Commodity prices have been declining throughout 2014, having a direct impact on the Australian economy, and in the end, how joyous all our Christmas’s will be! Investors have felt the pinch of a declining market, with the ASX200 basically unchanged Year to Date and having suffered from a 5.5% decline from its intra-year high of 5683.
It’s not only investors who are feeling the pinch of the flat 2014 stock market. Businesses are as well. The stock broking business, which is all about facilitating the transactions of clients to buy and sell on the stock exchange, have realized lower numbers of transactions as investors have decided to sit on the sidelines.
Now, before I hear you cry “oh poor stock brokers” with your strongest sarcastic voice, the reason I mention this is to highlight the plight of business in Australia. In fact, the cost of brokerage has never been cheaper and over the last few years we have seen a consolidation in the industry. Starting all the way at the top (the big 4 banks), down to the boutique retail broker. This to me is a real sign of just how much the broader economy is struggling for personal cashflow.
But back on track on whether or not your stock broker should receive a stocking full of coal this year.
In conducting some research for this article, I thought I would research the history of coal being placed in Christmas stockings. From what appears to be a very legitimate website (again, sarcasm for a Friday), I found the following:
“When a child is very naughty (Santa) marks his or her name down on the naughty list. Then at Christmas a few lumps of coal are put into their stocking to remind them to be good all year round … and coal in the stocking is a Sicilian (Italy) tradition. It began with the legend of La Befana. Two of the Wise Men stopped at the home of La Befana to ask for directions on the night of Jesus’ birth. They invited her to join them in going to see baby Jesus, but she refused. A while later, one of the shepherds asked for directions, and again invited La Befana to join him, but again she refused.
Looking up into the sky, La Befana saw the bright star, and thought that she should go to find the stable. She gathered toys to give to baby Jesus. (The toys belonged to her own little one who had died). Unfortunately, La Befana was unable to find the stable. Tradition says that even today, she continues to try to find baby Jesus. Every January 5th and the morning of January 6th (the feast of the Epiphany) La Befana tries to find the Christ child. Throughout her journey, she leaves toys along the way to the good children and she leaves coal for the naughty children.”
Each culture has their own history…
Of course, each culture has their own history. In Germanic Folklore (middle Europe) “Saint Nicholas was a 4th century Christian saint known for secret gift giving, often putting coins in the shoes and socks left out for him by children. The legend of Santa Claus evolved over many years to become the character we know today. By the 16th century, Alpine countries created a beast like counterpart to their Sankt Nikolaus, known as Krampus, who punished naughty girls and boys. Here, the traditions of not only rewarding good children but punishment for the bad took root.”
Further, folklore of Holland and Belgium had a Dutch equivalent called Sinterklaas, who had a Krampus-like counterpart named Black Pete. Similar to La Belfana, Black Pete would leave a lump of coal from the fireplace in the shoes of bad children.
Forget being a good or bad child, just give me Coal!
Although it is intriguing to consider the history of how the legend of Santa Claus has come about, I’m an adult who has far more fiscal concerns to focus on. So for this reason, my thoughts of coal in the stocking led me to take a look at the price of Coal – one of Australia’s major exports. I’ve included a simple chart below.
As you can see, Coal prices have been falling for many years. This means the coal I’m likely to receive in my stocking this year isn’t valued as highly as the coal I’d received a few years ago. Luckily, at the time, I subsequently on-sold that coal saving myself the heartache of a price that has halved in value since 2011.
Energy prices are potentially going through a major shift as Crude Oil has fallen to record lows. Nuclear energy (the cheapest and most efficient, although has obvious environmental concerns), has had no growth since the Fukushima disaster a couple of years ago. Although Nuclear energy will increase with the number of new power plants currently in development and what is planned over the coming decade.
So is Coal a good investment? Should you be giving your children coal for Christmas for future wealth creation?
Another fact for the history of coal in the stocking is that by the 19th century, most of Europe was powered by coal for heat. For the poor, having coal meant survival. Hence, receiving a lump of coal was exceptionally valuable.
On the short-term, with the price of coal where it is, buying now for short-term gains might not be prudent. There will be price wars in energy over the next 6-months as this oversupply of Crude floods the global market. However, the attempted shift away from coal as an energy source has yet to find a substitute other than Nuclear.
But on the medium to long-term, Coal has the potential for growth.
Earlier this week, Rio Tinto’s boss for their Coal division, Harry Kenyon-Slaney, stated that there are emerging opportunities in thermal coal. He stated “We are seeing the beginnings of the stabilisation of the market, particularly in respect of price”.
He believes there is a correction in the supply imbalance, and that the cycle is going to turn. Maybe next Christmas will be the time for Coal prices to rise, and that means buying up now, and holding in the back of your closet.
The kids might not be happy on Christmas morning, but you can sit there with a wry smile on your face knowing that the black rock will gain in value in time. So I for one won’t be upset if come to work on the 29th Dec to find my stocking full. I’m just hoping I was a bad enough boy in 2014!
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