Tuesday 22 September 2015

Top Tweets Today: 22/09/2015

When you watch the scope of the downturn in crude oil prices you're bound to think of the knock on effects it has on other industries built around the recent boom of shale gas. When I saw this article by Bloomberg it caught my eye by explaining how the collapse of oil had led to a downturn in the market for sand.

I must admit that I had very little knowledge to the process of how hydraulic fracturing occurred but reading the article I found it interesting that sand is used to blast through the rocks to open gaps for the gas to escape. But I digress.

The real tragedy is the bust happening in small towns in and around the US who have seen a surge in sales of an otherwise unexpected commodity in relatively quick period of time with folks gearing themselves up to profit from but now staring down the barrels of bankruptcy as oil sinks to multi year lows.  Capitalism can be so cruel sometimes...

Massacre; that's the word that would describe the selloff in commodity producers today as the Asian Development Bank lowered its growth forecasts for China. The worst of the bunch was Glencore falling to it's lowest ever price since its IPO in May 2011. The company who successfully completed a rights issue recently is grappling with an overburdened balance sheet geared towards Chinese growth which has yet to materialised.

 I've may have mentioned this before in previous blogs that what we are seeing here is mining companies who have heavily invested in expanding production basing their expectations on projections that China would grow at 12% consistently who are now suffering the consequences of those decisions.

The future is very hazy for the time being and I wouldn't be an investor of these stocks at the moment based on the uncertain outlook. What they need now is time for management to fix up their balance sheets and stability in resource prices something I find hard to see anytime in the near future.
 If you're a trader here's one reason why risk management is so important when speculating the direction of a move in any security. Had you been trading Volkswagen on Friday you'd have no knowledge that the company had been lying to US regulators as to the amount of emissions being discarded from their vehicles. Fast forward 4 days later and the stock price is now 38% lower with you being poorer had you not applied common sense.

The moral of the story here is as a trader you have no control over the move of any security and by entering the trade you accept full responsibility that anything and I mean ANYTHING can happen whether it be positive or negative.
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