My base thesis the past 4 years, has been that the commodity sector hit a secular peak along with the consumer credit bubble in 2007-08. Since then, resource companies have struggled to downsize operations and costs fast enough to keep pace with falling commodity prices and fleeing investment capital. Cash burn has been high and new revenue and capital has been in short supply. Although quantitative easing has prompted some bouts of resumed speculation, risk-on bumps remain fleeting. Excess inventories and over-supply weigh heavy amid a secular decline in global demand and investor appetite that continues to sour on the once-loved sector. The trouble with long periods of boom is that the participants become overly optimistic, over-invested and over-levered and fail to prepare for the inevitable decline phase thereafter.
As with the over-built shipping industry, market cycles suggest that the resource sector continues in a prolonged period of rationalization and consolidation, as weaker players falter and are cannibalized by more liquid peers. In this clip geologist and mining analyst Brent Cook explains the liquidity crunch continuing to hit junior resource companies for foreseeable months ahead. See: Juniors to hit a fiscal wall.
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‘Secular Peak: a secular peak is “one that culminates a very long term advance encompassing several (business cycle associated) bull markets. By their very nature such market turning points involve the kind of overconfidence among investors that is rarely seen and not repeated for a generation, at least. In effect, it is necessary for secular peaks to be separated by sufficient time that people forget the mistakes of the past, and are therefore, in a position to repeat them.
Danielle,
I think it is important to separate ‘Stock Market’ investment from wealth preservation. I wouldn’t judge the stock market to be particularly rational – and expect this to continue.
Since you don’t consider Gold or Silver ‘money’ as many readers here do – then we presume you judge both to be commodities? But this challenges your base thesis with Silver – below $9 in October of 2008 to, today, at over $33 – hardly ‘falling’. Ditto for Au which has been up every year for a dozen years (average 18% annually).
And since commodities are denominated in dollars – and Central banks are printing ‘dollars’ like never before in history – and will continue to do so, IMO – that commodity prices will only rise (Oil, Agriculture products – wheat, rice, sugar, and precious metals etc.) This would be in-line with Jim Rogers stance.
I agree that many junior resource companies have suffered from ‘fleeing investment capital’ but, as Doug Casey states – ‘the only Gold most juniors have is on their certificates’. This coupled with a decline in global production (see John Embry at KWN interview) then demand, as a factor of that, will only escalate?
1) More dollars (printed) = inflation
2) Resource money leaving unproductive, speculative, juniors (where can it go?)
3) Production declining
The list of Junior mining analysts who have thrown in the towel is growing. So the juniors have not kept pace with the ‘commodity’. Why? I can speculate on about a dozen reasons from energy costs to downright naked shorting.
So, I agree with some of Brent Cook’s opinions – Juniors will continue to be a big gamble. So don’t buy them. The trend is staring us in the face – Gold up $750% in 10 years, Silver even more. Unless you want to be ‘MF Global’ed’ – don’t buy the phoney paper products – own the real thing. As passionate Ann Barnhardt says – ‘-if you can’t defend it with a long-rifle – you don’t own it’. Even irrational Prechter states ‘everyone should own some physical Silver’… THIS is how you will preserve capital not by gambling on the stock market.
I do hold some gold stocks….I recently sold all my silver bullion. I will increase my PM stock holdings at the appropriate time. Today I prefer to buy and hold oil and gas companies. They actually produce and market something that we need.
I have said Gold will reach $2350.00 before this cycle ends. I have no idea when it will hit that mark and I am not willing to just sit and wait for it so I am content to trade in the interim.
On Gold as money, as a market student and one who is always eager to learn am always open to ideas and change. I willingly admit I am no expert on gold as money but when all else fails all you really have to do is revert to historical prescedent, look at long term charts and take advice from the experience of others.
“There are so called “Goldbugs” who hate my guts because I disagree with their reasoning why gold will rise and they cannot stand anyone who is a real analyst and ever forecasts that there will be a pause in the trend, I remain deeply concerned that many of these people who hate me so much are really nothing but shills for the bankers who do everything they can to put out misinformation about me. They talk up the Gold Standard and spew out the nonsense about fiat money when all money has been fiat since government started stamping an image on metal and declaring its value to be more than what it cost them to produce it. They cannot explain why did gold go down for 19 years between 1980 and 1999 when that fundamental was still present. If I owned sovereign debt, I would be talking up this nonsense to make people believe a gold standard is the answer and then quickly cash in the bonds and take the gold. We had a gold standard – Bretton Woods. They still printed more money than there was gold to back it and that is why Nixon was forced to close the gold window in 1971. Neither reasoning can be proven to be real – but it fools a lot of people a lot of the time. Gold is simply a tangible asset that is the alternative to cash the same as real estate, stocks, and collectibles. It is movable, which is a plus over real estate, it is liquid for it is the same quality sold around the world unlike oil or wheat, and it cannot be cancelled as is the cash with cash.”….Martin Armstrong
“The Goldbugs confuse gold as a medium of exchange and an investment (as now), both having independent value (former by politicians latter by the free market), with the idea that only gold should be MONEY. They do not understand MONEY really can be anything because it is simply an economic language being the medium of exchange between two tangible objects. They are fixed on this idea that MONEY is of some standard value and thus becomes a savings. That was the entire basis of the Wizard of Oz – the political satire about maintaining a GOLD STANDARD that created austerity and depression. Sound familiar watching events in Greece? This same argument about fixing money has been going on for thousands of years. It has always collapse because there is such a thing as the Business Cycle that even Paul Volcker had to admit the Keynesian Economics completely failed to eliminate that in his Rediscovery of the Business Cycle.”…..Martin Armstrong
I ask myself every day ‘is gold a bubble waiting to pop’ like the home market, stock market, private equity markets did before?
And I ask myself is $1,744 dollars ‘fake pricing’? I mean its had a nice run. But the gnawing question is that same as what popped all the other bubbles: who can afford $ 1,744 gold? Most folks I know can’t. Too much debt to pay off, especially debt they don’t know they have, like healthcare debt-to-come and US government debt-stuck on them with a popped dollar bubble.
And so I hold my gold, be a buyer nor a seller. I am content.
‘is gold a bubble waiting to pop’
Not when less than 1% of investors own it – it cannot be in a bubble.
“And I ask myself is $1,744 dollars ‘fake pricing’?”
No – it is only fake in that the price is suppressed and should be higher.
$1744 will seem like a deal, $2000 will seem like a deal, $5000 will seem like a deal, $10,000 Gold… will seem like a deal. Paper money is dying – it has had its day. QE to infinity. We have a 100% chance of the US dollar hyperinflating. QE2 should have told everyone that the party was officially over. No one wants to buy the US debt after QE2 – only the printing press is left. The government of the United States is now paying its bills with counterfeit money. 40 Billion a month for Mortgage backed securities and 45 Billion a month for Bond purchases. Endless. They cannot turn these spigots off – ever. Until it is over. Until the dollar reaches its intrinsic value. Zero. It is not even good as functional toilet paper because of the dyes in the tender.
Despite whatever happened in the 80’s or 90’s Gold has been money for 6,000 years. No words will alter that. You know that colored paper in your wallet or purse? It is not money – it is currency. You barter with it for ‘goods and services’. In 2000 years of paper money history – it has ALL gone to zero. A 100% failure rate. ALL PAPER MONEY FAILS. Get used to it. No amount of normalcy bias will influence the dollar’s destiny. One month?, 2 years?, 5 Years? or your children’s or grandchildren’s lives – this will happen.
Never underestimate the corruption in the system – this paper Ponzi scheme runs so deep. The eventual demise will be catastrophic for most. Having US equities as well as European and Asian equities and some bonds is NOT diversification. You are solely in paper. Paper is dying. It has happened 40 times in the last 100 years. It IS happening right now. The dollar is a child holding a photocopier – Gold is a man – holding a machine gun.