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09.14.11
Global Financial Crisis, Act II

The world economy has bifurcated, which creates powerful crosscurrents as each segment deals with different challenges. The debt-ridden, legacy economies of the West need to deleverage, while the capital-rich emerging economies need to manage growth, capital inflows and inflationary forces.

Meanwhile, Act II of the Global Financial Crisis appears to be playing out, albeit in slow motion, with an epicenter in Europe. Fears of a Lehman-like collapse in that region abound, but global economic conditions are much different than in 2008. For example, bellwether commodities like corn, copper and crude oil do not reflect the crisis mentality.

08.29.11
The Running of the Bulls?

August has been a difficult month for the stock market with the major indices down double digits. Investors are pricing in a double dip recession in the U.S. and a commensurate stall in global growth. Despite rather benign economic conditions in China and elsewhere, the concept of decoupling between emerging economies and the developed nations is not yet in play. Because resource stocks are both cyclical and commodity-related, they will have the most volatility during such challenging times.

08.21.11
Crisis+Contrarian = Opportunity

Resource plays in general and the energy sector in particular, are at the epicenter of the dislocation. We have witnessed 20-30% declines in many names over the past week. In some cases, the selling has erased most of our profits, while more recent purchases are underwater. Despite the unusually aggressive selling, we nevertheless take a contrary view and outline a number of reasons not to shrink back from the market in horror, but rather to stay the course and even consider additional buying of resource-related names at bargain prices.

07.26.11
Pas de Deux

For the next decade or two, resource investing is going to be a tale of two themes: the U.S. Dollar and China. The dollar is weakening this week as European diplomats begin to get serious about fixing the euro zone. A weaker dollar is good for the resource investor.

The Chinese economy is back on the market’s radar, however, after HSBC’s Purchasing Managers’ Index (PMI) for July dropped below 50. The reading of 48.9 signals contraction. This was not entirely unexpected, however, as Chinese banks are obviously tapping on the brakes to control inflation and let some air out of the housing bubble.

07.12.11
Commodities = Volatility

As we noted in the last monthly issue, commodity prices are notoriously volatile (and cyclical). The cyclicality is driven by the business cycle, but is exaggerated by the leverage that is generally applied to the futures contracts by speculators. Accordingly, investing in commodity-related stocks requires a tolerance for larger week to week and month to month swings than you might be accustomed to.

06.22.11
Resource Investing Overview
Resource investing is about seeking opportunities along the entire supply chain, from the resource itself to the miners/growers, machinery suppliers, fabricators and distributors. For example, as a direct result of the current commodity boom, manufacturers of construction, mining and oil-producing equipment are enjoying record sales growth and profit margins. Higher agricultural commodities have been a windfall for U.S. farmers and farm equipment manufacturers. Accordingly, a savvy resource investor has the option to allocate capital to the three C’s: commodities themselves, resource-focused companies and/or countries. We will do all three.