Once in a while, one comes across a striking viewpoint that just seems to hit the nail on the head. This posting by Dr. Duru on Seeking Alpha is one of them.
Duru's view of declining availability of metals being constrained by scarcity and increasing demand from the developing markets, matches my view to a "T." Further, this means that the prices of commodities, even with the run up now of over two years, still has a lot further to go. Now, one has to be careful about reading only information that re-affirms one's own thoughts, but I do consider the contrary side of this as well. Fundamentally, the world has changed with the growth of emerging markets, and yes Dr. Duru, I agree, this time is different. All in all, Duru's conclusions fits my analysis of the idea of resource shortages from the declining outputs, Asian consumption and emerging markets growth. Therefore, the sectors for me to be in are gold and precious metals, commodities, energy, minerals, and foodstuffs. This is the main support point that I look for in investing: a strong global macro trend upwards.
" ... although commodity strategist John Licata doesn't understand why it's seen as a global barometer, given that 50% of revenues come from the U.S. and that it consistently lags the market in financial performance."
I cannot help but see that the answer is obvious here. Firstly, aluminum is a high tech metal and is a second mover, unlike steel, moving only after the markets are ensured of good economic performance and secondly, Alcoa is a really good indicator of the state (barometer) of the American economy since over 50% of the revenue is North American. Therefore, what we can draw from this is that the American economy is recovering fine and the S&P 500 should be a steady performer going forward. This is good news and will sustain the movement upwards of the precious metals and mineral resources stocks that I am concentrated in. This is the second prime support that I look for in investing: a strong general market that makes participants feel wealthy, so that they will take on additional risks in riskier mining and resources equities.
Now specifically to my items of interest, the metals, miners, explorers and commodities equities, this is the time to be buying for the new fall run expected.
Recent lagging by the miners behind the GLD Gold and SLV Silver ETFs just makes them more attractive. Safer precious metals equities, in my opinion, would be the likes of Great Basin Gold (GBG) and Silvermex (GGCRF.PK), which sport experienced management, great properties and growing production. Both should do well from the existing prices in my estimation. Here are interviews with their executives from last fall, Great Basin Gold and Silvermex, for your assessment of the management quality and property potentials.
For a look at some of my small cap mining and resource equities, they are summarized here.
My main point is to be selective now in picking up some precious metal and commodities equities in anticipation for a good fall season.
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Disclosure: I am long GGCRF.PK, GBG. I am also long small cap mining and commodities equities