Coach''s blog...Wednesday, April 11th, 2007...
I put myself through university by delivering newspapers. By grade 12 I had 3 routes and was delivering to over 100 homes per day, which meant that I had to be up at 5am just to get it all done before school. And that paper was the Globe & Mail.
When I got started investing, I naturally went to the G&M as my primary source of information. I thought the paper was so professional, and trusted everything I saw in print. I still subscribe to the Globe today, and read it with a pot of coffee every morning before turning on my computer. But I have learned that unfortunately the G&M, like every other newspaper, is sadly lacking in terms of offering real perspective. It is a superficial presentation at best of only the most obvious facts and opinions, and will typicaly provide the laziest and most obtuse investors with just enough data to generate a modest gain.
I recall just before Christmas reading opinion articles in the biz section on how the commodities boom was dead. These stories came complete with sidebar commentary from trading geniuses in power shirts who flatly pointed out that sector had topped, it was over. In particular, copper was the favourite whipping boy. We were told that hedge funds had somehow accumulated large stockpiles of copper, mysteriously hiding them in warehouses, and now these funds were dumping that copper... What complete and utter nonsense!
Well big surprise, this morning I read all the glowing reports of how copper is the metal with the best fundamental strength, and even more amusing, that copper is being driven higher due to hedge funds covering shorts. And just 4 months after the paper completely fell on its azz with the 'copper is dead' angle, they are now pounding the table and calling it a strong play. How do these guys get away with being so wrong, so often?
I happen to agree with the outlook for strong copper, and was not shy in stating that opinion on this forum in the past. But here is where I take a new approach in my investment decisions. I do not rely on the G&M or any other rag to gather information. I research the hell out of the mining business, and gather data from as many sources as I can to get the real picture. I also research the history of the market fundamentals from other booms to get a better perspective on where we are today. That allows me to tune out the noise from the 'experts' that are either FOS or deliberately talking nonsense in the paper because they have the other side of the trade.
Now the point of this rant is not to represent that I am smarter than everyone else. I am not. I am just smarter now than I was before. And I am smarter for the extra effort to do my homework, than the people who just rely on the canned information that is served up by the local financial rag.
Oh, and about copper...? Well, all we need to consider as investors is that every other copper boom in the last 100 years came to an end due to overinvestment in new large producing mines. A boom in capital spending followed the boom in prices, and the large new sources of inelastic supply eventually flooded the market and drove prices down. The cycles are closely correlated to economic activity, since a strong economy drives copper consumption, but it was not the economy that ended the booms, but over supply. We know that economic activity is cyclical and that inflationary regimes follow periods of expansion, and then end in recessions. This time around, we did not get the massive build up of copper production and new supply. So when the recession comes, there is no big inventory to drive prices lower. And Asian demand will continue to soak up all production.
I do not think copper is going to go away. Long after the last new home is built in North America, there is a large growing affluent segment of the Asian market that will be buying every pound of copper they can find for their own homes and toys. And without large new projects projected to come on stream for at least another 2 years, do not believe the nonsense from the experts about a supply glut anytime soon. In fact, most mining people are wringing their hands, wondering where the people and equipment are going to come from to get the big new mines on line without even more delays.
There is a lot of life left in this base metals bull market. The next time you read about anything in the paper, just remember the last time they got it so wrong, and trust your own research.
cheers!
COACH247