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Lighten Up and
Enjoy the Commodities Ride
Our rather
pessimistic articles of late on the housing bubble, the ominous
warnings from a long list of financial experts and their
suggestions on how to best weather the impending financial
hurricane have been refuted by none other than the well read
author of our "Crazy Man" articles (see
"A Crazy Man's Rant or
Right On? You be the Judge" and
"Crazy Man's Rant - He's Crazy
Like a Fox!") who sees things completely differently. Who is
right - the eternal optimist with a different take on the
economic environment or the big bad bears? Below are his
comments.
"I have been
beset, of late, by a number of anomalies in what I read and know
about the economy and how they translate into an imminent
housing collapse and how those linkages to other major segments
of the economy would cause general economic bedlam.
Be that as it
may, I am convinced that we are in the early stages of a
multi-year secular commodities bull market.
I am equally
convinced of "peak oil" and the merits of energy investments
whether they be for reasons of supply, geopolitical or for
environmental reasons.
I am also
convinced of the large and continuing incremental demand for
base metals and other commodities by the growing economies of
Asia centered around China and India.
And, finally, I
am totally convinced that this demand for base metals and other
commodities will continue to escalate even if recession becomes
the order of the day in the United States and other developed
western economies because of the explosion of savings and demand
by the growing middle class of Asia.
I am puzzled,
however, as to why you are so convinced that housing demand and
prices are on the brink of tanking.
As I see it the
recent increase in short term interest rates are not that
unsettling (John Mauldin, in his most recent article entitled
'When Will the Fed Stop?' supports my contention making the
point that from an historical basis the Fed funds rate is not
that high given the fact that from 1946 through 2000 the median
fed fund rate was over 6% and yet the U.S. economy grew rapidly
during that period) and the almost permanently static longer
term interest rates continue to make housing a tremendously
affordable proposition. In addition, institutional lenders
continue to bend over backwards to accommodate buyers.
Your "Our Worst
Nightmare" articles on the housing market (see "Our Worst
Nightmare - The Puncture of the Current US Housing Bubble" and
"Our Worst Nightmare - The Bubble Has Burst") are sensationalist
and misleading. Housing is a hard commodity. It is real,
concrete, can be seen and used. Compared to paper representing
bonds and equity shares, it is tangible just as all other
commodities are. So if we are really in a commodity secular
bull cycle, why should we despair over the suggested imminent
collapse of the housing market? Where is the nightmare?
Moreover, if the FED continues to be accommodative in terms of
money supply, interest rates and credit generally, why should
the buoyant housing market fall apart prompting all the
other elements of the economy dependent upon it to do the same?
Again I ask: where is the nightmare?
As I see it,
official employment figures indicate a strong economy and the
CPI index is not in the least inflationary. Also, surveys of
consumer and producer confidence stand almost at multi-year
highs. Knowing that Robert Prechter preaches that public
attitudes and social mood lead to behavior and activity - not
the other way around as we almost all believe - this public
optimism bodes well for a continuation of the current economic
reality. With an always accommodating FED policy of M3 annual
growth in the money supply of almost ten percent, all should be
sweetness and light for continuing consumer led demand and
economic growth. As I see it, all your 'ominous warnings and
dire predictions' are also way off base and are alarmist at
best.
You go on and
on in your "Ominous Warnings and Dire Predictions" articles (see
"Ominous Warnings and Dire Predictions of the World's Financial
Experts Part 1 and 2 of a 6 part series) about all kinds of
things but:
a) fail to
address why so many people are so optimistic given the obvious
inflationary consequences of growth in the money supply,
bubble-like housing prices and a loss of affordability because
of rising house prices.
b) fail to
express concern that official numbers relating to the Consumer
Price Index, unemployment, GDP and other measures of economic
reality are largely bogus and
c) fail, most
importantly, to mention the unfunded liabilities of Social
Security IOU's, Medicaid, Medicare and its new drug plan,
Freddie and Fannie Mae and the Pension Guaranty Corporation
which purportedly backstops underfunded private and public
sector defined benefit pension plans.
Now I may be
talking out of both sides of my mouth here but I also feel
strongly that this lengthening list of economic fundamentals
are, indeed, alarming and can not continue indefinitely without
a blow up. Politicians and central bankers along with their
cheerleaders in the brokerage, banking and mutual fund
industries, assisted by a largely ignorant and culpable popular
news media, will, however, do their best to leave the toiling
masses largely ignorant of economic realities for as long as
possible.
Inevitably
though, when the 'dam breaks' or the 'deck of cards' collapses,
it will be quick and calamitous in its magnitude and impact.
That is why I am well positioned in precious metals (gold and
silver bullion, mining company shares and some well placed long
term precious metals warrants to reap the major benefits of
leverage these assets continue to give my portfolio) but
somewhat less so in base metals and energy. That is my comfort
zone which allows me to sleep soundly because it is the best way
to protect my hard earned equity and prosper from the fallout of
the coming financial collapse. The only thing I do not know is
the extent of this future financial dislocation or its timing.
What the heck, life wouldn't be very interesting if we could
predict the future with absolute certainty, now would it?
For what it is
worth, and I have been laughing all the way to the bank of late,
I believe we are in a genuine commodities bull market and, as
such, see no need to spend much time paying attention to the
daily ebbs and flows of the market for these investments. I have
done my research and analysis and taken a position. I
periodically review the performance of my investments, fine tune
them on occasion and then get on with my life confident that the
markets will develop as we know they are destined to with our
assets safe and growing. If there is a fiscal hurricane
approaching as you suggest I am confident my portfolio is
secure. (See "Warning! Fiscal Hurricane Approaching! Is Your
Portfolio Secure?").
Call this the
standard 'buy and hold' approach if you will, but it isn't.
Traditional buy and hold investing makes a fetish out of
percentage asset allocation between market sectors, stocks and
bonds, picking individual stock winners and pruning losers all
in the name of 'balance and diversification.' Lighten
up and enjoy the commodities ride."
The bottom line conclusion appears to be for investors to
strategically position themselves in a wide variety of assets
including precious metals, mining shares and long-term warrants.
April 11, 2006
Dudley Baker
Email:
info@preciousmetalswarrants.com
Website:
PreciousMetalsWarrants
Dudley
Baker is the owner/editor of Precious Metals Warrants, a market
data service which provides you with the details on all mining
& energy companies with warrants trading on the U. S. and
Canadian Exchanges. As new warrants are listed for trading we
alert you via an e-mail blast. You are provided with links to
the companies’ websites, links to quotes and charts, tips
for placing orders and much, much more. We do not make any specific
recommendations in our service. We do the work for you and provide
you with the knowledge, trading tips and the confidence in placing
your orders.
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