cause differences in the pricing – one being tax costs in which the UK taxes are much higher and the other is supply amounts in the UK and the US respectively. As it’s not very easy to transport vast amounts of oil, most demand is kept region based. A good example of how this translates over to the prices is the current stock pile of oil in the US which is suppressing the price of the WTI vs. Brent.
So, it’s a rather simple supply and demand philosophy with oil and that’s what we’d expect with such a commonly used resource. China RisingScreen_Shot_2013_01_14_at_5.08.54_PMUnlike some of the complex derivatives and mortgage securities that have baffled investors and are so complex in their structure, it makes most bankers cringe when it comes time to analyze them. Speaking of supply it looks like China’s numbers continue to grow as manufacturing and consumption start to pick up again. It might take more than just China to help revitalize and stabilize growth within the markets, but having the world’s second largest economy putting up decent numbers is always a strong support and a step in the right direction!
For Austen Morris Associates’ investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com

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