When an industry is on the up and up, success is all about getting bigger and bolder.
Build more. Buy more. Expand. He who dares, wins.
But on the way down, it's all about survival.
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Cut hard. Cut fast. Hunker down.
As you might have guessed, this morning we're talking about the mining sector again
This is just yet another cycle
a great piece by Edward Chancellor
It's about how companies get overexcited and build too much capacity when the price of their product is soaring and investors are keen to pile in. (You can see this evident in everything from the US fracking boom to the dotcom bubble in the late 1990s.)
Then prices fall and they're left with a load of assets, often low-quality ones, that they paid too much for. And the game goes from being all about expansion, to pure survival of the fittest.
The gold miners have already experienced this. And now the wider commodities sector is getting it too. You just need to look at this week's big company news to see that.
For a start, commodities giant Glencore has had a good morning so far, with its share price up around 10% or so at the time of writing.
That means it's only the second-worst performer in the FTSE 100 this year so far.
What caused the bounce? Basically, Glencore is biting the bullet. It's slashing spending by more. It's cutting debt harder and faster. It's selling off more assets. At this stage in the game, that's what investors want to see.
Investors are getting to the point now where they want to know that the companies in this sector can survive. They don't care about dividends anymore, because they don't think they're going to get paid. (Just look at BHP's dividend yield 12% doesn't indicate a bargain, it indicates a market that has entirely written off any hope of that being paid.)
Yesterday of course, Anglo American the FTSE 100's worst performer of the year so far did something similar, slashing its workforce, cutting its dividend and flogging assets. The difference is that investors have already had their major panic moment over Glencore, with the low hit towards the end of September. They now believe that Glencore can ride this out and that the worst is in the price.
The problem for Anglo is that investors aren't there yet. They reckon it hasn't yet done enough and there could be more pain to come.
The pressure is now firmly on companies to prove that they can thrive no matter what. That means taking what radical action they can now. And if that's not enough well they're in trouble.
But to me, this suggests that we must be getting close to a bottom. We're not there yet. But we're getting ever closer to the point of maximum pain. My colleague Alex Williams will be looking at how close we are in next week's issue.
The end of an era for buy-to-let
Now, the Wilsons aren't publicity shy. It feels like their buy-to-let empire has been sold at least a dozen times. But this time around it seems to be the real thing. According to the FT, they've sold to "a consortium of Arab investors, both wealthy individuals and institutions". The deal is set to complete "early next year".
Mr Wilson reckons they'll make £170m pre-tax. And it'd be fascinating to get a breakdown of exactly how the numbers work out the innards of a buy-to-let empire, as it were.
Anyway, it seems remarkably good timing. Chancellor George Osborne has been hammering nails into the coffin of hobbyist' buy-to-let all year. First he made the tax regime a lot less forgiving, and at the Autumn Statement he whacked a punitive stamp duty rate on small would-be landlords.
As one of the participants at our recent property roundtable (which is in the magazine this week) pointed out, at first sight, this might seem an odd approach for a Conservative. He's penalising people who could be seen in some lights as small business people, and he's also micro-managing what people do with their money.
However, in many ways it's a very Tory policy. It's designed to discourage renting and boost property ownership. Look at it in that light and you can see that it's pretty consistent with the Conservative (with a big C') philosophy.
Of course, it remains to be seen just how much it'll help first-time buyers. But it does mean something very specific for investors buy-to-let is over. Merryn explains why in more detail in the next issue of MoneyWeek magazine, out tomorrow.
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