In This Issue: STAY CALM
I know what you’re thinking. Doomsday has arrived.
After-all, it’s unusual to see an index lose 26%... or nearly 1000 points within a month-and-a-half. But that’s exactly what the TSX Venture index has accomplished. Take a look:
The misery has been the same with the Toronto Stock Exchange, which has also lost 1500 points, or roughly 12%.
The TSX and the Venture have been especially hard hit because these 2 indices are the natural resource stock exchanges for the world. And we all now what has happened to the price of gold. The yellow metal is down 20%!
Now the question on your mind I’m sure is… “Is this the end of the commodity bull market?”
Well let me ask you this? Is the world going to stop using oil… natural gas… coal… iron… timber… copper… or any other commodity… any time soon? No.
Is China giving up its dream of becoming an industrial superpower? No.
Is China going to go back to a bicycle economy? No.
How about India? Are they going back the Stone Age? No
Both of those countries… representing 2.3 billion people… are the growth giants of the 21st Century. They are going to devour commodities in record levels.
Look, we’ve been through this before. And every time we’ve experienced a pullback, my recommendation has always been the same: Don’t get washed-out. Use this weakness as an opportunity to add to our current positions.
And I’m not alone in that assessment. This just came over the newswire…
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HONG KONG (Reuters) - Large money managers, echoing comments by the International Monetary Fund, are shrugging off a recent drop in commodities prices as a short-term blip and predicting gold prices will soar to $1,500 an ounce.
"I believe that commodities will be the best-performing asset class of the next 10 years," said Puru Saxena, chief executive of Puru Saxena Wealth Management, which manages money for high-net worth individuals.
Speakers at the Commodity Investment World Asia conference in Hong Kong on Tuesday cited supply constraints and insatiable demand from India and China as catalysts that will keep driving prices of commodities like oil higher.
The IMF does not expect a significant correction in world commodity markets as it predicts world growth of about 5 percent this year and only a slight decline in 2007, Managing Director Rodrigo Rato said in Canberra on Tuesday.
Spot gold , which has dropped 19 percent since hitting a 26-year high of $730 per ounce in mid-May, is still well below its inflation-adjusted high of more than $2,100 an ounce in the early 1980s, Saxena noted.
Some traders see the recent gold decline as a sign it may fall to the mid $500s, but Saxena believes it may eventually trade well above $1,000 per ounce, a target seconded by one of Wall Street's best known investors.
"For gold, we're predicting $1,500," said Victor Sperandeo, best known as "Trader Vic" for his astute call of the 1987 U.S. stock market crash.
Sperandeo, chief executive and majority shareholder of Dallas-based EAM Partners, favors metals because of the restrictions on mining in many parts of the world limits their supply and pushes up prices.
Base metals such as copper are also good long-term bets despite recent price drops as China and India will keep needing more to expand their infrastructure, said Ashwan Malhotra, vice president at Bache Financial Derivatives Ltd. in Hong Kong.
"Another 5 percent on the downside is to be expected ... (but) we think going forward from here on that the next big rally is yet to come," he said, citing demand from China and India.
And if prices continue to drop, he believes hedge funds and other traders will soon find valuations attractive.
"Most of the big speculators are positioning themselves to go long at those numbers," Malhotra said. "We can expect sometime towards the end of July or beginning of August we will probably see a rally in prices again."
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But the most persuasive argument I’ve read comes from Mr. Hot Commodities himself, Jim Rogers. In a recent Barron’s interview, Jim said…
"How can anybody say that a bubble has developed in commodities yet… with sugar 80% below, silver 75% below and corn and cotton less than half their all-time price highs?
You can't have a bubble when the media has only begun to pay attention to commodities in recent months after years of disinterest. We're now only in the early part of a long-term commodity price boom that has years to run and will likely see literally dozens of raw- material prices make new highs. Even crude oil and copper have a long way to go, even though they recently set price records."
So how long will the commodity surge run? Based on the past longevity of commodity bull markets (Rogers mentions ones that, by his reckoning, lasted from 1906 to 1922, 1933 to 1953 and 1968 to 1982), the current boom could last eight to 14 more years. The commodities-bubble crowd scoffs at that, just as skeptics did when Rogers predicted the current boom a few years ago.
Mark my words, we’re currently experiencing the investment event of a lifetime.
Use the current market weakness to add to positions.
Going forward, I’m going to rank the stocks I feel are must buys right now.
Sincerely,
"Sometimes it is entirely appropriate to kill a fly with a sledge-hammer!"
