Related Articles

• Why You Shouldn’t Panic-Sell Commodities
• More Reasons to Swap Equity for Gold, Silver and Oil
• Financial Head Loppings

Russell McDougal at Investor’s Daily Edge says there are extraordinary investment opportunities in the resource sector now.

There is a huge disconnect between commodities prices and resource-sector stocks. Even though the price of oil, gold and other resources have risen sharply in the last year, mining stocks are in turmoil.

With all fundamentals pointing to a sustained commodity bull market, Russell says now is the perfect time to buy into quality resource companies at bargain prices…

We were in the middle of a series of expositions on my “Fave 5 Commodity” investments over the last several weeks. The series has been rudely interrupted for the time being. We’ve looked at gold, silver and uranium to date. Oil and natural gas remain on the agenda. They can wait. What’s the hurry, especially if they are in such a long-term bull market?

Some rather profound ideas have come my way via my recent trip to the Agora Financial Investment Conference in Vancouver. Attendance at first rate investment conferences is akin to childhood visits from Santa, at least for me. It is not work. Talking to the exploration experts and the investment pros is an unending pleasure. There is always something to be gleaned from the podium speakers as well.

The present resource sector is in a painful sell-off mode, in spite of very attractive commodity prices and sound long-term fundamentals for a continued bull market. The stocks are getting uniformly clobbered. It is one giant disconnect. The last time I saw such an event was in the late 1990s. We had an absolute bear market in resource stocks at that time. It was historically agonizing. Commodity prices were low across the board and no one was interested in the resource exploration companies.

One of the main reasons I am in a position to write these missives to you on a regular basis is that I seized the opportunity present in the late 1990s. I heavily bought the stocks offered up at distressed prices. There was no way the market was not going to turn back up at some point. Resources are nothing if not cyclical.

The stocks I purchased in 1998, 1999, 2000, and part of 2001 paid extraordinary profits in the subsequent years. The foundation was laid by buying in the years when no one else was interested.

A similar opportunity is now at hand. There is carnage in the sector. Except this time around there is absolutely nothing wrong with commodity prices. They are at levels that would have made us all salivate a decade ago. It’s simply a volatile and sometimes irrational sector. People are shying away from anything perceived as risky. You can’t make unimaginable profits here unless you have the means and temperament to speculate.

What really impressed me at this Vancouver gathering was the ultra high quality of the various companies showing their projects. I’ve been to a lot of mining conferences and yet this particular group really stood out in demonstrating exceptional management, properties, connections and objectives.

Here’s the real kicker – the vast majority of the presenting companies had charts that looked like this:

This is a chart of Lundin Mining Corp (LUN:TSX), one of the largest and best mining companies in the world (this is not a recommendation). You’d think we’re in a devastating bull market with exceedingly low commodity prices. Not so.

In fact, I looked at 62 charts of the ultra high quality presenting companies. 48 of them had a chart that resembled this one of Lundin Mining! Only 9 charts looked positive. A full 85% of the exceptional companies present showed no benefit from the currently lucrative commodity prices! It is a massive disconnect! It’s hard to fathom this with gold and silver up nearly 50% in the last year.

The conference speakers have solidified my conviction that we are in a long term secular commodity bull market. Let’s look at a few key opinions from them.

Addison Wiggin recently wrote The Demise of the Dollar. Most of you are familiar with the “peak oil” theories. Wiggin endorsed this theory and also suggested there are similar issues with water, infrastructure, natural resources, western influence, debt/credit, and the dollar. The earth has shifted on its axis.

Bill Bonner clearly expressed the logic that you cannot get rich via an emphasis on consumption. It’s a flawed theory. The ideal model is to save, invest in productive enterprises, and then create true value. This is exactly what the former basket cases, the Russians and Chinese, are now successfully doing and it’s the only thing that will return the US to former heights.

Rick Rule of Global Resource Investments drew a crowd, as usual, on and off the podium. He came across as downright gleeful over the presently declining resource stock prices. The “juniors” are down approximately 35 percent over the last 12 months. Rule loves buying into declines. Much of the risk has been hammered out of the sector.

In typical wittiness he stated that the markets are taking down the good, the bad and the ugly. We are not required to buy the bad or the ugly.

Rule also highlighted four main reasons the resource bull market has a long way to go:

1. Most global commodities are priced in US dollars. They go up in price in proportion to ongoing dollar weakness.
2. We aren’t long out of a 20 year bear market in natural resources. Worldwide investments in the resource sector were severely lacking during this time frame. We’re living off mining assets discovered 20 to 40 years ago.
3. Emerging market demand for “things” containing various metals has become the prime factor behind global demand. It is no longer just about Western demand.
4. Government attempts to “fix” the problem will exacerbate shortages.

Rick believes historic buying opportunities in the resource sector will be present this month (August is like a “time out” in Vancouver as many of the resource sector heavyweights are vacationing).

Rule is also very enthusiastic about alternative energies such as geothermal and small scale hydrothermal. He expects them to become a veritable “craze” in the coming years. These alternative energies will be politically correct as well.

Dan Denning, author of the book “The Bull Hunter”, also spoke. Dan presently resides in Australia and is more than familiar with the ongoing China phenomenon. He portrays China as just now entering the most metals-intensive phase of their industrial revolution. Chinese consumers are now stepping up to buy things.

The near unanimous consensus was that the resource bull still has strong legs.

Source: Resource Market Disconnect

Related Articles

• Why You Shouldn’t Panic-Sell Commodities
• More Reasons to Swap Equity for Gold, Silver and Oil
• Financial Head Loppings

About the Author

Rusty writes for Investor’s Daily Edge. Since 1993, Dr. McDougal has focused almost exclusively on gold, silver and resource investing. He has a particular affinity for silver and has studied virtually everything available on the topic since 1994. Today, Dr. McDougal’s personal portfolio is a virtual mutual fund of natural resource exploration and development companies.

See All Posts by This Author

Investor's Daily Edge is a free investment e-letter delivered every day before the market opens. In each issue you'll receive clear recommendations and practical strategies for protecting your portfolio and multiplying your money, whether the market is rising or falling.

See All Posts from This Publication