Many thousands of folks are attending the Prospectors and Developers annual convention in Toronto, where mining companies, exploration companies, services companies, investors and investment bankers gather to lie to one another. I was floored by the massive attendance this year, no doubt because of the bubblishly (did I make up a new word?) lofty prices for gold, copper and other metals. When asked what do you like in the sector Mal? I’m inclined to respond (as I have explained in earlier commentaries) “I don’t like the sector therefore I can’t really say I like anything “IN” the sector. It’s been so darn good in such a short period of time for resources generally that I’m very anxious at the moment – my “maverick” senses are tingling. I do believe the diamond exploration stocks (overlooked), nickel and zinc players (for reasons having more to do with global industrial production growth) still have some upside. But there’s just too much unbridled excitement .
The usual warning signs (highlighted at some length in my book A Maverick Investor’s Guidebook (Insomniac Press, 2010) – which are especially important for novice investors who risk being sucked in late in the game – are all out there. For example in today’s news:
The conflict in Libya triggered further gains in crude oil, up another $2.15 to $106.57.
so it’s no surprise that:
Higher crude oil and jet fuel prices prompted Air Canada to assign a fuel surcharge to passengers traveling to the U.S.
And from a very smart friend of mine:
HudBay Minerals Inc. chief executive officer David Garofalo warned last week that the industry may be headed for a downturn. “We are not in a super cycle, this is a cycle and when the central banks find religion on inflation again, the cycle will be over,” he said.
I’ll stop harping on this in future posts, but it’s all about costs skyrocketing, and exploration companies in particular don’t have revenues rising as an offset. Of course, there’s always the possibility that the bubble can keep on bubbling and my old friend Don Coxe has me having second thoughts:
“I am taking away some of my affection for base metals,” said Don Coxe, head of Chicago-based money management firm Coxe Advisors LLC and BMO Nesbitt Burns Strategy Adviser, citing in particular rocketing food and fuel prices.
But isn’t it a good thing that Don seems to support what I’ve been saying for many weeks? Let me explain. A long time ago Don told me that he loved being a strategist or big picture guy, but that his tactical investment ‘calls’ were never his strong point. So now I’m worried that if he is usually wrong in his tactical calls (he’s disliking the metals like me now), then there may indeed be more upside in golds, copper and so forth. My point? If I didn’t have second thoughts, I wouldn’t be human. Experience has taught me to ignore what others are saying whether they agree or not – rely on the warning signs.
And one of my most reliable warning signs over the years, suggesting that I should avoid a sector is when conference and convention attendance is at its highest, and TV stations and journalists by the score are set up right in the convention.
So I still believe this party will be over very shortly. It’s not the end of the world, it’s just time to go to another party, where not many have arrived yet and there’s still refreshments available and places to sit. My previous book “Resources Rock” is dated, but the principles outlined in it are as useful today as they were when I wrote it (2004)……and you can probably buy it online for a pittance.