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Will the energy crisis hurt miners or is a commodities supercycle just getting started?

A string of great quarterly reports for London-listed miners this week has sparked a sector rally that has today driven the FTSE 100 index to its highest…

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A string of great quarterly reports for London-listed miners this week has sparked a sector rally that has today driven the FTSE 100 index to its highest level in over two months. The rally was led by the Australian mining goliath BHP reporting a record half-year profit. The company, which is headquartered and listed in Australia after abandoning its dual listing in London early this year, is the world’s biggest coal miner and is to pay a record $16 billion annual dividend after profits were bolstered by surging coal prices.

However, the spectacular $23.8 billion profit being generated by BHP for the year to the end of June was thanks to high coal prices but prompted investors to drive up share prices across the wider resources sector. FTSE 100 constituents Glencore, Anglo American and Rio Tinto are up 3.65%, 3.1% and 4% respectively today.

Their gains have lifted the FTSE 100 27.05 points to 7,536.20 point, its highest level since late June. The benchmark index has now returned gains in 6 of the last 7 sessions and is up 4.3% over the past month.

Several months ago we suggested investors should look at the mining sector as commodity prices soared and a number of prominent analysts forecast a new commodities “supercycle” lasting years. However, while commodity prices maintained a strong upwards trend between late last year and June, they’ve since softened.

commodity index

Source: The Globe and Mail

The share prices of most miners, Glencore which makes much of its revenue from commodities trading rather than mining is an exception with a gain of 47% in the past 12 months, have also softened.

anglo american plc

Did we get it wrong on the mining sector early this year when the hope was the beginning of a commodities supercycle would keep prices high for years to come, benefitting miners?

Why have commodity prices fallen since June taking miner share prices with them?

BHP’s record half year profit announced today was driven by coal prices. The miner is also a huge producer of iron ore, the price of which has dropped but was compensated for by coal revenues.

iron ore

Source: Trading Economics

Earlier in the year Russia’s invasion of Ukraine threatened to drive the prices of many commodities to record levels. However, fears of a recession, and the impact that would have on demand, has since seen them ease. BHP today said it expects the market for its main commodities to remain volatile for the foreseeable future. However, the miner expects demand from China to offset slow growth across advanced economies:

“Growth momentum has slowed across many key regions, and caution remains due to geopolitical uncertainty as well as Covid-19. This is particularly evident in advanced economies, as central banks pursue anti-inflationary policy and Europe’s energy crisis is an additional source of concern.”

However, Beijing is cutting interest rates and plans major infrastructure investments as it attempts to stimulate an economy hit by Covid lockdowns and a crisis in its real estate sector. That should underpin demand for commodities used in construction.

Why are analysts forecasting a commodities supercycle and see recent price drops as a blip?

One of the main arguments put forward by analysts who think we have just seen the first leg of a new commodities cycle and prices will rise again is underinvestment by miners over the last decade.

Jeff Currie, head of global commodities research at Goldman Sachs highlights that despite the rotation of capital out of tech and into energy and other commodities like metals, there hasn’t been a big influx of capital into the sector. He notes “the only money that is really coming into this space is share buybacks”.

Based on that he asks and answers the question “are you too late in this space?”, with “absolutely not, it’s just beginning”.

Currie also makes the point that while energy and commodities companies account for just 5% of the S&P 500’s market capitalisation, the sector generates 9% of the benchmark index’s revenues. This, he believes, shows the sector is still under-invested in, adding “it’s a huge capital misallocation that is occurring”, across “the entire old economy”.

The bottleneck to miners and other “old economy” producers that need to increase their production after a decade or more of underinvestment is current levels of commodity price volatility. An answer to the “volatility trap” caused by underinvestment would be higher returns convincing investors to allocate capital to the space. Over recent history, the commodities sector has offered relatively poor returns compared to growth sectors like tech.

Currie believes the commodities space needs a three year track record of generating returns high enough to compensate for volatility and a recent history of poor returns to attract significant new investment capital. And that we are currently just 18 months into the sector generating the higher returns investors are looking for.

James Luke, a commodities specialist at Schroders, is also of the opinion we are currently “in the early stages of a multi-year cycle”. He expects the cycle to be driven by demand from China once its government has driven its economy out of the other side of its Covid-19 pandemic slowdown.

But what about industrial metals like iron ore, aluminium, copper, tin and zinc? Over the past 18 months, industrial metals, like energy commodities, have outperformed equities after a decade or so of disappointing returns. In a recent podcast, PNB Paribas’s global chief investment officer Edmund Shing discusses the impact of the transition to a low carbon economy on demand for industrial metals.

He also points out how low industrial metal inventories have recently dropped with underinvestment by miners in new capacity over the past decade again pointed to as the root cause of the supply issues that have pushed prices up in recent months. The bank’s experts expect demand for base metals to outstrip supply over coming years even if recession in the West temporarily dampens it. The bank also believes China will invest in infrastructure as a lever to return economic growth.

The bank thinks some exposure to commodities, especially through liquid vehicles like ETFs, makes sense for all investors over the next few years as one of the best hedges against inflation and currency devaluation. Its experts see copper, aluminium and the battery metals lithium, nickel, cobalt and graphite, as well as platinum (increasingly used as a substitute for palladium in the automobile industry), as the metals most likely to see high prices maintained for years to come.

That would make miners with significant exposure to these metals also potentially attractive for investors, especially as they currently look cheap and often pay good dividends which tend to rise when commodity prices do, generating excess profits.

Despite the likelihood of volatility in metals prices over the short term, BNP Paribas believes there is much more potential upside for metals over the medium term than downside.

A recent report by the German investment bank Berenberg also notes on industrial metals “lack of investment in recent years limits the potential for supply expansion” and “structurally rising demand coupled with a lack of capacity on the supply side results in rising prices in the long term”.

chart1

Source: Berenberg

While periods of more intense industrialisation, particularly of China over the past two decades, have triggered historical commodities supercycles, Berenberg also believes the process of decarbonising the global economy will drive the one that has now started.

chart2

Source: Berenberg

The Berenberg report, published in August, concludes:

“Industrial metals have suffered badly in recent months from recession worries in

the West and the lockdowns in China. The demand outlook for the coming months

remains highly uncertain. However, industrial metals have now largely priced in this

uncertainty. We think that the long-term upside potential – driven by the strong

growth in demand from green technologies and the reluctance of producers to

invest – should be unaffected by all this. On the contrary, the longer-term trends

may even have accelerated as a result of current developments. In our view, this

offers a favourable opportunity to join the super-cycle of industrial metals.”

 

Miners and industrial metals ETFs offer a shorter term inflation hedge and mid to long-term growth potential

In the near term, an investment in miners with high exposure to industrial metals miners, or ETFs and ETCs that hold these metals directly, is one of the most obvious investors can hedge against inflation and currency debasement. Longer term, the commodities and metals supercycle many analysts predict could also see miners reverse over a decade of poor returns and enter a new growth phase.

The post Will the energy crisis hurt miners or is a commodities supercycle just getting started? first appeared on Trading and Investment News.

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Decrease in Japanese children’s ability to balance during movement related to COVID-19 activity restrictions

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected…

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A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

Credit: Credit must be given when image is used

A team of researchers from Nagoya University in central Japan investigated how restrictions on children’s activities during the COVID-19 pandemic affected their life habits and their abilities to perform physical activities. By comparing medical examination data before and after the onset of the pandemic, they found that physical functions among adolescents deteriorated, including their dynamic balance. They also found that the children had higher body fat levels and worse life habits. Rather than a lack of exercise time, this may have been because of a lack of quality exercise due to activity restrictions.  

During the COVID-19 pandemic, in Japan, as in other countries, schools and sports clubs tried to prevent the spread of infection by reducing physical education and restricting outdoor physical activities, club activities, and sports. However, children who are denied opportunities for physical activity with social elements may develop bad habits. During the pandemic, children, like adults, increased the time they spent looking at television, smartphone, and computer screens, exercised less, and slept less. Such changes in lifestyle can harm adolescent bodies, leading to weight gain and health problems. 

Visiting Researcher Tadashi Ito and Professor Hideshi Sugiura from the Department of Biological Functional Science at the Nagoya University Graduate School of Medicine, together with Dr. Yuji Ito from the Department of Pediatrics at Nagoya University Hospital, and  Dr. Nobuhiko Ochi and Dr. Koji Noritake from Aichi Prefectural Mikawa Aoitori Medical and Rehabilitation Center for Developmental Disabilities, conducted a study of Japanese children and students in elementary and junior high schools, aged 9-15, by analyzing data from physical examinations before and during the COVID-19 pandemic. They evaluated the children’s muscle strength, dynamic balance functions, walking speed, body fat percentage, screen time, sleep time, quality of life, and physical activity time.  

The researchers found that after the onset of the pandemic, children were more likely to have decreased balance ability when moving, larger body fat percentage, report spending more time looking at TV, computers or smartphones, and sleep less. Since there were no changes in the time spent on physical activity or the number of meals eaten, Sugiura and his colleagues suggest that the worsening of physical functions was related to the quality of exercise of the children. The researchers reported their findings in the International Journal of Environmental Research and Public Health.  

“Since the outbreak of the novel coronavirus in Japan after April 2020, children have not been able to engage in sufficient physical education, sports activities, and outdoor play at school. It became clear that balance ability during movement was easily affected, lifestyle habits were disrupted, and the percentage of body fat was likely to increase,” explained Ito. “This may have been because of shorter outdoor playtime and club activities, which impeded children’s ability to learn the motor skills necessary to balance during movement.” 

“Limitations on children’s opportunities for physical activity because of the outbreak of the novel coronavirus have had a significant impact on the development of physical function and lifestyle and may cause physical deterioration and health problems in the future,” warned Ito. “Especially, the risk of injury to children may increase because of a reduced dynamic balance function.” 

The results suggest that even after the novel coronavirus becomes endemic, it is important to consider the effects of social restrictions on the body composition of adolescents. Since physical activities with a social element may be important for health, authorities should prioritize preventing the reduction of children’s physical inactivity and actively encourage them to play outdoors and exercise. The group has some recommendations for families worried about the effects of school closings and other coronavirus measures on their children. “It is important for children to practice dynamic balance ability, maintaining balance to avoid falling over while performing movements,” Ito advised. “To improve balance function in children, it is important to incorporate enhanced content, such as short-term exercise programs specifically designed to improve balance functions.” 


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Contradictions, Lies, And “I Don’t Recalls”: The Fauci Deposition

Contradictions, Lies, And "I Don’t Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General…

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Contradictions, Lies, And "I Don't Recalls": The Fauci Deposition

Authored by Techno Fog via The Reactionary,

Today, Missouri Attoney General Eric Schmitt released the transcript of the testimony of Dr. Anthony Fauci. As you might recall, Fauci was deposed as part of an ongoing federal lawsuit challenging the Biden Administration’s violations of the First Amendment in targeting and suppressing the speech of Americans who challenged the government’s narrative on COVID-19.

Here is the Fauci deposition transcript.

And here are the highlights…

EcoHealth Alliance - the Peter Daszak group - is knee-deep in the Wuhan controversy, having been funded by the Fauci’s NIH for coronavirus and gain of function research in China (and having worked with the Chinese team in Wuhan). What does Fauci say about EcoHealth Alliance? Over two years after the COVID-19 pandemic began, and after millions dead worldwide, he’s “vaguely familiar” with their work.

In early 2020, Fauci was put on notice that his group - NIAID - had funded EcoHealth alliance on bat coronavirus research for the past five years.

This coincided with early reports - directly to Fauci, from Jeremy Ferrar and Christian Anderson - “of the possibility of there being a manipulation of the virus” based on the fact that “it was an unusual virus.”

Fauci conceded that he was specifically made aware by Anderson that “the unusual features of the virus” make it look “potentially engineered.”

Fauci couldn’t recall why he sent an article discussing gain of function research in China to his deputy, Hugh Auchincloss, telling him it was essential that they speak on the phone. He couldn’t recall speaking with Auchincloss via phone that day. But remarkably, Fauci did remember assigning research tasks to Auchincloss

Fauci was evasive on conversations with Francis Collins about whether NIAID may have funded coronavirus-related research in China, eventually stating “I don’t recall.”

The phrase “I don’t recall” was prominent in Fauci’s deposition. He said it a total of 174 times:

For example, Fauci couldn’t remember what anyone said on a call discussing whether the virus originated in a lab:

During that same call, Fauci couldn’t recall whether anyone expressed concern that the lab leak “might discredit scientific funding projects.” He also couldn’t recall whether there was a discussion about a lab leak distracting from the virus response. Fauci did remember, however, that they agreed there needed to be more time to investigate the virus origins - including the lab leak theory.

What else couldn’t Fauci remember? Whether, early into the pandemic, his confidants raised concerns about social media posts about the origins of COVID-19.

Yet Fauci did admit he was concerned about social media posts blaming China for the pandemic. He even admitted the accidental lab leak “certainly is a possibility,” contradicting his prior claims to National Geographic where he said the virus “could not have been artificially or deliberately manipulated.”

Fauci also couldn’t recall whether he had any conversations with Daszak about the origins of COVID-19 in February 2020, but admitted those conversations might have happened: “I told you before that I did not remember any direct conversations with him about the origin, and I said I very well might have had conversations but I don't specifically remember conversations.” And he couldn’t recall telling the media early on during the pandemic that the virus was consistent with a jump “from an animal to a human.”

Fauci said he was in the dark on social media actions to curb speech and suspend accounts that posted COVID-19 information that didn’t fit the mainstream narrative: “I’m not aware of suppression of speech on social media.” Yet it was Fauci’s proclamations of the truth, whether about the origins of COVID-19 to the effectiveness of hydroxychloroquine, that led to social media companies banning discussions of contrary information.

Regarding those removals of content, Fauci had no personal knowledge of a US Government/Social Media effort to curb “misinformation.” But he conceded the possibility numerous times.

Then there’s the issue of masks. In February 2020, Fauci informed an acquaintance that was traveling: “I do not recommend that you wear a mask.” Fauci would later become a vocal proponent of masks only two months later.

I’m near my Substack length limit - posting the excerpts does that - but you can see from Fauci’s testimony that his public statements about COVID-19 origins and the necessity to wear a mask didn’t match his private conversations. This has been known for some time, but it’s finally nice to get him on record.

Again, read it all and subscribe here.

Tyler Durden Mon, 12/05/2022 - 21:40

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Global Wages Take A Hit As Inflation Eats Into Paychecks

Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook…

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Global Wages Take A Hit As Inflation Eats Into Paychecks

The global inflation crisis paired with lackluster economic growth and an outlook clouded by uncertainties have led to a decline in real wages around the world, a new report published by the International Labour Organization (ILO) has found.

As Statista's Felix Richter reports, according to the 2022-23 Global Wage Report, global real monthly wages fell 0.9 percent this year on average, marking the first decline in real earnings at a global scale in the 21st century.

You will find more infographics at Statista

The multiple global crises we are facing have led to a decline in real wages.

"It has placed tens of millions of workers in a dire situation as they face increasing uncertainties,” ILO Director-General Gilbert F. Houngbo said in a statement, adding that “income inequality and poverty will rise if the purchasing power of the lowest paid is not maintained.”

While inflation rose faster in high-income countries, leading to above-average real wage declines in North America (minus 3.2 percent) and the European Union (minus 2.4 percent), the ILO finds that low-income earners are disproportionately affected by rising inflation. As lower-wage earners spend a larger share of their disposable income on essential goods and services, which generally see greater price increases than non-essential items, those who can least afford it suffer the biggest cost-of-living impact of rising prices.

“We must place particular attention to workers at the middle and lower end of the pay scale,” Rosalia Vazquez-Alvarez, one of the report’s authors said.

“Fighting against the deterioration of real wages can help maintain economic growth, which in turn can help to recover the employment levels observed before the pandemic. This can be an effective way to lessen the probability or depth of recessions in all countries and regions,” she said.

Tyler Durden Mon, 12/05/2022 - 20:00

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