2011 Summer Bottom for Mining and Minerals is In!

Goombarh 64 - July 7, 2011

Good day,

I hope this note finds you well and enjoying your Summer.  A couple of good articles and the possible market bottom leads me to come out with this note.

Firstly, the Shanghai Composite appears to be leading the SP 500 to new highs:

The SSEC has bottomed on strong resistance level, and the Chinese tightening to reduce growth to 7~8% has now all been priced in.  The latest bank rate increase is also behind us, so the demand for commodities should continue.  As to precious metals, I hold the view, that we are continuing higher into the fall.  There is a strong analysis, that I am in agreement with, of the Chinese impact on the world economy going forward by Julian Philips:  The link is here:

http://www.kitco.com/ind/AuthenticMoney/jul042011.html

The SP 500 is moving to new highs?

With the regular markets in a strong positive mood, this makes the riskier small miners, that I am interested in, all the more stronger.  There is a Ken Fisher, outlook, that makes a good general primer on what to expect for the second half of this year.  It is attached as a PDF document.

The TSX Venture ETF as a proxy for the Venture exchange has turned around:

The rebound in the Venture exchange has brought my portfolio back a bit from the declines, and now is possibly the beginning of a fall rush.  It does seem a bit early, compared to previous years, but Gold is strong, the SP 500 is strong and the Venture is rebounding.  Anyways, how can anyone predict the future?  The main point is that this is the time to be adding some speculative investments with the idea of good PR's coming and the Fall run for metals and commodities; it is just time to prepare for that.

The Agricultural ETFs, DAG, that I was monitoring have taken a fall, and now may be a good time to nibble.

I am playing around with the idea of using DAG as a cash holder.  The possible gains from DAG are good, but are not high enough for me compared to speculative miners.

So, good fishing to you as you pick your speculative investments for this Fall's run!

Until next time,

Marco G.

http://goombarhsedge.blogspot.com/

http://seekingalpha.com/author/marco-g/articles

Doctor Copper Tells the Tale

A recent Seeking Alpha article by Dr. Stephen Leeb describes an interesting way to look at today’s market. His main point was that there was burgeoning growth in the emerging economies and slowing growth in the developed world. However, he was optimistic as to the American leaders in maintaining support for growth and thereby giving rise to inflation.


As I am an investor in mainly mining and commodities driven equities, I wanted to ascertain for myself, what was up, and what is ahead. So I undertook a travel around the world, through stock charts (apologies for the European theatre, and other theatres that I have missed) and tried to correlate and assimilate what the market indicators were saying.

Figure 1: Doctor Copper Rising

Doctor Copper again tells the main story. Copper futures are indicating that the world economic growth is moving higher since the beginning of June. Yes, this is simplistic, but we are looking at the big picture with mainly a focus as to how it should impact my commodities investments.

Figure 2: Shanghai Stocks Surging Higher

A stop in the Far East in China to evaluate what is happening there. Now the Chinese Composite Index in Shanghai seems to confirms Doctor Copper by bottoming at the beginning of July and moving higher since. As the Chinese economy is the main consumer of commodities, this is good news.

Figure 3: Wilshire Indicates Indecision

Now back to North America, for a look at the Wilshire 5000 smaller cap equities index. I tend to trust the smaller cap equities as being more sensitive and more realistic as to what the real economic situation is. The Mainland US does not believe the growth story and is creeping lower since peaking at the beginning of August. Note that the big boys were accumulating throughout much of August and are now being indecisive. There is uncertainty here about the economy in the US moving forwards.

Figure 4: TSX Composite Buoyed by Resources

Now we stop north to peek at the northerly neighbour’s large cap index in Toronto. A glance at the resource based economy in Canada, at the TSX reveals the TSX still holding strong in August since moving higher in July. Notice that the CMF is still at a fairly high level, indicating accumulation and an optimistic outlook.

Figure 5: TSX Venture Showing Optimism

Now looking at the much smaller and maligned Canadian Venture exchange, where much of the world’s beginning resource companies start out, indicates there has been much optimism since mid July. The Venture marketplace is recovering from the large drop of May 2010. The sell in May and go away truly works for the Canadian Venture exchange. This index chart looks like it is readying itself for a robust up swing this fall.

Figure 6: MSCI Emerging Markets Growing

Finally a global look at the Emerging world economies through the eyes of the MSCI Emerging Markets ETF and one sees that the rise in June was tentative, and was followed by a second try in July which finally got the big boys involved in accumulating via the CMF indicator by the time August rolled around. This is further confirmation for Doctor Copper.

So in summary, there is a dichotomy in the world today. The emerging economies are gearing up for better times. They will be requiring more metals and commodities. Meanwhile there is much uncertainty afoot in the Mainland United States. The government supports for the economy will cause inflation which is good news for the precious metals. The author believes, the emerging economies should finally prevail and drag the US into a growth mode this fall.



Disclosure: Author long metals, commodities and precious metals, GBG