Vancouver, BC June 15 - 16, 2008
Today I'll list off some useful tips about organizing one's time when dropping by the conferences. It's a great way to get in touch with the retail public as to the current market conditions and sentiments.
Keynote speakers and presentations from your favorite newsletter writers (such as Jay Taylor, Greg McCoach, Doug Casey, Rick Rule, just to name a few), also makes these conferences a worthwhile trip.
However always keep in mind each party's interests and incentives.
Newsletter writer, especially the ones that recommend a stock in hopes that it rises up, are generally trying to sell suscription to a certain investor base. Through an exclusive offer with their membership club or suscription, they try to offer their members an investment tip for companies about to make a move.
As such, their tone can certainly be more optimistic. And... in the odd case that they are wrong - there's always an place or clause to backpaddle, or even drop the subject entirely.
There is also an entirely different breed of writers - ones who focus on the macroeconomics of things - people like Al Korelin (who has his own radio show discussing macro econ with popular writers) and Paul Van Eeden (focuses more on commodity prices, general econ, inflation, etc). Naturally in terms of risk-level these writers and commentators tend to be less pressured regarding specific stock picks as they are only hoping to predict the general direction of the economy.
I have always found that the Question and Answer period of these speaker series is a great barometer of retail sentiments. For example, yesterday's crowd primarily focused on:
1. Banking crisis in US - more write-offs and off-balance-sheet surprises?
2. Inflation numbers and lack of monetary supply indicators?
3. Rising food costs?
4. Oil versus gold?
5. Junior explorer's outlook versus commodity prices and the lag
I'll address each of the above one by one.
1. Most writers were primarily bearish on the regional banks as they would not affect consumer confidence nearly as much if they were to go down... whereas the Lehmans and Bear Sterns of the world would shake the very trust foundation of most consumers and send widespread panic through Wall Street - hence the Fed bailout safety net. Thus if investors can understand how off-balance sheet assets are calculated and accrued by the banks (most not published as banks have their own regulations)... and can stomach the risk of FI's wavering in this time of low consumer confidence - then major FI's are the way to go still.
2. Inflation fear is still present but less mentioned now that interest rate cut seems to have reached a limit.
3. Rising food cost is important as it affects the everyday consumer - even if they have no exposure to the volatile stock and capital markets. With biofuel being considered since last year and turning out to be a dud as using corn for biofuel means both further spiking food costs (due to higher corn demands) and rising cost to even transport the corn. (see Time.com article Mar 2008 below)
Forbes: "The dollar has slumped since the Fed began cutting interest rates in September. It has cut rates seven times, to 2.0%, aiming to revitalize the economy."
http://www.forbes.com/markets/2008/06/10/briefing-europe-update-markets-equity-cx_je_0610markets20.html
From his Cessna a mile above the southern Amazon, John Carter looks down on the destruction of the world's greatest ecological jewel. He watches men converting rain forest into cattle pastures and soybean fields with bulldozers and chains. He sees fires wiping out such gigantic swaths of jungle that scientists now debate the "savannization" of the Amazon. Brazil just announced that deforestation is on track to double this year; Carter, a Texas cowboy with all the subtlety of a chainsaw, says it's going to get worse fast. "It gives me goose bumps," says Carter, who founded a nonprofit to promote sustainable ranching on the Amazon frontier. "It's like witnessing a rape."
With the deflating US dollar - holding bullion and gold was mentioned as a defensive tactic against further rising costs as gold is valuable by itself and not a promise to pay (as in US dollar and various other legal tenders).
4. Oil is at an all time high and OPEC has agreed to up the production by 200,000 barrels a day. That will do little to satisfy the ever-rising demand of fuel.
Last I checked, 0.2% is not even considered a statistically significant amount - especially when majority of the supply will likely go to India and China - simply because with their strengthened currency they are afforded a larger purchasing power.Over the weekend, Saudi Arabia said it will boost its oil output by 200,000 barrels a day. Despite the promise of more supply, the price of oil spiked higher Monday morning.
The main reason: The added supply won't be very great, and demand, especially from China and India, has shown little sign of slowing.
"There is a belief that China and India are going to sop up all the extra supply," said Stephen Schork, publisher of the industry newsletter the Schork Report.
The world uses around 85 million barrels of oil a day, so an extra 200,000 is a mere 0.2% boost.
An interesting article I read a few years back mentions oil/gold ratio. Take a look below:
Today we may very well witness a repeat of history, of oil driven higher by strong global supply and demand forces while the gold price initially languishes. But once investors around the world start to perceive the stunning opportunities for a mean reversion here, capital will flood into gold and blast it higher to catch up with oil. Once this current gold/oil ratio anomaly is resolved, I suspect gold investors will be very happy campers.
Given oil's at an all time high at $140/barrel and gold has certainly withdrew from its $1,000+/ounce mark - does that quote sound familiar at all?
5. Juniors were commented as the lottery ticket of an investor's portfolio. The speakers stressed that even a junior producer cannot be counted on to rise with rising commodity simply because of lack of visiblity.
They stressed that one has to really understand management and know that technical team should always be favored.
Another point is - teams have their specializations - very seldom do explorationists turn out as great mine developers and builders... it's just a far different set of skills.
Overall though, writers and analysts are happy with the potential of juniors. As is with the case of many - it's a matter of time to the market and the majors waking up to their dwindling supply and go looking around with their big wallets.
Any questions and comments always welcomed. Sorry about the lack of update yesterday as I was busy at the show.
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