‘How many Ben?’
‘You won’t like it.’
‘Go on, just tell me.’
‘Five. Five new people joined up.’
‘Hmmm. I guess it would be an understatement to say we didn’t do a good enough job of convincing them that now was a good time to buy resource stocks!’
And who can blame anyone for being sceptical about resource stocks? The S&P/ASX 200 Metal & Mining index is still 46.2% below the 2008 high.
But couldn’t it go even lower if China’s growth stalls? It could, but we wouldn’t bet on that happening. Because this could also be the single biggest opportunity to buy into resource stocks since late 2008…
Not everyone likes our advertising material.
For some reason some people don’t like a plain English document that lays out in detail everything about a particular stock or investment opportunity (except the stock name), the risks of the opportunity, the cost of the service, and even our upfront pledge to provide a 30-day money back guarantee.
That last point seems to attract the most anger from some readers. Don’t ask why, because we don’t know.
But all up, it seems that most people prefer cryptic or opaque advertising, or glossy magazine advertising. The kind with small print or no print. The kind where you need to refer to a 100-page legal document where there’s still no chance of finding out the full terms and conditions.
Even so, when only five people respond to one of our advertising emails, it tells us there’s something wrong. Either the idea is wrong, or we haven’t properly highlighted the huge potential in resource stocks. We think it’s the latter.
Maybe we can go one step further today to convince you of the scale of this opportunity…
The past six years have been brutal for Australian resource stocks.
There was a small ray of sunshine from 2009 to 2010 when stocks rebounded as stimulus programs worldwide kicked into effect.
But as with all stimulus programs, the benefits were short-lived. Stimulus simply brings forward future revenue and spending, it doesn’t actually add to revenue and spending over the long term.
That means when the stimulus ends and politicians and mainstream economists expect the effects of the stimulus to continue, it doesn’t. The economy is back where it was before the stimulus, only now they’ve added on a bunch of government spending and debt.
As the old saying goes, ‘When you’ve dug yourself into a hole, it’s a good idea to stop digging.’
The fact is that contrary to conventional wisdom, a recession is the necessary follow-on from a boom. The recession helps to purge the economy of bad investments and bad decisions.
Without that purge the bad investments continue to spread like weeds in a nicely manicured lawn…and you don’t want that.
But eventually, well, a bad business is a bad business. Providing there isn’t further stimulus, the bad businesses will die. It’s just a longer process due to the temporary stimulus.
That’s why we see such a great opportunity in the beaten-down resources market. Companies have gone bust. They’ve cancelled projects, and stopped investing in capital.
But one fact remains — the demand for raw materials won’t stop tomorrow. In fact, the demand for raw materials is increasing and isn’t likely to stop increasing anytime soon.
Let’s take one of our favourite commodities, crude oil.
We like to follow the International Energy Agency’s data on world oil demand and supply. As this chart shows, over the past four years, the demand for oil has continued to rise:
But it’s not just the demand that has continued to rise, it’s the supply too. As this chart shows. And although it doesn’t show the average for 2014, IEA data says for the first quarter this year the average daily supply of oil was 92.3 million barrels per day. That’s higher than the 2013 average:
So, are these increases the impact of genuine unstimulated demand? Or is it all down to stimulus? Or is it a mix of both?
The reality is that it’s a mix of both. But it’s not a 50/50 split. The vast majority is due to genuine demand. Only a small portion is likely to be stimulus driven.
And yet the way the stock markets have punished mining stocks, you would think the second the US Federal Reserve ends its money printing program later this year that all mining and drilling will grind to a halt.
It’s a crazy thought, and it won’t happen.
But that’s what markets do. When things look bad investors tend to price in the worst. Only when things don’t turn out to be so bad does the market do an about turn and surge into the unfairly beaten down stocks.
When that happens — as we expect it to this year — investors will do two things.
The speculators will hit the market first, looking for the best value stocks with the best opportunities for the biggest gains (these stocks are the hallmark of Jason’s work).
Once these stocks start to move then the more conservatively minded investor will look at the bigger and supposedly safer blue-chip resource stocks.
Few investors can see that opportunity right now. Why? Because most investors like to buy high. They buy when stocks have already gone up because it makes them feel more secure.
The trouble is it means they miss out on some of the market’s biggest gains.
Buying high and then watching the Australian share market go higher is an OK strategy. But in our view it’s much better to buy low — right at the depths of despair in a particular sector — and then watch the stock go high.
Right now Jason has handpicked a number of stocks in this zone. He calls them ‘bounce back’ stocks. Check out the details here…
Cheers,
Kris+
PS: Australia’s biggest miners, BHP and RIO, have fallen with the rest of the mining sector. But though their future is looking bright, are they a good buy at these prices? Check out the Money Morning Premium Notes to discover whether it’s time to stock up, or to look elsewhere.