Commodities Hunting

Welcome back! I would like to take a break from the series of blog entries I'm writing. It's about my perception of Philippine business as well as my (attempts at) prophesying what would be the next wave of Philippine business down the road. For the first two I've posted -

For my first post please visit here - Part I.
For my second post in the entire series - Part II.

This year was touted as the start of the mining boom for the country. However, as you can see, it's been anything but. Red tape, local tribal protests, and more importantly - the global credit crunch, has probably crimped any remaining hopes of big ticket mining investments - at least in the near term. So far, commodity prices have also been hammered along with the stock market.

Oil, one of the most traded commodities, was for a time at a high of $155 a barrel and has now plunged to half of that. Experts call it economic slowdown. Pundits call it speculation. Critics call it manipulation. Pinoys call for a price rollback.

A friend and I were discussing about our sentiments for 2009, and while I was admittedly bearish, he was seeing the glass half full. I told him about the possible breakdown of financial institutions, including the local ones. He said that while worldwide, we are indeed in a crisis, he said that it isn't the end of the world yet. If the crisis is as bad as it is being pronounced by media, then we would already be at war right now. That was his two cents.

And two cents mind you, is the worth of OV...well actually less. The stock certificate is probably more expensive than the share price. That's the time you think that the current stock market values are preposterous. I guess this is also the time you call a market bottom - when the costs associated to the production of stock certificates is more than the value of its stock price.

OV, along with OPM, PERC is a classic case of how the Philippine stock market works. The Galoc oil field has been producing oil, although they have not yet been put to commercial use. Apart from that, a nearby site has been discovered to have oil as well. I'm not sure if it's this one. So on paper, there seems to be something positive about these oil companies. Yet, these stocks are in the doldrums. Go figure.

(Yeah, I know it's also attributable to the credit crisis. Blame everything on the credit crisis. But I think what is more important is to know who were the people behind the curtains called "credit crisis".)

This also makes you think that maybe, the stock market is just one big playground for speculators. Obviously, when the there is a bear market, speculators are not in the game. When everything starts turning bullish again, they come back right in, fueling the "growth of the stock market", or "creating wealth", etc. I'd imagine that if this were a bull market, OV's share price would be skyrocketing to the moon.

So is the bottom near? Are we in the capitulation stage? I believe that more likely, we're in the kaput-ulation stage.

What about commodities? Are they the way to go for your money? Older generations of Chinese-Filipinos would always say, put your money in property and gold. Although it sounds like sage advice, it lacks one important element - and that is the timing.

When do you buy? How long do you hold on to it?

Another friend and I were talking about gold, and he asked if it would be alright to shift his money to gold. I asked him one simple question - how are you going to liquidate it in the future?

Yes, it is possible for you to buy gold, but the problem arises when you need to dispose of it. Apart from the fact that it's hard to sell it, it's also hard to find someone who is selling genuine gold bars. Then, even if you find someone who is selling gold, do you know how much money you need to buy?

Doing a layman's computation and analysis, let's examine -

Based on Kitco, one ounce of gold is at $700, more or less. To make it easier for you to understand just how expensive it is to buy gold, let's use a Coca-Cola 8oz bottle. If that 8oz bottle was filled with gold, then you would have -

8 x 700 = $5,600 due to the seller

But since we're in the Philippines, let's multiply that with the latest Peso-Dollar exchange rate of 48.51 then you have -

Php 271,656 for one 8oz of Coke.. er gold.

Still want to buy gold? I think the more prudent approach is to buy gold jewelry. They won't be worth as much as the gold bars, but, in the event of a cataclysmic event like a world war as a result of the financial turmoil, even jewelry can be used as barter for goods. Your property will be worth nil as it will probably be seized by the occupying forces of a military organization.