Trends I'm Watching

Strong Global Economic Growth, Tight Supply Fuel Copper Surge

Trend: Demand for metals outstrips supply.

Source: Investor's Business Daily: Strong Global Economic Growth, Tight Supply Fuel Copper Surge.

Copper has soared 180% since June 2003, far more than gold's 48% rally or silver's 91% gain. Even crude oil has only doubled.

What's behind this explosion?

"Old-fashioned expansion," said William O'Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, N.J. "Emerging powers are continuing to grow their demand, and supply just can't keep up."

Unlike precious metals, which attract lots of speculative buying amid fears of what might happen, copper is flying on what is happening. "This (copper) is not an inflation story," O'Neill said.

Copper is a core industrial metal, used extensively in autos, construction, wiring and other fields. Its price rises and falls with the global economy, which is enjoying its best boom in 30 years.

Globalization isn't what's killing GM

Trend: Ineffective management uses globalization as an excure for poor performance.

Jim Jubak says management at many poorly performing large companies uses globalization as an cover up for their inept leadership.

Source: MSN Money - Globalization isn't what's killing GM - Jubak's Journal

...I think globalization is just a comfortable excuse that lets management off the hook for its own failures of vision, strategy and execution.

Some managements seem genuinely afraid of trying to compete in a globalizing world. It's just too hard. Baloney. If Nucor can succeed against foreign competitors with cheap government-subsidized capital and cheaper labor, so can U.S. auto makers or U.S. airlines.

There's a common thread that unites this proposal from Northwest Airlines to the cost-cutting at GM and Delphi. It's a short-term fix designed to dress up the bottom line. But it doesn't do anything to grow the airline, just as the cost cuts at General Motors or Delphi don't do anything to grow the car company or the parts maker.

Can companies such as General Motors and Delphi and even Northwest Airlines be saved? Even in this age of tough, tougher, toughest global competition, I think the answer is yes. What these companies lack is great management with a commitment to beating the competition and the ability to deliver on that goal. That's always in short supply, of course.

And unfortunately, right now it's more needed than ever.

The Global Big Three Auto Makers: DaimlerChrysler, Toyota and Hyundai Motor

Trend: Bad strategic decisions in the past are suffocating many large corporations.

Jim Jubak isn't optimistic about the future for Ford and GM.

Source: MSN Money - Just call Chrysler the Big One - Jubak's Journal.

The 19th-century methods that let the Big Three rule the world for a good part of the 20th century won't work anymore. In the 21st century, a manufacturing company can either become Dell (DELL, news, msgs) or Apple Computer (AAPL, news, msgs), or it can slide into decline punctuated by crises. The only U.S. auto company that seems to understand that is what used to be called Chrysler. DaimlerChrysler stands a chance of being one of the global Big Three 10 years from now. (My two other nominees would be Toyota and Korea's Hyundai Motor (HYMLF, news, msgs).)

The steps that General Motors and Ford Motor have reported recently certainly sound dramatic enough to turn those companies' fortunes around.

And the fixes -- even though GM's plan produced an impressive rally in its share price -- still don't fix the two automakers' biggest problem. Even when they cut prices to levels where the companies are losing money on every car they sell, they can't stop the steady erosion of their market share. GM's share of the global auto market fell to 14.6% in the third quarter, down 0.8 percentage points from the year-ago quarter. And its share of the U.S. domestic market fell to 25.6%, down almost 3 percentage points from the third quarter of 2004. And that's the good news: October sales have started off way down, and Wall Street is projecting that, at current rates, GM will see its share of the U.S. market shrink to just 20.5%, its lowest share of the market since 1980. October-to-date sales at Ford show an even bigger drop.

Fighting the last war
In their plans, the two auto companies don't recognize how much the world has changed for makers of commodity goods -- and, yes, I think automobiles are now commodity goods. No auto company has a significant proprietary technology that distinguishes the bulk of its fleet from that of any other company. Increasingly, individual auto companies buy a significant amount of the product content of their cars from the same suppliers. Lear (LEA, news, msgs), for example, sells its seat systems, door panels, instrument panels and overhead systems to GM, Ford, DaimlerChrysler, BMW, Hyundai, Toyota, Nissan and Volkswagen, among others.

Sound like any other industry you know? Try the PC industry. Except for Apple's computers, PCs all run on Intel (INTC, news, msgs) or Advanced Micro Devices (AMD, news, msgs) processors and process their graphics with chips from ATI Technologies (ATYT, news, msgs) or Nvidia (NVDA, news, msgs). The mother boards and subassemblies inside different brands may even be put together in the same factories.