Sam’s Not Buying This Wave

Thursday, 10th March, 2016
Albert Park, Australia
By Kris Sayce

  • A surprising rebound
  • Buy, then sell
  • Conference update

According to the Australian Financial Review this week, ‘Australians brace for must have virtual reality wave’.

Tech expert, Sam Volkering responds:

Ahh, the good old Virtual Reality Wave. Sounds game changing, doesn’t it? Like it’s going to change the very fabric of civilisation, right? Wrong.

I’m completely of the belief this is all hype. I understand that it will be “cool”. It will be “out of this world”. It might even change the way we play video games… You want to know what VR is? It’s the next great video game battle.

In the 80’s and 90’s it was Nintendo versus Sega versus Atari. Then in the 90’s and 2000’s it was Nintendo versus Sony versus Microsoft. Tomorrow it will be Occulus versus Sony versus Samsung.

Same s*** different smell. Don’t forget VR had a crack back in the 80’s but the tech wasn’t good enough then. It is today, at least to make it entertaining. And it will be entertaining. But let’s also not forget something like the Oculus Rift (that started this whole shemozzle) still costs more than a PS4 or Xbox and you still need a high end PC to make it work properly.

Sony might fare better with their VR for the PlayStation. But all of this is just gaming tech. An opportunity? Perhaps. But revolutionary? No. This is all evolutionary. You want revolutionary, then we’re talking about augmented reality. Something like Microsoft’s Hololens.

Now that’s going to flip the script because it augments real life, it doesn’t replace it with a fabricated world. It immerses your digital world with your physical world — that’s game changing.

Not shutting yourself off from everyone and the outside world to play shoot ‘em ups. VR might be a hot headline right now, but it’s not going to be as important or revolutionary as the mainstream might have you believe.

Besides let’s face it, the one thing that will be the success or failure of VR (just like VHS versus Betamax and HD-DVD versus BluRay) is the pornography industry. Without porn most of these will fail – that might sound crass, but just watch how this pans out…

Many folks think that because Sam loves tech that he must love any new tech. Not true.

Sam likes to filter the good from the bad, just as any tech enthusiast should. You can check out what Sam believes are the next big tech stories here.

One thing puzzles me. As someone who has only just got into video gaming (we bought our youngest daughter an Xbox for Christmas), I don’t understand why the gaming industry can support multiple formats while the video industry couldn’t.

Answers on the back of a postcard to letters@portphillipinsider.com.au.

Now onto something only marginally more (or less) important: the markets…

Markets

Overnight, the Dow Jones Industrial Average gained 36 points, or 0.2%.

The S&P 500 index gained 10 points, or 0.5%.

In Europe, the Euro Stoxx index gained 0.5%, while the FTSE 100 closed up 0.3%.

In Asian trade, as I write, it’s a mixed bag. Japan’s Nikkei 225 index is up 203 points, or 1.2% and Hong Kong’s Hang Seng index is up 145 points, or 0.7%.

Meanwhile, China’s Shanghai Composite index is down 1.1% and the Aussie market is down just 0.09 points.

In commodities, the oil price continues to rally. It’s trading at US$38.22 per barrel. Gold has slipped, trading at US$1,250 per ounce.

A surprising rebound

The share prices of iron ore stocks have shot up like a rocket over the past week.

After sinking below $15 per share in January, BHP Billiton Ltd [ASX:BHP] is now trading for $17.73. It’s up 26% from the low.

It was looking even better on Tuesday, when it was up 38% from the low at one point.

Other iron ore miners have done well too. Rio Tinto Ltd [ASX:RIO] is up 23% from the low.

And as you may or may not guess, the ‘third force’ in iron ore, Fortescue Metals Group Ltd [ASX:FMG] is up a whopping 89% from the low.

At one point earlier this week, it was up as much as 128% from the low. That would have been a nice ride if you could have caught it.

First of all, what explains the Fortescue share price jump — the rising oil price of course…oh, and a report suggesting that Brazilian iron ore giant, Vale SA [BZ:VALE3] could take a big stake in the company.

As the New York Times reported:

Vale of Brazil, the world’s largest iron ore mining company, said on Tuesday that it could take a stake of as much as 15 percent, worth $965 million, in its erstwhile Australian rival Fortescue Metals Group, as both companies seek to carve out more market share in China.

Rumours of a big buyer will always give a stock price a boost. Fortescue have denied that anyone could have leaked the news, as a reason for the share price spike.

But what about the rising iron ore price?

Surely that’s reason enough for iron ore mining stocks to rise.

The chart below shows the iron ore price is up nearly 52% since mid-December:



Source: Bloomberg

That’s a good rally. Good news for BHP, Rio and Fortescue. And good news for China and everyone else. It must mean that the demand from China’s steel producers is on the rise again.

You’d think so. But now check out this chart. If the iron ore price chart was an ‘upper’, the next chart can only be described as a downer…a major downer…comatose perhaps:



Source: Bloomberg

The chart shows the amount of ‘pig iron’ consumption compared to the previous year.

What’s more troubling about the recent period is that it’s more sustained than previous slumps. The first declining period in red to the left of centre, was during the 2008/2009 financial meltdown.

The second period in 2010 was during uncertainty about QE2 and the US debt ceiling.

But this current slump in iron ore demand (pig iron production) stretches back to early 2014.

Of course, it’s possible that things are beginning to stabilise and that production will begin to grow again. It’s also possible that the Aussie iron ore stocks were just severely oversold…that the market had priced in a far bigger drop in demand than has actually been the case.

But as we wrote recently about ‘dead cat bounces’, most often, when a dead cat bounces, it doesn’t stay airborne for long.

Buy, then sell

To our untrained eye, we would still say that the trend is down, and will likely stay down for the near future.

The bulls like to say that you should ‘buy on the dips’, the bears like to say that you should ‘sell on strength’.

If you bought on the bullish advice, it may now be time to change sides and follow the bearish advice.

Conference update

It’s official. The 2016 Port Phillip Publishing investment conference is a go.

This week I signed the contract with the venue and paid the deposit.

I’ve also been in touch with a number of keynote speakers. They’ve agreed verbally and in writing. Now it’s just a case of finalising the contracts.

But that’s not even one-tenth of what’s involved. We need to book the remaining speakers, decide on the theme, and do 1,001 other things that are involved in organising an investment conference.

As this is the first that I’ve had to organise, I can see why we only run them every two years — it’s a lot of work.

So, where is it, when is it, and who are the speakers at this year’s event?

We won’t announce any of that until the invited speakers sign on the dotted line.

But one thing I can assure you is that this year’s conference will be bigger and better than any event we’ve ever held in the past — and that’s saying something.

Stay tuned. We’ll release some of the details soon, including how you can put your name down on the ‘priority invitation list’.

I’m serious about this: you won’t want to miss this conference, with the line-up we’ve got planned.

Cheers,
Kris

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End of day market data

If you have any ideas about what you would like us to include in our end of day market data drop us a line at letters@portphillipinsider.com.au, and type ‘Market data’ in the subject line.

52-week highs: 23 stocks, including CIMIC Group Ltd [ASX:CIM], CI Resources Ltd [ASX:CII], Macquarie Telecom Group Ltd [ASX:MAQ], and Webjet Ltd [ASX:WEB].

52-week lows: 14 stocks, including Contact Energy Ltd [ASX:CEN], Millennium Services Group Ltd [ASX:MIL], and Wilson Group Ltd [ASX:WIG].

Note: The stocks listed above are stocks that hit an intra-day 52-week high or low during today’s trading. The stocks didn’t necessarily close at the 52-week high or low.