Investment Contrarians

copper


How This One Chart Proves Economic Recovery Is Fake

By for Investment Contrarians | Nov 19, 2013

Proves Economic RecoveryYou know, it’s funny; with the stock market hitting all-time highs and market sentiment becoming ever more bullish, you would think that the economic recovery both here in America and globally was right on track.

But you’d be wrong. The economic recovery is not accelerating globally, and here in America, we just witnessed a minor bump up in growth primarily led by a build-up in inventory.

Ask the average person on the street: do they feel as if the economic recovery is running full speed ahead? Do most Americans feel better today than they did last year?

I’m willing to bet that most people don’t feel that much different about the economic situation than they did a year ago. Yet stock market sentiment has gone from highly pessimistic to overly optimistic. After all, we are at all-time highs; doesn’t that mean that the economic recovery is close at hand?

Not necessarily. I believe much of the upward move in the stock market (and market sentiment) this year has been primarily fueled by the Federal Reserve’s easy money.

Look, most people have a short-term memory. They don’t tend to remember the longer historical picture. Instead, they see what has worked over the past couple of months and continue doing the same thing over and over again until they get burned.

Market sentiment began building up in the middle of 2012, and once investors realized that the Federal Reserve had its foot on the accelerator, people piled into the market. This has kept pushing market sentiment ever higher, regardless of whether or not the economic recovery was accelerating.

This one chart is … Read More


Widespread Opportunities Opening Up for Speculators in This Mining Sector

By for Investment Contrarians | Aug 26, 2013

Widespread Opportunities Opening Up for Speculators in This Mining SectorGold prices have bounced back, jumping above $1,350 an ounce; but I contend that the advance will not be sustainable as the metal remains in a bear market.

The problem we are seeing is that the mining sector is under duress, especially the junior miners that are struggling to maintain costs while gold prices and demand decline.

With commodity prices down across the board, Glencore Xstrata Plc wrote down its mining assets by $7.66 billion in the first six months of 2013. The company, which trades on the London stock exchange, attributed the massive writedown to weak commodity prices.

While commodity prices are weak at this juncture, I continue to see some opportunities in the mining companies and junior gold miners.

China has also been buying mining companies around the world in an effort to increase its reserves. This is one reason why I like some of the smaller mining companies, especially those with a massive reserve of proven metals in the ground, just waiting to be developed but needing a cash-rich partner to get the ore out of the ground.

In fact, it often makes sense to buy a sector when no one else wants to buy it. In this way, you pay lower prices, rather than chasing a sector at a higher point. Gold, silver, and copper are good examples.

In the large-cap metals area, the top players are Freeport-McMoRan Copper & Gold Inc. (NYSE/FCX), Barrick Gold Corporation (NYSE/ABX, TSX/ABX), and Newmont Mining Corporation (NYSE/NEM). These stocks are close to their 52-week lows and pay a good dividend. The short-term may be volatile, but you know that there’s … Read More


Mining Companies Going Forward: Where’s the Potential?

By for Investment Contrarians | Aug 23, 2013

Mining Companies Going ForwardA friend of mine recently asked me a question that many others might be asking as well: why do mining companies swing so often from optimism to pessimism?

If we take a look at how the mining companies have reacted to price over the past few years, we can see just why there’s so much volatility.

Like any rational person, the people who run mining companies want to maximize revenues and earnings; that’s their main investment strategy. As the prices of commodities increase, each individual firm looks to produce greater quantities to take advantage of higher prices.

This seems like a solid investment strategy—except that if each of the mining companies has the same idea, the net result ultimately is an increase in supply to a level that’s greater than the market can handle—which depresses prices.

Obviously, we can’t have mining companies work together to set prices; that’s called collusion and it’s illegal. But as a potential investor, you want to see the management of these firms take a pragmatic view of the environment.

The recent write-down of billions of dollars and the reduction of mine expansion is actually a good thing for shareholders. The investment strategy right now has shifted from trying to produce as much as possible, regardless of the cost, to maximizing cash flow and, ultimately, profits.

Mining companies need to rein in reckless spending and expansion to focus on creating shareholder value. The investment strategy of only focusing on the lowest-cost mines and highest margins is a positive step for this industry.

For far too long the management personnel at many mining companies have gotten lazy … Read More


Reduced Commodity Trading Indicates Dire Days Ahead

By for Investment Contrarians | Jul 1, 2013

Reduced Commodity Trading Indicates Dire Days AheadI’m the first to admit that the economy is faring much better than it was a few years ago—back when America entered into the Great Recession. Manufacturing is continuing to grow in the United States, and even though that’s at a slow pace, pundits seem impressed with the growth.

But if the U.S. and global economy are on the mend, then why is there actually a decline in the prices of those commodities used when economies are growing?

You would think that commodity prices should be stabilizing and showing signs of edging higher if the global economy was expanding—but they are not.

The price of spot gold is down 36% from its peak.

Silver, used in electronics and industrial goods, has fared even worse, plummeting 61% from its peak.

Oil, the fuel driving the supposed economic recovery, is down 28% from its peak a few years ago.

Copper, used in the housing, electronics, and industrial markets, is down a whopping 65% from its peak.

Those numbers don’t lie.

The widely cited catchword “supercycle,” used to describe the superlative run-up in commodity prices over the past decade, appears to be fading.

Just take a look at the chart featured below. The prices of gold, silver, copper, and oil peaked in early 2011, and have since all been in a decline. This price action doesn’t indicate a recovery.

Gold-Spot Price Chart

Chart courtesy of www.StockCharts.com

The fact is that even if the media doesn’t talk about it, the great price moves we have witnessed in the commodities may be a thing of the past.

The growth of China and the global economy was a major … Read More


Latest Retail Data Sending Warning to Investors

By for Investment Contrarians | Apr 17, 2013

Latest Retail Data Sending Warning to InvestorsWith the market hitting all-time highs, many investors are wondering how investor sentiment can be so positive when job creation is still not as strong as it should be. This divergence between the financial markets and the real economy cannot last forever.

Investor sentiment has been propped up by the Federal Reserve, which is trying to prime and ignite the U.S. economy. While job creation is certainly better now than it was a few years ago, there is still much more work that needs to be accomplished.

One very visible sign that the economy is not running at 100% capacity was the recently released retail sales data. For March, retail sales decreased by 0.4%, although this did follow a very strong February that showed a one-percent gain. A survey of 85 economists by Bloomberg had a median forecast of zero (unchanged) from March. (Source: Kowalski, A., “Retail Sales in U.S. Declined by Most in Nine Months,” Bloomberg, April 12, 2013.)

Job creation obviously plays a very important role when it comes to retail sales. And remember that like most developed nations, a vast majority of the U.S. economy is based on consumer spending.

In this case, investor sentiment might have become too bullish on retail-oriented stocks. If job creation does not accelerate, we could see a further impact on discretionary spending, which would break down investor sentiment throughout this year.

However, this recent retail sales data might have been a blip, as the trend is still fairly strong. Remember that one data point does not make a trend. Following stronger-than-expected data earlier in the year, a pullback was expected due … Read More