Feb15 2005 Phisix Finally Corrects

Phisix Finally Corrects

The Phisix behaved in exactly the reverse manner from yesterday. While the bombing surprised and spooked the market by opening lower to end up marginally up, today we saw the market open strong, getting stronger (+39 points) until the mid-session only to falter at the last portion of the trading hour. Naturally Moody’s downgrade was the apparent trigger or say ‘rationalized’ or used as an excuse, although the downgrades were not exactly a ‘surprise’ since it has been floated in the market for quite sometime.

We must remember that the financial markets function as discounting mechanisms hence prices in future expectations and not the present. Thus when a market reacts to a say a political event such as an unexpected bombing or a coup it may gyrate violently and may be the causal factor behind its moves. The element of surprise is the key operative phrase for the market to react.

In January 19, S & P downgraded the Philippines credit rating yet the following day market surged by 41.44 points! Quite a dichotomy, isn’t it? The only surprise that could be attributed to today’s Moody’s downgrade was the severity (2 notches).

As I have been saying, the market has been overextended in terms of its winning streak hence the need for a correction or profit-taking.

Let us examine if the Moody’s downgrade has altered the investing landscape. One the Peso still is at the P 54.895 (Bloomberg) down .3473%, as of this writing, although it looks as if it were shadowing the Japans yen which is also down .668% to 105.11 (Japan’s last quarter shows that it has regressed to a recession!) Thai baht is likewise lower by .26%.

Now foreign money still poured on the market (P440.087 million) although they constituted only 37% of the entire trade which means that foreign capital remains bullish while the locals appears to have taken up the profit taking mode. Plus they have been buying the broader market 46 inflows (a record!) against 17 outflows. This signs of bullishness by foreign money is not supportive of the reactions of a recently downgraded sovereign credit rating.

If the intensity of their support to our market remains as steadfast as today, the probability is that our Phisix may have a shallow correction which implies a buying entry at the 38.2% retracement levels.

Finally, it looks as if the Banking and Finance braved today’s decline, this also suggests that maybe the banks will be the beneficiary of rotational buying and despite the correcting property sector there may be issues that may defy the tide.

Well, that’s the way it looks from here

Benson

Japan Times: Japan may accept more workers from Thailand

Japan may accept more workers from Thailand

The government is considering allowing in more Thai workers by relaxing employment conditions for cooks, masseurs and caregivers under a proposed free-trade agreement, sources said Saturday.

With the proposal, the government hopes to proceed with FTA talks with Thailand at the end of the month, with the aim of reaching an overall basic accord by spring, the sources said.

The move may help secure greater access to the Japanese labor market for foreigners as Japan gears up for FTA talks with other nations, they said.

A basic agreement on a free-trade pact with the Philippines reached in November will allow Filipino nurses and caregivers to live and work in Japan.

Japan currently accepts Thai cooks with at least 10 years of experience. The Justice Ministry is considering shortening this period by bringing it in line with Thai standards to a minimum of around five years, the sources said.

Regarding Thai masseurs, who are currently barred from working in Japan, the ministry is thinking about accepting them on a limited basis by only allowing them to work for relaxation, not treatment, purposes, they said.

The masseurs might be accepted solely for work at Thai-style resort facilities here, they said.

The Health, Labor and Welfare Ministry, which oversees qualifications for masseuses, has barred Thai masseurs from providing treatment-oriented massage, which has stalled the FTA talks.

For caregivers, it is considering introducing a system similar to that for Filipino caregivers, the sources said.

Under the agreement with the Philippines, Japan will let a limited number of Filipino caregivers -- who meet certain qualifications designated by Manila -- to work in Japan for up to four years. They can stay longer if they pass Japanese qualification exams.

The government is now in the process of finalizing its proposal tor the FTA talks with Thailand on the movement of labor, which will center on deregulation of these three types of jobs, for formal submission to Bangkok, according to the sources.

The Japan Times: Feb. 13, 2005
(C) All rights reserved

MosNews: Russian Central Bank Switches to Euro-Dollar Basket in Targeting Ruble

Russian Central Bank Switches to Euro-Dollar Basket in Targeting Ruble
Created: 04.02.2005 13:35 MSK (GMT +3), Updated: 14:03 MSK
MosNews

Russia’s central bank said on Friday it had begun targeting the ruble’s nominal exchange rate against the euro as well as the dollar, the Reuters news agency reports. The shift is meant to bring currency policy more in line with trade flows.

The Bank of Russia said in a statement it had begun targeting a dual currency basket — made up of 90 U.S. cents and 10 euro cents — as of Feb. 1 and would gradually raise the weighting of euros.

“Increases of the weighting of the euro in the twin currency basket, to a level appropriate for the task of exchange rate policy, will take place step-by-step as market players adapt,” the statement said.

The announcement completes an informal shift undertaken by the central bank last year, when it was forced by market appreciation pressures to abandon a de facto nominal peg of the ruble to the dollar and allow it to rise.

The greenback’s weakness on global currency markets, as well as Russia’s oil-driven current account surplus, have led central bankers to say they were looking more at the euro as a guide to day-to-day exchange rate targeting.

The central bank said it would continue its “managed” float of the ruble —- policy jargon for market intervention —- to smooth out excessive volatility and maintain the stability of the ruble.

Dealers said the statement triggered dollar selling on the local currency market. One said the policy shift would help stop the ruble being buffeted by sharp euro-dollar moves, although other dealers remained at a loss over the practical impact.

“We still don’t really understand what it means,” said one.

The new twin basket applies to the nominal exchange rate of the ruble.

Russia’s central bank also targets the real effective exchange rate of the ruble, adjusted for inflation against a trade-weighted basket of currencies, as a benchmark to measure economic competitiveness.

It was also not immediately clear whether the new twin nominal basket would lead Russia to raise the weighting of euros in its gold and foreign exchange reserves, which hit an all-time high of $128.3 billion as of Jan. 28.

Russia’s reserves are the sixth largest in the world —- and the largest outside Asia —- and any news on whether the share of euros may rise is enough to move the euro-dollar exchange rate, dealers say.

TimesOnline:How to beat the markets: invest in dull firms

How to beat the markets: invest in dull firms
By Patrick Hosking, Investment Editor
TimesOnline

ECONOMISTS at the London Business School have come up with a “system” for beating the overall stock market that has worked for more than a century: pick boring stocks.

Dull companies with seemingly slow growth prospects have spectacularly outperformed racier-looking companies over the past 105 years.

A sum of £100 invested in 1900 in low-growth and therefore high-yielding shares would have grown to £6.9 million today, assuming no tax or dealing costs and all dividends reinvested. The same amount invested in high-growth, low-yielding companies would have grown to only £296,000 over the same period.

Even after adjusting for inflation, the boring stocks strategy would still have produced a 1,130-fold real return for the great-great-grandchildren of the original investor.

Paul Marsh, Professor of Finance, said that the trend had persisted on and off for the entire period and applied in other countries, too. “It’s compelling and intriguing and I wish I had a better explanation for it.”

American academics Fama and French first identified the trend in the 1980s and argued that it was explained by the risk premium demanded of high yielders. Professor Marsh prefers the explanation that irrational exuberance has persistently persuaded investors to ignore the lessons of history and buy into high-growth stories.

“Growth is a very easy strategy for fund managers to explain to clients. But buy a dog that continues to be a dog and you risk just looking stupid.”

In conjuction with ABN Amro, the LBS economists also published fresh research that found absolutely no evidence that fast-growing countries produced higher stock market returns than low-growth ones. Investors piling into China, India, Russia and Brazil might take note.

Mineweb: Philippines' mining campaign hasn't won hearts

Philippines' mining campaign hasn't won hearts
By: Dorothy Kosich
Posted: '07-FEB-05 05:19' GMT © Mineweb 1997-2004

RENO--(Mineweb.com) As the administration of President Arroyo embraces foreign mining investment as a solution to the socio-economic woes which plague the Philippines, the welcome mat isn't out in a number of areas.

As foreign mining companies from several nations line up to bid, the specter of the Marcopper tailings spill disaster still gives the Filipinos pause in a nation known for its lethal combination of corruption and terrorism.

Renewed investor interest in the mining sector has been recently sparked by the decision of the Supreme Court of the Philippines to reverse its landmark ruling against the 1995 Mining Law and, now to allow majority foreign ownership of domestic mining enterprises. The High Court last month closed the door to any further challenges to the law.

President Arroyo has made revival of the mining industry one of the cornerstones in her plan to achieve sustainable economic growth in the country. During a recent International Mining Conference hosted by the Chamber of Mines in Malacanang Palace, Arroyo said, "in a nutshell, our mining policy is minimum environmental and social effect, maximum contribution to the war on poverty." She asserts that the Philippines has the potential to be the fifth-largest mineral producer in the world with the third-largest gold reserves, and the four-largest copper reserves. During the conference, five companies based in Australia, Canada, China and the U.S. confirmed they had invested more than $3 billion in the Philippines.

Arroyo has appointed a special government envoy, Delia Albert, Presidential Advisory for Mineral Development, to cut processing time of mining application permits from one year to five months, and of mineral agreements from one to two years to seven months. In her speech, Arroyo also pledged to "fight for legislation compelling mining companies to pay directly to the local government units in the mining areas their share in the 2% tax on minerals. We are also prepared to propose legislation for the payment of the proper royalties to the indigenous peoples. Indigenous peoples need not fear that your lands are being taken away."

But, indigenous peoples are definitely fearful of foreign mining investment as the flames of protest are fanned by the Catholic Church, communist rebel groups, and villagers who were displaced during earlier mining projects.

The good news for foreign mining investment is that old projects are coming back to life. Atlas Consolidated Mining and Development has announced it will resume production at the copper project in Toledo City, Cebu. Atlas officials are negotiating with six foreign mining companies, three are Chinese, two Korean, and one Japanese firm. Atlas estimated that it needs $171 million to restart the Cebu copper project, which was closed in 1994 due to low copper prices.

The Toledo mine is estimated to have mineral resource of 873 million tons with a grade of 0.41 percent copper.

Businessman Felipe Yap, who controls Lepanto Consolidated Mining and Manila Mining, said talks are ongoing with a number of companies based in Australia, Canada, China, Great Britain and the United States concerning potential investments. Among these companies are Phelps Dodge, according to Yap, who also indicated that Ivanhoe Mines is interested in acquiring a stake in Lepanto.

Meanwhile, the former Presidential Assistant for Mindanao Paul G. Dominguez has just assumed the presidency of Sagittarius Mines, which owns a copper and gold project in Tampakan, South Citabato.

Nonetheless, not all is blissful in the new mining promised land of the Philippines.

THE RADICAL AND FED-UP OPPOSITION

Department of Environment and Natural Resources Secretary Mike Defensor had a strong pro-mining record as a senator. Nevertheless, he is about to issue a demand letter insisting that Marcopper Philippines release its $12 million rehabilitation fund to repair mine structures before another environmental disaster takes place.

In 1996, mine tailings from the Marcopper facility in the Boac, Marinduque province, caused an environmental nightmare as tailings found their way into a local river and several of its tributaries. Marcopper's then-minority partner put up a substantial portion of the $12-million rehabilitation fund, which somehow wound up transferred to the holding of the current majority shareholder of Marcopper businessman Teodoro Bernardino. Nine years after the disaster, Marcopper has yet to undertaken an extensive clean-up of the area.

Meanwhile a U.S. Geological Survey task force has warned that four mine tailings dams at Marcopper all appear to have structural flaws. It is feared that a strong typhoon or heavy rains could actually cause these dams to collapse, releasing more mine wastes into communities which already sustained damage from the 1996 spill.

A split has developed among members of the Catholic Bishops Conference of the Philippines as at least one prominent bishop warned that allowing foreign mining investment will create "a new menu for discontent. This will create unrest among the indigenous peoples."

Davao Archbishop Fernando Capalla, president of the conference, said he favors mining exploration provided that the country's natural resources aren't abused or misused. However, even Capalla urged the government to "reconsider the ecological and social costs accompanying the economic bonanza from mining."

Some of his bishops strongly oppose implementation of the Mining Act. Dipolog Bishop Jose Manguiran has insisted that opening up the natural resources of the country to foreign miners will not alleviate poverty. Capalla and other bishops are demanding that the mining sector demonstrate their goodwill by cleaning up mine tailings and rehabilitating open pits.

These bishops have demanded that mining companies supply them with concrete figures detailing the amounts that the government expects to get from each mining operations and how much of this will be repatriated to the home country of each foreign mining company. The clergy have also asked that mining companies to legally mandated to declare which of their operations will relocated populations and to submit comprehensive and viable plans for relocation.

Some groups won't even consider foreign mining investment and have warned of violence on mining companies which enter the ancestral lands of indigenous peoples. The Cordillera Peoples Alliance threatened protests, mass demonstrations, and resistance. "The country will become a battleground against the plunder of the people's resources," threatened Joan Carling, chair of the alliance.

Communist rebels operating in the Cordillera said they will attack if the government sends soldier to impacted villages. A spokesman for the Cordillera People's Democratic Front said they are closely monitoring Mankayan town in Benguet province and areas in the provinces of Abra, Mt. Province and Kalinga.

Meanwhile, nearly 130 Ifugao families in the Barangay Didipio have urged President Arroyo to spare their community from mining activity by Climax-Arimco, an Australian company, which plans to mine gold and silver in Didipio. The chair of the community recently told the Manila Times that a rich agriculture industry has been developed in the area. However, the Ifugao families are facing displacement for the second time when they were forced from their original homes in the Cordilleras in the 1960s.

"It's so revolting that after we painstakingly labored for decades to develop Didipio as our homeland, we're again being displaced by this mining project," the elder declared.

Bloomberg: Greenspan Says Current Account Gap May Begin to Fall

Greenspan Says Current Account Gap May Begin to Fall (Update7)

Feb. 4 (Bloomberg) -- Record U.S. trade and budget gaps may soon shrink, Federal Reserve Chairman Alan Greenspan said in London, addressing a major complaint of finance ministers and central bankers from industrialized nations who are meeting there this weekend.

The ministers from the Group of Seven nations have warned that the swelling twin U.S. deficits are a threat to global economic stability. Adjustment has been slow, even with a two-year decline in the dollar, because companies exporting to the U.S. have been willing to put up with smaller profits, Greenspan said. That's now changing.

``We may be approaching a point, if we are not already there, at which exporters to the United States, should the dollar decline further, would no longer choose to absorb a further reduction in profit margins,'' Greenspan told the Advancing Enterprise 2005 conference. At the same time, ``U.S. exporters' profit margins appear to be increasing, which bodes well for future U.S. exports and the adjustment process.''

The dollar rose as Greenspan's comments suggested its 16 percent drop since February 2002 against a basket of currencies from its 30 largest trading partners is beginning to have an effect on the U.S. current account, the widest measure of trade in goods, services, and financial transfers.

Market pressures ``appear poised to stabilize and over the longer run possibly to decrease the U.S. current account deficit and its attendant financing requirements,'' Greenspan said. The current account deficit widened by $17.5 billion, to a record $164.7 billion in the third quarter of last year, from $147.16 billion in the first quarter.

Market Reaction

The dollar rose after Greenspan's speech, gaining to $1.2869 per euro at 1:40 p.m. in New York, from as low as $1.3045 earlier.

The speech was important because it ``runs against conventional wisdom regarding the Fed's thinking on several grounds'' about the fiscal and current account deficits, said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut. ``He laid out today the case that the foundation for relief on these fronts is already in place. Thus, we should downgrade our fears, or at least our perception of the Fed's fears, about these two issues.''

Greenspan said that from ``early 2002 to early 2004, the dollar's exchange rate against the euro and sterling, on average, declined about 30 percent, yet dollar prices of imported manufactured goods from the European Union rose only 9 percent, slightly more than dollar prices of U.S. manufactured goods during the same two years,'' Greenspan, 78, said.

Exports

That willingness of exporters to the U.S. to accept lower margins to preserve market share, along with strong American consumer spending financed in part by mortgage debt and faster growth in the U.S. than its trading partners ``offset'' the effects of the dollar's decline.

The squeeze on profit margins ``absorbed'' about three- quarters of the dollar's decline relative to the euro and the British pound, he said.

At the same time, Americans financed greater spending on imports in part by refinancing mortgages or selling homes to spend the equity. ``Interestingly, the change in U.S. home mortgage debt over the past half-century correlates significantly with our current account deficit,'' he said. Consumers in the countries of U.S. trading partners don't have readily available access to mortgage financing ``to finance consumption expenditures,'' he added.

Budget Deficit

Those forces leading the U.S. current account deficit to expand are changing, he suggested. While foreign companies may have hedged their exposure to the falling dollar, many of those contracts likely will expire, he said. And now, although slowly, ``the lower dollar has undoubtedly boosted the competitiveness of U.S. exports and the profitability of U.S. exporters,'' Greenspan said.

In addition, ``some forces in the domestic U.S. economy seem about to head in the same direction,'' he said, as demands to cut the U.S. federal budget deficit mount. That would lower pressure to borrow from abroad, he said. ``The voice of fiscal restraint, barely audible a year ago, has at least partially regained volume.''

Last year, Greenspan also called on reduction in federal spending as a way of slowing demand and growth in the trade deficit. He hasn't called for increases in taxes, which would also lower demand.

Asian Central Banks

Asian governments have been buying dollars ``in support of their currencies,'' Greenspan said. ``Such intervention may be supporting the dollar and U.S. Treasury bond prices somewhat, but the effect is difficult to pin down.''

At the same conference today, Bank of England Governor Mervyn King suggested the mounting U.S. current account deficit and hoarding of dollar assets by Asian central banks might threaten the stability of the world economy.

King urged members of the Group of Seven industrial nations to agree ``on the nature of the risk'' and collaborate with China and India to rebalance currency reserves. He called on the International Monetary Fund to propose a series of changes. Greenspan is in London for a meeting of G-7 finance ministers and central bankers.

``There is likely to be a limit to the amount of debt that one country can issue as a result of persistent deficits before investors start to worry about its ability or willingness to repay,'' King said in his speech. Asia's accumulation of dollar reserves ``contributes to the potential instability of the international monetary system.''

Rubin's Concerns

China, Taiwan, and Korea had the largest stocks of international reserves in the world at the end of 2004. China's foreign reserves rose 51.3 percent to $609 billion, while Japan's reserves rose 26.3 percent for the year to $824 billion. All four countries ranked among the top eight nations in trade of goods with the U.S., according to the most recent government data through November.

Former U.S. Treasury Secretary Robert Rubin also told the conference America's record trade and federal budget deficits might lead to further declines in the dollar.

``The U.S. imbalances can have bond market effects and raise complex questions about our currency,'' Rubin, now chairman of Citigroup Inc.'s executive board, said. ``There is a fairly good chance the dollar could decline.''

Rubin called on President George W. Bush to rein in the budget deficit, which the White House anticipates will reach $427 billion this year. Bush pledges to halve the gap by 2009. ``It ``will not be fixed by tinkering around the edges,'' Rubin said. ``The U.S. is at a critical juncture.''

Some of the world's wealthiest investors expect the dollar to continue to fall, which would help narrow the current account deficit. George Soros, chairman of New York-based Soros Fund Management LLC, and Warren Buffett, chairman of Berkshire Hathaway Inc., have said they expect additional declines. And Bill Gates, the world's richest man and chairman of Microsoft Corp., said at the World Economic Forum in Davos, Switzerland Jan. 28 that he's short the dollar, expecting it to fall.

Bloomberg's Matthew Lynn: Are Commodity Prices Headed for Switch to Euros?

Are Commodity Prices Headed for Switch to Euros?
by Matthew Lynn

Feb. 3 (Bloomberg) -- Oil, metals and even aircraft may one day be priced in euros, not dollars. Dream on?

As the dollar stays weak on foreign-exchange markets, with little sign of a sustained recovery, there is speculation that at some point commodity prices will drop the U.S. currency. If that happens, it would herald a wider realignment of the global financial system -- and would indicate that the dollar's reign as the world's reserve currency was coming to a close.

It is too early to conclude the dollar is finished. Yet the challenge is real and growing. The world may well be set for a period during which the dollar and the euro compete for reserve status -- hardly a promising situation for global stability.

The dollar is being shunned for obvious reasons. The trade deficit grew to a record $609 billion last year, and George W. Bush's administration expects the budget shortfall to reach a record $427 billion in the year ending in September. The New York Board of Trade's Dollar Index, which measures the dollar against a basket of six currencies, has dropped 18 percent since the end of 2001.

There are three key responses to the changing status of the dollar in the global financial system. Central banks may shift their reserves out of dollars. The Asian currencies could end their pegs to the U.S. currency. And lastly, we could witness a breakdown in the pricing of commodities in dollars.

Central banks are already slowly raising the proportion of their reserves in euros, and reducing their dependency on dollars. That is likely to continue. Yet it will be a slow process -- not least because no central bank will want to dump dollars into an already fragile market.

Asian Pegs

Asian nations may or may not end their dollar pegs. Politics as much as economics will play the main role in those decisions.

That leaves commodity prices. If the dollar's unique status is indeed coming to an end, that is where we will see it first.

``It is crucial to the dollar's dominant role as a reserve currency that dollar pricing of oil should continue,'' noted Stephen Lewis, economist at Monument Securities Ltd. in London, in a recent analysis of the currency.

Is there a realistic chance of oil or any other major commodity switching its pricing into euros?

Last month, Hamad al-Sayari, the governor of the Saudi Arabian Monetary Agency, caused a ripple in the market with comments that he thought the role of euros in central-bank reserves would increase in the future, according to the Jeddah, Saudi Arabia-based English-language daily Arab News. More pertinently, he said it didn't matter much whether oil was priced in dollars or euros.

A Bookkeeping Matter

It might not matter to him, yet it does to everyone else.

Take a look at the issue from the perspective of an oil producer -- or a producer of any other major commodity.

At one level, which currency you price your products in is largely a matter of bookkeeping. The Saudis can price their oil in dollars, or the South Africans their gold, or the French all those new Airbus SAS aircraft, without it making much difference to their actual income. As soon as the dollars come in, they can sell them for whatever currency they want. If you are uncertain about the future price that your product is likely to command, then you can buy and sell currencies in the futures market.

Just because you price a product in a currency, you aren't compelled to hold that currency.

In the medium term it does matter. The producers of any product are looking for high and stable prices. If your product is priced in a permanently weak currency, then you have to keep raising the prices. That is far from satisfactory. At some point, the temptation to switch to a stronger currency will become irresistible.

Who Will Break Ranks?

Next, commodity pricing matters to the currency markets. The fact that commodities are priced in dollars is one of the key sources of that currency's strength. Everyone buying big-ticket items such as oil, metals or aircraft must buy dollars for their purchases. That is a major source of demand for the currency.

Who will be the first to break ranks? Right now, that is no more than speculation. Russian oil must be one candidate -- most of it is sold in Europe anyway. Airbus aircraft must be another candidate -- the bulk of its costs are in euros, and it has the luxury of now being the dominant producer in its industry.

Nobody should hold their breath. ``Maybe one day,'' says Airbus spokeswoman Barbara Kracht in an e-mailed response to questions. ``The point is that it is the customers who decide, and for the time being they are asking for quotations in dollars.''

Decline or Rout?

True enough. You need to hold a very strong market position to impose a new currency on your industry.

Much depends on the future path of the dollar. It has been weak for about three years now. So far, producers have responded with higher prices. Two more years of dollar weakness, and they may well decide to take more radical action.

It will only take one commodity producer to break ranks, and the move will be widely imitated. At that point, the dollar's decline could well turn into a rout. Commodity pricing is now the weakest line of defense for the dollar.

Fool.com: How to Analyze an Industry by Selena Maranjian

How to Analyze an Industry
By Selena Maranjian (TMF Selena)
February 3, 2005

You're smart to think about and evaluate an industry before thinking about and evaluating a company in it. In his book Competitive Strategy, Harvard Business School professor Michael Porter lays out five competitive forces that affect an industry.

Threat of entry. This can be assessed by evaluating how much capital it takes to enter the industry -- the economies of scale, switching costs, and brand value. It's easier to enter the lawn-service industry than the semiconductor equipment industry -- one requires some relatively inexpensive equipment, while the other requires factories and much specialized knowledge. Switching costs protect some Internet companies, for example. People will think twice about switching from Time Warner's (NYSE: TWX) America Online to another e-mail provider because they'll have to alert too many people of their new address.

Bargaining power of suppliers. If you're running an airline, there are only a few airplane suppliers, such as America's Boeing (NYSE: BA) and Europe's Airbus. It's more difficult in that situation to play one against the other, trying to strike a bargain. If there were many suppliers, they'd likely be competing more for your business, which might result in lower costs for you.

Bargaining power of buyers. This is affected by brand power, switching costs, the relative volume of purchases, standardization of the product, and elasticity of demand (where demand increases as prices fall, and vice versa). In book retailing, buyers have many choices and can easily compare prices online. This gives them bargaining power.

Availability of substitutes. If you're in the restaurant industry, your business will be affected by how easily people can buy takeout meals at supermarkets, how many people prepare meals at home, and the availability of other alternatives.

Competitive rivalry. The more competitive an industry is, the more likely you are to have price wars and reduced profitability. The airline industry is a good example here. Over the years, it has not offered the best returns to investors.

Take these things into consideration and you may be able to zero in on the most attractive company in the industry. Alternatively, you might learn that the entire industry just isn't as attractive as you thought.

Reuters: Steel Sector Fuels Demand for Coking Coal

Steel Sector Fuels Demand for Coking Coal
January 30, 2005 10:05:00 AM ET
By Steve James

NEW YORK (Reuters) - Mining companies, raking in big profits from suddenly sky-high coal prices, are also poised to cash-in on the booming steel industry's need for coke to fire blast furnaces.

Massey Energy Co. (MEE), one of the ``Big Four'' U.S. coal producers, said on Friday it is increasing production of metallurgical, or coking coal, over the next few years as demand from steel manufacturers grows.

``With steel demand and prices as they are, they (steel makers) want maximum coking to run their ovens with our high- quality coke,'' Massey Chairman and Chief Executive Officer Don Blankenship told Wall Street analysts on a conference call. ``It presents more market opportunities.''

Richmond, Virginia-based Massey produced 42 million tons of coal during 2004, three-quarters of it steam coal, which is primarily sold to utilities to fuel power plants.

But 10 million of those 42 million tons were metallurgical coal and Massey expects the amount to rise to 13 million to 14 million tons in 2005.

Peabody Energy Corp. (BTU), whose coal produces more than 10 percent of all U.S. electricity, said it will use a portion of its capital expenditure this year to extend the life of mines that supply the metallurgical markets.

And Consol Energy Inc. (CNX) is considering a substantial investment to expand the Buchanan mine in Virginia, which produces 5 million tons of coking coal per year.

Consol is bullish on the coking coal markets, where demand has allowed it to lock-up all current met coal production under contracts through 2007.

``We will continue to be a player in the metallurgical coal markets,'' CEO Brett Harvey told analysts.

The sudden enthusiasm for humble coke is due to the current boom in steel-making, which was fueled in part by China's economic growth.

``Current conditions suggest that the increase in metallurgical coal demand in China, India and Japan may very well outstrip the ability of suppliers to respond,'' Massey said on Thursday when announcing a fourth-quarter profit after a loss the year before.

Asked about increased production targets for metal coal, Massey's Blankenship said: ``We have some of the strongest metallurgical coal in the world.

``We think the metal market will be steady to up slightly in '05. It favors us in a market where they want to run coke ovens at the highest capacity.''

Only a handful of companies in Central Appalachia, where Massey mines much of its coal, have significant metallurgical coal reserves, he said.

Massey expects metal coal production of around 15 million tons in 2006 and it could go up to 18 million in 2007.

``It could expand, but we don't have market commitment for those tons,'' said Blankenship.

Coal prices have soared in the last two years as higher natural gas and oil prices have seen many utilities switch to coal for their power plants. For example, Eastern (U.S.) rail coal, which was selling on the spot market for around $28 in October 2002, is now going for around $58.

And there is no end in sight for the boom in coal, according to Blankenship.

``The market for coal here and abroad remains very healthy,'' he said. ``High gas prices favor coal as the fuel of choice. Total U.S. coal production was up 3 percent in 2004 and the demand for metallurgical coal has allowed the strong prices to persist.'' But transportation problems -- railroad bottlenecks and barge delays in cold weather -- continue to plague coal shipments.

Asked about the coal stockpiles of utilities, he said that, on average, ``they are 6 to 8 days below where they want to be and some are 20 days below.''

© 2005 Reuters

Resource Investor: Change in Philippines Investment Climate Aids Mindoro

Change in Philippines Investment Climate Aids Mindoro
By Derek Moscato
31 Jan 2005 at 11:49 AM EST

VANCOUVER (ResourceInvestor.com) -- Surging interest in Asia-Pacific mining plays helps Edmonton-based Mindoro Resources be loud and proud when talking up its Philippines gold and gold-copper projects. Yet some skeptics say that the country isn’t ready for prime-time investment just yet.

Mindoro’s three projects comprise Batangas, a 14,000 hectare land package within a gold-copper belt; Surigao, a 24,000 hectare land package where the company has paired off in a $2 million exploration joint venture with Panoro Minerals; and Pan De Azucar, a smaller land package where drilling has encountered copper, gold, zinc and silver.

On the upside for Mindoro, an improving investment climate in the Philippines is being matched by an improving political climate. In a majority decision this past December, the Supreme Court of the Philippines confirmed the legality of the 1995 Philippone Mining Act, which allows for 100% ownership of large mining projects (those greater than US$50m investment).

According to Tony Climie, president and CEO of Mindoro, “The Philippine's geological potential has never been in dispute. Now, with foreign ownership uncertainties removed, we are very pleased to be at the forefront of the dawn of a major mining industry in the Philippines."

Mindoro VP Penny Gould echoed that sentiment in an interview with Resource Investor, and the positive ramifications it could have for the company. “We've been there since 1996, and we've seen many changes, particularly in the past few years,” she said. “In Australia, they've recognized the opportunity there far earlier than we here in North America have.”

Big in Germany

Shares of Mindoro, which trade on the Toronto Venture Exchange, currently trade hands at roughly C$0.27, with a 52-week range of $0.18 to $.40.

The company is hoping that its new listing on the Frankfurt Exchange will create a stronger investor base and a higher international profile. "Listing on the Frankfurt Stock Exchange will greatly increase the profile of Mindoro with both private and institutional investors across Europe," said Climie in an issued statement

According to Mindoro chairman Gerhard Kirchner, an Austrian national who speaks German and travels to Europe often, the company is garnering strong interest there. “We are the most traded junior company on the Frankfurt Stock Exchange,” he told Resource Investor.

It’s also a less-saturated market in terms of junior miners, says Gould. “In North America, if you look around at this conference, you are one of hundreds.”

And the extra interest in Germany is impacting the company’s business model in Canada. “Demand out of Frankfurt has increased the interest back here on the Venture Exchange,” she says.

It’s also hoped that an advisory board created this past summer will enhance the company’s profile in North America and beyond. The advisory board members are Terry A. Lyons, chairman of Northgate Minerals, and Michael Jones. CEO and director of Platinum Group Metals.

In addition, they’re counting on guidance from company director Oscar Reyes, who might help Mindoro navigate the sometimes tricky bureaucratic and business waters of the Philippines. Reyes previously served as top boss for the Philippines outpost of Shell Oil, and oversaw the offshore Malampaya oil and gas project that was brought into production in that country in 1998.

His presence might also help sway otherwise cautious investor who are still cold on the Philippines, especially after a recently released business survey conducted jointly by Asian Development Bank and World Bank. The report, entitled Moving Toward a Better Investment Climate, cites some major challenges and concerns in the country, including weak macroeconomic fundamentals, corruption, infrastructure issues, and excessive business regulations.

“Buzzword” Key Indicator to the Mining Index Profit Taking

“Buzzword” Key Indicator to the Mining Index Profit Taking

Oh I forgot to include this in my weekly newsletter. Last Friday during a meeting with my principals I said that a correction in the Mining index was imminent given that newspaper headlines or the mainstream media have been overly exuberant over the turnaround industry. Just consider, in last Friday’s headlines the Philippine Daily Inquirer and the Businessworld had this banner on its front page “Mining, new business buzzword in the Philippines”.

When everybody becomes too confident and takes on one side of the trade then it becomes crowded and unsustainable, hence a correction. On the short term mining stocks are due for profit-taking after a blistering run. Over the longer period for as long as the prices of its underlying commodities remain at this levels or move higher and if there are no impediments or disruptions in the mining companies’ operations then these opportunities could be considered as buying windows.

Bloomberg: Microsoft's Gates, World's Richest Man, Bets Against the Dollar

Microsoft's Gates, World's Richest Man, Bets Against the Dollar

Jan. 29 (Bloomberg) -- Bill Gates, the world's richest person with a net worth of $46.6 billion, is betting against the U.S. dollar.

``I'm short the dollar,'' Gates, chairman of Microsoft Corp., told Charlie Rose in an interview in front of an audience of about 200 at the World Economic Forum in Davos, Switzerland. ``The ol' dollar, it's gonna go down.''

Gates's comments reflect the same view as his friend Warren Buffett, the billionaire investor who has bet against the currency since 2002. Buffett said last week that the country's trade gap will probably further weaken the dollar, which fell 21 percent against a basket of six major currencies between January 2002 and the end of last year.

``It is a bit scary,'' Gates said. ``We're in uncharted territory when the world's reserve currency has so much outstanding debt.''

The U.S. is borrowing to finance record budget and trade deficits. Total U.S. government debt stood at $7.62 trillion as of Jan. 27, up 8.7 percent from a year earlier.

Forbes magazine's list of billionaires ranks Gates, 49, No. 1. Buffett, 74, is second, with more than $30 billion. Almost all of it is in Berkshire stock.

The two have been friends for years, taking vacations together and playing online bridge. Gates in December joined the board of Berkshire Hathaway Inc., the investment company that Buffett runs.

China `Change Agent'

The country is importing more than it exports, and the government is funding part of its budget deficit by selling bonds to foreign investors, Buffett said in an interview with CNBC Jan. 19.

``Unless we have a major change in trade policies, I don't see how the dollar avoids going down,'' Buffett said.

Gates described China as a potential ``change agent'' for the next two decades. ``It's phenomenal,'' Gates said. ``It's a brand new form of capitalism.''

His $27 billion foundation in September received approval from China's foreign-currency regulator to invest as much as $100 million in the nation's yuan shares and bonds.

Gates, holder of almost 1.1 billion Microsoft shares with a market value of about $29 billion, also owns about 3,580 Class A shares of Berkshire Hathaway. His personal investment vehicle has reported holding $3 billion worth of stock in 14 companies, including cable provider Cox Communications Inc. and the Canadian National Railway Co.

New York Times:Saudis Shift Toward Letting OPEC Aim Higher

Saudis Shift Toward Letting OPEC Aim Higher
By JAD MOUAWAD

Over the last year, Saudi Arabia has quietly endorsed a shift in strategy that was once championed by only a handful of OPEC's more radical members, like Iran or Venezuela, who were pushing for prices higher than those of the last two decades.

Instead of enforcing what has been OPEC's official policy since March 2000 and defending prices of $22 to $28 a barrel, Saudi Arabia, the group's most powerful member, has acted to nudge the group's reference price closer to $40 a barrel. Along the way, OPEC has grown increasingly fond of high prices, with crude oil trading near last year's records.

While the century-old oil industry has been through a number of boom-and-bust cycles before, OPEC's strategy carries risks. For consuming nations, high oil prices could derail economic growth and plunge the world into lasting recession; for producers, it could mean lower demand for their commodity in the long run as consumers shift to alternative fuels or promote energy-conservation policies.

The shift by the Saudis adds to their uneasy relations with the United States. Based for more than half a century on cheap oil in exchange for security, those relations have not recovered from the aftermath of the terrorist attacks on Sept. 11, 2001.

It also underlines a belief that after the oil shocks of the late 1970's and 1980's, modern economies can better withstand higher oil prices than in the past.

"My view is the world is not suffering, as far as economic growth is concerned, from where prices are today," Ali al-Naimi, Saudi Arabia's oil minister, told Reuters at the World Economic Forum in Davos yesterday. "The price today doesn't seem to be affecting economic growth negatively, and we do not want it to."

OPEC's approach will be discussed this weekend when the Organization of the Petroleum Exporting Countries meets in Vienna to consider whether cuts in production are warranted to fend off a slowdown in demand in the second quarter.

Many OPEC oil ministers, like the current president, Sheik Ahmad al-Fahd al-Sabah of Kuwait, indicated recently that they would leave production unchanged. They estimate that keeping the current level of 27 million barrels a day will not cause prices to fall.

OPEC's policy shift has yet to be made public, but it coincides with an emerging consensus among analysts, traders, and oil companies that prices will be substantially higher in the coming decade than the average of $20 a barrel in the 1990's.

At a time when prices already seem high, oil-producing countries need additional revenue to deal with social and economic problems at home; many have young and rapidly growing populations, with high unemployment and rising public debt. That explains why Saudi Arabia is shifting away from its previous view.

Nordine Ait-Laoussine, a former OPEC secretary general and oil minister from Algeria who now heads a consultancy in Geneva, said, "I don't know if Saudi Arabia has become a price hawk, but for sure, it isn't a price dove anymore."

Last year, OPEC's 11 members - Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela - received $338 billion in revenue from oil exports, a 42 percent increase from 2003, according to figures compiled by the federal Energy Information Administration. That agency, part of the United States Department of Energy, forecast a 2 percent increase in OPEC revenue for 2005.

Adjusting for inflation and population growth, OPEC's revenue per capita dropped to $600 in 2004, from a high of $1,800 in 1980. For Saudi Arabia, where the population has more than doubled in the last 25 years, per capita revenue has dropped from $22,000 in 1980 to $4,000 last year. "They have higher revenue needs because they have higher spending, especially on security or social services," said Lowell Feld, the senior world oil market analyst with the Energy Information Administration, who compiled the figures.

Paul Horsnell, director of energy research at Barclays Capital in London, said: "What OPEC is going through is a delicate choreography. Everyone recognizes that $20 a barrel is too low a price. All OPEC is doing now is accompanying where the market sees prices going in the future. But there's nothing terribly explicit about it."

When they met in December in Cairo, OPEC ministers were jolted into action by rapidly falling prices. Within weeks, oil traded in New York had tumbled from its $55 a barrel high in October to around $40 a barrel as the group met. OPEC, which supplies a third of the world's oil production and half of the exports, decided to trim its output by one million barrels a day, or 4 percent, to stem the slide.

The strategy worked as prices rebounded. Crude oil futures in New York are up 15 percent since the beginning of the year. On Thursday, crude oil closed at $48.84 a barrel, up 6 cents, on the New York Mercantile Exchange.

"OPEC's actions speak louder than their words," said Lawrence J. Goldstein, president of the PIRA Energy Group, an oil consultancy in New York. "It was not so long ago that Saudi Arabia mentioned $25 as a fair price. But they seem to have dramatically shifted their price to $35 a barrel. They won't admit it because that would have enormous political consequences."

Because transactions on the oil market are priced in dollars, the currency depreciation in the last two years has been one of OPEC's main concerns and a central argument in favor of higher oil prices.

In its last monthly report before Sunday's meeting, OPEC highlighted that issue again. The report said that the benchmark was worth $23.50 if adjusted for inflation and currency fluctuations. That would put it at the low end of OPEC's current price range.

"Their reference price is the OPEC basket and what that represents in terms of purchasing power for them," said Vera de Ladoucette, an analyst with Cambridge Energy Research Associates, an oil consultancy in Paris. "Their alarm bell is $35 for the basket."

To be sure, OPEC alone is not responsible for high prices. Since the beginning of 2002, when the current rally started, a series of unconnected events conspired to push prices up - the war in Iraq, production disruptions in Nigeria, strikes by oil workers in Venezuela and Norway, hardball politics in Russia and a hurricane in the Gulf of Mexico named Ivan.

Still, Saudi officials repeat that their government's policy is to keep oil markets well supplied, not rationed. Crown Prince Abdullah, who has been governing Saudi Arabia since King Fahd suffered a stroke in 1995, said in August that he favored oil prices of $25 to $30 a barrel.

The kingdom took steps last year to nudge prices down, stepping up production to some 10 million barrels a day and accelerating its program to add production capacity.

"Saudi Arabia has concluded that for the first time since the 1970's, an overall expansion in production capacity is justified," Brad Bourland, the chief economist for the Samba Financial Group in Riyadh, wrote in a recent report. He said that Saudi Arabia had increased its capacity to 11 million barrels a day, with the addition of two new fields, Abu Sa'fah and Qatif, and is starting 2005 with excess capacity of about two million barrels a day.

But Saudi officials remain evasive on a timetable for raising capacity. That issue is reflected in the debate over Saudi Arabia's pivotal role in the oil market, according to the Center for Global Energy Studies, a market analysis group.

"Boosting capacity risks undermining oil prices and with them, the kingdom's oil export revenue," the group, founded by Sheikh Ahmed Zaki Yamani, the Saudi oil minister for much of the 1970's and 1980's, said this week. "Better, then, to save the money and seek higher prices, especially as these higher prices show little sign in the short term of undermining global oil demand."

Prudent Investor says...

Bye bye cheap oil!