₪ David Pescod's Late Edition January 21, 2008
S&P/TSX COMPOSITE $12150.48 -586.64
S&P/TSX VENTURE $2390.52 -227.69
OILEXCO INC. (T-OIL) $10.00 -1.73
TECK COMINCO (T-TCK.B) $28.90 -1.52
LATIN AMERICAN MIN. (V-LAT) $0.65 -0.14
We are here in Vancouver at Joe Martin’s Cambridge House Mining show just to get a look/see at what some of the mining and oil and gas veterans think of the markets and their take on the future. With all the talk of recession and stagflation, it’s time to go to those with the grey hairs for a little comfort. And it was interesting that at the conference on Sunday, it was actually quite ebullient.
Sure there was a lot of talk of ‘this is a good time to make sure you have cash’ and if you are looking at junior mining stories, you better make sure they don’t have too many shares outstanding, had a good project and most importantly, had money in the bank.
In a market like this, it is suddenly going to be very hard to raise money down the road. (And oh yes, make sure your margin account is in good order). But other than that, people point to still high oil prices, still ebullient gold prices and while there is an awful lot of whining by analysts and investors alike, saying ‘how come with gold at $900 my mid-cap gold stocks are doing nothing’ (it’s only been the seniors running) and how come with oil at $90, many oil stocks are in the 40% to 50% off bin?
As we said, it was interesting to see the optimism on on the floor and the convention was packed. Over 430 booths were here, with 1500 exhibitors and close to 10,000 in total attendance. As Randy Turner said, “if you wanted to do a jaunt around and visit all the booths, you had better pack a lunch.” It was that big and it was that busy. And as we said, there was optimism at least there was yesterday.
One gold analyst who over the years we thought highly of, suggests that down the road we are truly going to see finally a real gold market when some day gold is up $25.00 or $50.00 or someone makes a major, major new discovery and suddenly the Venture Exchange does a billion shares. That sounds a little hopeful after today’s activities.
Another industry veteran that has seen many cycles is Dave Coffin, who didn’t seem to worried and figured much of the ugliness could be over in as little as a month. He’s watching China closely because the one metal out there that’s in the dog house and certainly hasn’t performed well lately is zinc and he has hopes for it.
He points to China, which was blessed with a lot of mineral and oil and gas wealth, but as the countries economy are picked up and picked up and picked up, suddenly they just didn’t have enough of themselves and suddenly the orders went down from headquarters that no more exporting of steel, copper or those kind of commodities.
He thinks that they are at the point now where China is also running out of zinc. And as far as metal markets these days folks, have you noticed copper going up lately?
They just noticed that the inventory of copper in China is well, almost non existent. Which of course is all the good news.
On a day like today when you see a market reaction like this after printing the charts we did last week, it shows you that we are in no mans land. Any levels of support that might have been there awhile ago have simply disappeared and what happens next, well, good question!
If this is a recession how deep is it going to be or is all that still silly worry because of the strength of the economies in India, China, Russia, Indonesia - you name it, going to make up for whatever the small lost might be in the United States. Commodity prices do remain high.
One thing that could turn things around on a dime is some of the oil and gas companies with lots of money in the till suddenly deciding to start making some takeovers. Same thing in the mining business where there are some big companies with lots of loot and suddenly could make takeovers for a lot cheaper than they thought. Something like that happening could turn an awful lot of panic into greed, possibility quickly.
But this gets us back to Don Coxe, one of the analysts that has currently predicted this five and six year bull run in commodities and his Basic Points was out on January 17th which is rather timely.
Some of his comments are rather blunt as he writes “This year, the story of financial markets and the US economy (but not necessarily the story of the global economy) will be about the outcome of the two encounters: First, Wall Street’s meeting with Main Street in housing mania mode, that led to unprecedented looting of homeowners by financial sophisticates; Secondly, the shock to global liquidity when the financial dimensions of Wall Street’s crimes and slimes were suddenly displayed.”
Meanwhile, Coxe, while taking some more shots at Wall Street and admitting that he didn’t realize how tough things were getting because of what Wall Street may have committed, maintains most of his posture on the market, even though some of his sectors have been really bruised in the last few weeks.
He writes, “Any panic-driven sell-offs in commodity stocks is unlikely to take them off the top performers lists for more than a few weeks. They are not just fair-weather friends….”
“Coming out the other side of this slowdown, these stocks will experience big increases in their absolute and relative P/E’s.” Another comment is on gold. He writes, Gold’s move has been dramatic, but retail investors in North America and Europe have not yet shown signs of true gold fever. That means there is still substantial upside. Soaring silver and platinum prices confirm that this gold move is no mere spastic twitch.”
He also adds, “Use panic days to strengthen your equity portfolio, buying the agricultural, gold, and oil stocks you will want to own after the bear retreats to his cave…”
For clients who would like a copy of Don Coxe’s latest report, contact Debbie at Debbie_lewis@canaccord.com.
Today, Toronto is down 586 points and meanwhile the futures suggest tomorrow the Dow will be down 600 points or so. Probably a selling climax, but then who’s to know, we are in uncharted territory—the kind of stuff you come across every decade or so and it usually provides opportunities that you remember down the road. So when do we get our bounce?
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