First off some general market comments. So far the implosion of the frothiest parts of the stock market i.e. SPACS and the momentum growth names i.e. ARKK stocks has not bled into the general market. Even the stagnation of the FAANGS hasn't prevented the SPX from hitting new all time highs. Last year I saw so many people on Twitter post a pie chart showing how 5-7 stocks dominate the performance of SPX implying that once these giants start faltering, the market is toast. But somehow, someway the market has managed to soldier on...at least for now. The value to growth and growth to value rotations have continued to play out and so far YTD value is winning the battle but it's been treacherous to those who chase in either direction. Friday's job report is creating a narrative that the Fed is not going to raise rates sooner than scheduled which is becoming a concern lately given Yellen's comments, the surge in certain commodity prices and the chatter in general about how inflation pressures are building. Any kind of abatement in interest rate hiking fears will probably help the underperforming tech sector you would think. When I look at the main sentiment indicators the message I'm getting is neutral which suggests either a continued uptrend or a sideways market with only modest dips.
So let's talk about commodities, specifically copper and oil. Goldman recently came out with research which paints a very bullish picture for copper in the long term and oil in the short term. Goldman came out with a report in April titled "Copper is the new oil" Their thesis is that the transition to a green economy is going to lead to substantial demand for copper for several years given its use in wind, solar, energy grid/storage and EVs and since copper and commodities in general have gone through a lost decade from basically 2010-2020, not enough was invested in new mining supply to cope with this newfound demand which will keep copper prices elevated. If this thesis turns out to be true, junior mining companies that have advanced copper projects are going to have the most torque. I happen to own one such stock which I have had for several years - Foran mining. The stock has been on a tear because they are in the right space and in the right development stage of their project. They are also being ESG conscious with their marketing and approach. They recently had a new CEO come on board who was so attracted to their prospects that he chose not to take a salary but to rather get paid by stock incentives which are tied to company milestones. Copper has recently hit an all time high yet there's nothing even close to the same enthusiasm for resource/materials stocks as there was back in 2010-2011. It's been relatively under the radar.
In late March/early April I found my self loading up on other resource stocks because the market was telling me to do so. The charts were all showing what I like to call rare "sweet spot" setups whereby you have favorable technicals (uptrend with higher highs, higher lows), fundamentals and valuations. The setup reminds me of the stocks that I had picked out and had success with in 2009 and 2010. What's probably creating a lot of surprise this year is how fiercely the energy sector has come back to life. This was the most hated sector for years. Most people, including myself had called this sector "un-investable" because of the ESG movement and all the hype surrounding EVs and then in 2020 the absolute unfathomable happened when oil prices traded negative. Now, oil is having its revenge and I doubt it's over yet. Because of all the hatred and avoidance of oil and gas companies these past 4-5 years we may soon find ourselves with an acute shortage of oil because of the lack of development in new supply. This is what Goldman thinks. Some energy bears think that fracking will come back on line in a hurry now that prices are higher. I say not so fast. All this ESG awareness will make fracking a much more difficult proposition than in the recent past. And we're not going to all transition to EVs overnight and so it could very well be the case that this oil rally has legs. Even though I can sense that more people are warming up to this sector it's still under-owned.
Another interesting commodity which is not getting much headlines is iron ore. It's also making all time highs. I hold a position in a speculative company called Black Iron Inc. They have a mining project in the works which is highly leveraged to iron ore. They also have a high premium ore which not only commands higher prices but is also ESG friendly as it cleaner to process than regular grade ore. The more ESG friendly a company is the most likely they will get access to capital and attract institutional investors. The project they have has excellent economics with an assumed iron ore price of $60 and right now the price is $195! I also scooped up positions in small cap companies leveraged to natural gas and condensates. Again, the charts were screaming at me to buy them.
My timing in purchasing all my resource names (aside from Foran which I have held for years) has been exquisite as all of them had huge moves almost instantly after I bought. Now, I do realize that after such a great run we could get a breather in the commodity space soon especially if part of the reason fueling the rise in the ST was supply disruptions due to COVID. The US dollar has been declining steadily as of late and so any sharp reversal of that would put pressure on commodity prices as well. But I'm not going to mind such things. I'm in a position where I can be a strong holder and ride out any counter trend moves. I will not take profits just for the sake of taking profits. That's a rookie mistake. The market doesn't a give a shit about what price you bought in. I will sell when either the fundamentals say so, I see some sort of blow-off move which makes the stock over valued or I have a better idea to invest the money. The stocks I own are either cheap fundamentally or in the case of the junior exploration companies, have a lot of "story" left to be told i.e. important announcements which pertain to the development of their mining projects. I'm also in a situation whereby I have a regular stream of good income such that I don't rely on my portfolio gains to make my living as I once did. That puts me in much better position mentally to be able to hold on to positions if they start going against me. My portfolio can get chopped in half or even more and I'll still be fine. With my junior miner plays, I intend to keep at least 25% of my position invested until the very end i.e. until they develop their mine or possibly get acquired because the gains you can make in such cases are massive. If you're going to play the long game you have to resist the temptation of getting out too early. If we are indeed in the early innings of a commodities run there will still be big money to be made but you gotta be prepared to hold during periods where the stocks do nothing for several months maybe even up to a couple of years. I've been very lucky to have experienced instant gratification but I know that's not sustainable in the long run. If I am to fully capitalize I must be prepared for the inevitable corrections and stagnations and resist ST trading. Most people can't do such a thing because they watch their stocks every day tick by tick. Doing so leads you make hasty decisions and not having the patience or mental fortitude to handle adverse moves.
