Commodity Overview

Question:  Hey J.J. Butler, what’s going on the markets you follow?

Answer:  Today’s dynamics are especially interesting.  Valuations are compressing as the secular bear market marches forward.  Vast numbers of people are finding a better life in emerging countries, while the debt laden developed world is going to choose debasement or default.

Question:  Seems the developing world is seeing a slowdown in the rate of growth…

Answer:  Significantly.  The investor can best act on the industrialization of China theme by Invest in What China Needs to Buy: Don Coxe (Energy Report).

However, Independent Stock Analysis has been chronicling the Chinese slowdown.  Iron ore hits lowest in nearly 3 years; miners’ shares tumble at Reuters.  The ever-increasing hunger for steel at FT AlphavilleCopper Demand in China Seen Growing at Slowest Pace in 15 Years at Bloomberg.

Waiting for Chinese economic growth to re-accelerate may be the correct investment action.  Jim Roger description:  “”All these guys are delaying or suspending or cancelling new supply which is bullish.”  Mineweb

Question:  Energy seems to be of particular interest at ISA?

Answer:  Energy is the world’s largest industry and has seen an incredible transformation over the past decade.  Conventional oil production peaked in 2005.  The new higher price deck spawned the unconventional oil revolution.

With today’s robust oil prices the producers can slightly increase world oil production, yet the high pricing is required.  Moreover, oil demand is spurred with lower prices and while higher prices causes growth problems.

Current inventory levels are flush, but more importantly spare capacity is quite tight.  Oil market commentators and analysts all seem to be calling for violent oil prices; think Iran, the Straight of Hormuz and such.  Consider the idea of tame range-bound robust oil pricing:  OPEC and economics will prevent Raymond James $65 oil call, while the upside will be capped by the economics of demand destruction, efficiency gains and reinvested profits.  The play by play is on my oil page.

Meanwhile natural gas prices may rise after a tumultuous fall shoulder season, but otherwise NG is searching out it’s own price regime, only with low prices.

Coal, meanwhile, may be the speculative opportunity if natural gas prices rise from depressed levels.  Natural gas prices have crushed the coal sector.  On ISA I have undertaken a study of the industry, so when the time is right we can pounce on the right investments.  Many a stock junkie has been much too early on coal because they underestimated the natural gas revolution.  The winners in a cyclical coal rebound do not look to be the usual suspects.  Follow along on my coal page.  Perhaps a big score is possible.

Question:  Is investment opportunity immediately present?

Typically the first commodity sector to respond to policy maker stimulus is the precious metals.  Be sure to see the ISA gold page for more.  I recently published a brief essay on Silver Wheaton.

I work very hard to make Independent Stock Analysis a productive tool for thoughtful investors.  Readers will not see their time hijacked.  Neither am I here to tell investors what to do; I am just sharing different viewpoints of what is occurring on the investment landscape.

Independent Stock Analysis is appropriately priced, thorough and timely.  The format consists of organized links to the theme of each post.

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