Today's comment is by Erika Nolan, the Executive Director of The Sovereign Society for the past seven years.
Dear A-Letter Reader:
I just got off the phone with the editors of our investment trading services: John Pugsley, The Sovereign Society's Chairman and Editor of Stealth, Boris Schlossberg and Kathy Lien, Editors of The Money Trader, Eric Roseman, Editor of Global Mutual Fund Investor and Commodity Trend Alert. (Of course, Eric Roseman is also the Investment Director of The Sovereign Society).
We have these calls about once a month or so. It's a closed-door, no holds barred, often heated conversation about what's going on in the markets. All these experienced, sharp and independent (I'd even say stubborn) thinkers call in to debate about how markets are performing and, more importantly, where they're heading. Yet through all the disagreements on our call today, our editors came to a few key points of consensus.
The biggest question during the call was where exactly commodities are headed. Is this really the beginning of the commodities bear market or is it just a normal correction within the commodities bull market?
Without exception, Boris, Kathy, Eric and John see the current commodities correction as a short-term swing. It's a pullback in what will continue to be a long-term secular bull market. We're at a very different point in time than the early '80s, when the commodities correction ended up being the beginning of a long-term commodities bear market.
Then, interest rates had already been ratcheted up to double-digit rates. And the main drivers of the world economic engine were the U.S. and Europe. Today, China and India are in the picture in a serious way. They are buying commodities for their growing economies at rapidly increasing rates that are putting enormous upward pressure on commodities from energy to metals and now to agricultural commodities.
For Eric, a telling sign that this was not the end of the commodities bull market was the behavior of the commodity linked currencies, the Australian and Canadian dollars. If this were indeed the end of the bull, Eric said, you'd expect to see the C$ and the A$ fall hard. Instead they've held up beautifully.
In fact, Boris and Kathy agreed that the prospects for the Canadian dollar breaking through parity are very good. Currently, one Canadian dollar is worth 90 U.S. cents, yet the trio expect a Canadian dollar could be worth more than its U.S. counterpart within the next 18 months.
John agrees with his colleagues that this is a short-term correction in commodities. He's bullish in this sector for his Stealth portfolio, which has many great opportunities in energy resources.
When these four agree on a trend, the first thing I want to know is how can we take profits from that trend. So, where are the buying opportunities today, as well as the pitfalls?
At the moment, precious metals are way oversold, which make metals a great buy. Certain deep-value energy stocks also present excellent opportunities right now. However, "be careful," Eric continually warns against "blind bargain buying" equities in the broad market during the current correction.
Also global large caps are coming into favor, even though they have done virtually nothing over the last five years. But with emerging markets dropping one by one, it seems that global money managers will start looking towards the large cap sector for safer, more defensive plays
So there are three big themes to play. Global value large caps look interesting as a defensive play. Commodities, especially precious metals and energy, look excellent from here. And, as Boris said, when you apply the commodities perspective to the currency markets, the commodity-backed Canadian dollar looks to be one of the most promising currencies in world over next 6 months.
Is there a way to combine a few of these fundamental factors into a single play?
Turns out there is.
John Pugsley may have just found that. He's currently recommending to his Stealth subscribers a micro company based out of British Columbia. This little gem has just a $10 million market cap, yet John thinks it has the long-term potential to become a $400 million company as oil prices skyrocket.
That's not because this is just another junior energy company. It is actually currently providing power to over 20,000 homes with a method that is increasingly a cost effective alternative to fossil fuels, and it is far more eco-friendly as well.
And the bonus? It's a Canadian company, priced in Canadian dollars. So you have the potential for the growth of the underlying shares as revenue from the company and investor interest in the company grows. And then, as an American investor, you could see those gains increased even more by the appreciation of the Canadian dollar against the greenback.
So the moral of this investment debate: you may find some of your best opportunities in this market right now in quality Canadian resource companies, backed by the soaring loonie.
ERIKA NOLAN, Executive Director
on behalf of The Sovereign Society
EDITOR'S NOTE: For more information on our four investment trading services, you can contact our membership director, David Newman at 561-272-5332 ext. 118 or email him at dnewman@sov-soc.com . Or Sovereign Society members can check out our new investment trading section, called "Behind the Trading Lines" in the coming July issue of The Sovereign Individual.