Sometimes the best market indicators are right in front of your eyes – literally.
During the past two days I’ve been at a mining industry conference. According to the conference’s marketing materials, this is “where miners and investors converge in Asia.”
With a name like that, I expected a conference venue the size of an airplane hangar… with hundreds, if not thousands, of attendees… and dozens of mining companies and service providers pitching their products.
Instead, the event was held in a room a bit larger than the size of a football penalty area. There were no more than 60 or so delegates, and just a small handful of company stalls. It was like expecting a buffet dinner, and being offered a pile of peanuts.
Why were there so few people at this conference? Maybe it wasn’t well publicized. Maybe a lot of potential participants didn’t have time to come to Singapore.
But I think the better reason is the graph below. It shows the performance of the iShares MSCI Global Metals & Mining Producers ETF (New York; ticker: PICK). Its biggest holdings include some of the world’s largest metals and mining companies, including BHP Billiton, Rio Tinto, and Glencore.
As commodity prices have suffered in recent months, the share prices of mining companies have collapsed. At its recent bottom in late January, PICK shares were down 59 percent from 2015 highs.
Since their recent lows, PICK shares are up 53 percent. Overall, they’re up 23 percent in 2016. That’s happened because commodity prices have picked up, and investor enthusiasm about commodity companies has increased sharply.
If things are looking so much better for the mining sector, why weren’t there more people at this mining conference?
“Mining companies don’t have the money to send people to these sorts of conferences,” one mining industry veteran at the conference told me when I asked him.
“There just isn’t any interest on the part of investors,” another said.
Just because the share prices of mining companies have moved up from their lows, it doesn’t mean that mining companies are doing any better (yet, at least). And despite the recent rally, PICK shares are still down about 60 percent from all-time highs.
Conferences like this are overflowing at market tops. That’s when you should sell. But it can be a buying opportunity when share prices, and investor interest, are down. A poorly attended conference is an indicator that things are close to getting as bad as they can… and the better news is that (according to the recovery in the share price of PICK) they’ve begun to look better.
Of course, conference attendance (like share prices) can always fall further. A conference might be cancelled (or a company might go bankrupt). But if that happens, you know you’re even closer to a bottom.
Indicators that have nothing to do with markets can sometimes offer insight on markets. For example, the “hemline indicator” says that the hemline of women’s dresses is an indicator of macroeconomic performance – and that the higher the hemline, the better the prospects of the economy.
A semi-scientific study conducted by Business Insider in early 2012 showed that hemlines were significantly higher than those of the fall/winter 2011 fashions. (And the U.S. economy grew by 2.2 percent in 2012, up from 1.6 percent in 2011 – and by an average of 2.2 percent per year since.)
Similarly, the so-called “skyscraper index” shows a correlation between the construction of the tallest building in the world, and financial crises.
As the Washington Post explained earlier this year, “The Sears Tower was built just as the U.S. entered the paradox of stagflation. And as Malaysia stole the title of world’s tallest building, it was being engulfed by the Asian financial crisis. Looking back in history, the Chrysler and Empire State buildings were completed one year into the Great Depression.”
The current tallest building in the world, the Burj Khalifa in Dubai, was completed in 2010, coinciding with the global economic crisis.
There is no “Conference Attendance Indicator” (yet). But if there were, it would be a good sign for the shares of big global mining companies, and PICK in particular.
If you want to invest in the world’s largest mining companies, and can trade on U.S. exchanges, take a look at PICK (that’s its ticker, as well).