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Wake Up, Mom and Pop! At the Mineral Exploration Roundup held in Vancouver late last month, money manager Jonathan Goodman professed his belief that the world is on the cusp of a "full blown commodity boom." He tells us we are at the early stages of a secular bull market, as opposed to a mere cyclical up tick in prices, the difference being that a secular boom continues for 15 to 25 years. At this stage, we are only into year four. Further,
he explains that significant discoveries of resources are on the wane,
just as a continuingly weaker dollar by itself pushes prices higher.
And, while Mr. Goodman is saying these things, Wall Street just may be
on the verge of re discovers metals and mining. Big time traders are starting to notice the world wide decline in copper inventories, as refining bottlenecks are projected. The world's second largest copper producer, Phelps Dodge, Inc., said recently they expect consumption to increase by as much as 5 percent this year. The increase will exceed supply from mines and recycling, they say, adding further pressure to dwindling supplies stored at commodity warehouses. As these signals of changing times are waved, the mining stocks market seems to remain generally overlooked by the investment community. And, while many think the prices for metals have gone up dramatically in the last couple of years, retail buyers of stocks have not, as yet, moved into this sector as they did at similar points in other cycles. Eventually, I think, something will happen, some spark will be set off that lights a fire under this market. A sudden collapse of the dollar? A rare new discovery like Voisey's Bay? A softening in the housing market? Speaking of housing, my market (the Phoenix metropolitan area) is showing very strong investor buying. Some 25 percent (up from 15% the previous year) of new home sales are to investors in this, the hottest home building market in the US. Not only that, our stock of rental houses has tripled in two years, and it's not just new homes that make up the larger story. Local experts are saying that the real estate market in general comprises 33% of the areas economy. In other words, 1 dollar out of every 3 is somehow generated from the real estate market - construction, sales, financing, remodeling, furnishing, etc. Frankly, I think this is a dangerous situation, but that's getting off topic. To a lesser degree, the same thing is happening in the housing markets within many other regions of the county. Is it any wonder, then, that mining stocks have a hard time competing for attention, when every mom and pop investor is trying cash in on the real estate bubble? Sooner or later, that will change, and we may then begin to out perform the sizzling hot market our sector experienced in the late 70's. In summary, just getting a particular story out on a special situation mining stock may not be all that is required in this market. At present, there are a lot of stories out there and not that many of us participating. While this is an excellent time to assemble a base position within the sector, the market needs something to make it pop, to bring in more players, to make mining stocks the next big thing. No one can say what, or when, but it seems destined to happen. "Change" is the first principal of value. THE
CHINA SYNDROME: 14/01/2005
- "Booming demand from China continues to drive iron ore prices
higher," ... Rio Tinto, after receiving an average price increase last year of 18.6 percent, is now rumored to be seeking up to a 50 percent increase under one contract. 21/01/2005
- Power grid failures continue to perplex various parts of China's
economy, disrupting global markets in many ways. The latest bit of news in this regard relates to decreased output at zinc refiners, putting increased pressure on international suppliers. Zinc hits a 7-year high. This news spilled over into other markets today, forcing short covering in copper and other metals. 21/01/2005
- Chinese oil imports climb to a record amount. China is now the world's
second largest consumer of energy resources. 25/01/2005
- China is satisfied controls are working - inflation is held back -
even as GDP soars for 2004. Economy viewed as "robust." 06/02/2005
- Auto manufactures to produce 6 million cars this year. 08/02/2005
- Chain store sales increase 33 percent !!! 09/02/2005
- China will overtake the United States as the world's leading economic
power by 2025. QUOTES FROM SELECTED READINGS: "The
idea, however, that China is going to be satisfied with low-cost
manufacturing is a complacent fallacy. It already has a burgeoning
middle class and as the country becomes more affluent it will consume
vast amounts of goods and services. Many of these are already being
supplied by indigenous Chinese companies, which are now looking to
expand overseas in sectors such as cars, consumer durables, computers
and mobile phones. In effect, China is the Japan of 30 years ago -- on a
far bigger scale. The sheer size of China's domestic market means that
it will spawn world-class competitors who will produce top class goods
at knock-down prices. For companies in the West, the message is clear:
Think strategically about China now or any short-term gain could quickly
become long-term pain." Some
thoughts: End
legal tender laws. End government debt as an "asset"
for reserve banking. End the Federal Reserve System. "The
study of money, above all other fields in economics, is one in which
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Larry S. Levy is editor of Arts 'n Mines, a private email newsletter for special friends, guests and selected industry insiders. It is not available to the public. EXTRACTS is compiled from portions of the newsletter not dealing with specific mining issues. Mr. Levy also contributes economic and historical commentary on these subjects to international publications. He is retired from his former practice as a property valuations expert, during which time he held leadership roles in the premiere trade associations, lectured, and published articles on valuation topics. |