Answer me this question… what happens next?
Here are the facts…
Rio Tinto Limited (ASX: RIO) ramps up iron ore production. Meanwhile, according to Bloomberg, UBS AG estimate the global surplus of iron ore will swell to 200 million tons in 2018, up from 35 million tons this year.
Iran says oil at $US25 a barrel poses no threat to the country's oil industry. Iraq said it's producing a record amount of crude oil. Meanwhile, OPEC has no plans to cut its oil output, even with the global oversupply estimated at about 2 million barrels per day.
Who'd be a buyer of mining stocks? Or oil producers?
Something has to give. Either supply decreases or demand increases.
No sign of the former, yet. The game of chicken — who blinks first — is still in the early innings. It's a race to the bottom. Expect more casualties. Only the strong will survive. Small, high cost iron ore producers, like Atlas Iron Limited (ASX: AGO), should look away now
Demand increasing? Not looking likely, even at these lower commodity prices. China already has a bunch of ghost cities, and 22% of sold apartments in China are empty.
Speaking of China, today they are expected to release figures showing the country's annual growth is at its weakest in 24 years.
Meanwhile, the copper price, widely acknowledged to be an indicator of the health of the global economy, trades near a five year low.
Indeed, what does happen next? Where does all the surplus iron ore and oil go?
For me, there's only two things to do…
1) Send our crack team of analysts from Motley Fool Pro — lead by ace value investor Joe Magyer — to China to get the first hand scoop of what's going down in the Middle Kingdom.
I'm fully expecting them to see vast piles of iron ore stretching as far as the eye can see, just sitting there port-side, doing nothing. I've requested a picture of our intrepid analysts perched atop a pile of red dirt, preferably with one of China's ghost cities in the background. Wish them luck. Getting there is the easy part.
2) Stick my freshly minted BHP Billiton Limited (ASX: BHP) shares in the bottom drawer, sit back and enjoy the fully franked dividend, but go shopping elsewhere for my investing kicks.
Speaking of kicks, something seems to have caught the eye of my top small-cap growth stock for 2015, the stock jumping higher in morning trade on much higher than normal trading volume.
Perhaps the masses are finally catching on to this company's current growth rate, its enormous future growth prospects, and its cheap valuation? About time too!
To emphasise the point, at its AGM late last year, the company forecast its net profit to jump more than 60% on the corresponding period for 2014.
Still, that news seemingly slipped right under the radar of most investors. They are too focused on the big end of town — banks, miners, Telstra Corporation Ltd (ASX: TLS) and supermarkets — to bother with smaller companies.
Their loss, our gain. Retail investors can be much more nimble, taking advantage of price anomalies in smaller companies, profiting when babies are thrown out with the bathwater, often pocketing juicy dividends along the way.
Luckily for me, just last week I took advantage of the fast growing small-cap stock's Share Purchase Plan (SPP) to top up on my already substantial holding. Adding to my winners was one of my investing new year's resolutions. Tick.
If you're wondering about the name of the company, it's featured in our brand new "Shares 2015" premium report, available free to subscribers of Motley Fool Dividend Investor.
I've got plenty of my own skin on the line behind this fast growing small-cap stock, and a number of the stocks recommended in Motley Fool Dividend Investor. For just $198 for a two year subscription — a full 50% off — you too can click here, join in the action, and grab your copy of "Shares 2015" for free.
In "what happens next" part 2, consider this…
The European economy is a basket-case, so much so that investors are betting the European Central Bank (ECB) will this week announce it will fire up the printing presses, buying bonds in a bid to fight deflation and revive growth.
Good luck on the latter. And the former, for that matter. An OECD report from last year said France is the country in which retirees can clock up the most time in retirement, with nine European countries making it into the top ten out of the 34 OECD countries.
And that's before some people born today start living to be 150 years old, as suggested yesterday by our cigar chomping Treasurer Joe Hockey. My bet is Joe might find smoking cigars and living to 150 years old are mutually exclusive. Watch this space.
Who doesn't want a longer retirement?
Your government, that's who. Not without you paying for it, anyway.
And your health system could do with you popping your clogs quickly and painlessly.
Retirees don't pay (much) tax. Most receive the aged pension, or at least some of it. All require medical care at some stage. It all costs money — money governments of tomorrow, especially in Europe, simply won't have.
Don't get me wrong. I'll be there one day too, minus the aged pension. Courtesy of a life of hard work, excellent saving habits and good investing, I fully expect to be a self-funded retiree until I gracefully depart this planet… some way short of 150 years old, mind you. Many readers of this free Motley Fool Take Stock email will be in the same boat. Ahoy there me hearties.
What gives?
Interest rates. Bond yields. In short, low-risk retirement income options.
If you think Australian income-seeking retirees have got it tough, consider our European friends.
The German 10-year bond yields 0.44%. France 0.64%. Switzerland minus 0.12%. If you feel really lucky you can grab some Greek bonds, yielding a whopping 9.13%. Pass the Ouzo.
Not surprisingly, European stock markets are on the up on the news of even lower bond yields — there's simply no other place for your money but the stock market, in particular, dividend paying shares.
The era of risk-free income has gone.
Here in Australia, by comparison to Europe, and the US for that matter, our 10-year bond yields a rather juicy looking 2.63%. No wonder the Aussie dollar is remaining around the US82 cents level — still too high for the RBA's liking.
Money tends to go where it earns the highest return, and apart from Greece, Mexico, Brazil, India and New Zealand, Australia is it.
All of which is likely to leave Glenn Stevens and his merry band of RBA bankers in a pickle. They want an even lower Aussie dollar — ideally around US75 cents — but its unlikely to happen given the low bond yields on offer around the rest of the world. Heck, even with its unemployment rate above 20%, Spanish 10-year bonds yield a pitiful 1.51%.
The only way to lower the dollar is to cut Australian interest rates. I don't think it will happen in February, but never say never. This mining boom is well and truly over, unemployment is expected to tick higher, commodity prices are in the can, and inflation is well and truly under control.
I'm getting in ahead of the game — buying dividend paying stocks today, before interest rates fall any further.
Like it is now even in Europe, as it has been in the States for some time, the share market is soon to be the ONLY game in town.
I'm talking dividend stocks, of course, all the more better if they are fully franked. Our European and American friends have no legal tax dodge as we do here with our dividend imputation system. Andrew Page explains more to members of Motley Fool Dividend Investor.
Bell Potter's Charlie Aitken is back on the bank bandwagon, saying the sector's high dividends makes it a good bet in an environment of record-low yields.
As reported in The Age, Aitken has buy recommendations for Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB), and is "neutral" on the Commonwealth Bank of Australia (ASX: CBA).
Aitken has good form with his bank picks. And Telstra, too. He keeps things simple. With interest rates low, and staying low, the income-hungry SMSF Army will turn to the fully franked dividends of the banks and Telstra. By comparison to term deposits and bonds, grossed up dividend yields of well above 6% are compelling.
He's got a point.
However, if, like me, you've got your fill of the dividend-paying blue chips, you may want to look elsewhere for your income kicks — like to Andrew Page's brand new stock pick to subscribers of Motley Fool Dividend Investor. I think you might find its 6.1% grossed up dividend yield is simply too good to pass up.
