First some excellent 3rd party investing insight:
1) Investing Legend Seth Klarman on the 12 lessons he learned from Warren Buffet
https://www.cnbc.com/id/102398488
2) Backing up my deflation concerns, ANZ cut their metal price forecasts by 19 percent for copper and tin plus 17 percent for nickel and lead
https://www.bloomberg.com/news/articles/2015-02-05/anz-lowers-2015-industrial-metals-forecasts-on-slowdown-in-china
3) This is an excellent visual overview of what happens to junior mining companies as they go broke and need to survive. Hundreds of TSXV and CSE companies are in this sinking boat.
https://www.visualcapitalist.com/junior-mining-companies-hit-reset-button/
OIL SECTOR WARNING
After breaching a $45 support level the end of January, oil has been trying to claw its way back into the mid $50’s. While doing so it has produced gains of 30 to 40 percent for investors who bought higher quality mid and large tier producers three weeks ago.
Those who held onto oil stocks from the 2014 collapse continue to hold out hope for a sustainable recovery of their investments by summer. And for those that didn’t buy into the January bottom and missed strong short term gains, there is a new temptation to pile into oil stocks at this stage.
That MAY OR MAY NOT be a wise decision - it totally depends upon your perspective and risk tolerance.
I personally bottom fished a few oil stocks (like Bankers Petroleum Ltd. (TSX: T.BNK, Stock Forum)) when oil hit $45 but after making 40% I took the gain this week and will now be exiting the sector entirely.
My reason why is shown below but it is simply to error on the side of caution.
Comments recently from Jeremy Grantham, co-founder and chief investment strategist of Grantham Mayo van Otterloo (www.GMO.com), have me very concerned about this recent oil recovery.
GMO is one of the largest funds in the world with $112 billion under management. Not only is Jeremy Grantham brilliant but he would have access to some of the top talent in the investment management industry.
Recently Mr. Grantham made the following comments in the GMO newsletter - Keeping in mind of course, they also didn't foresee this "collapse" in oil prices:
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".... U.S. fracking has overtaken the modest growth in global oil demand.
The Saudis are obviously expecting that these low prices will turn off U.S. fracking, and I'm sure they are right. Almost no new drilling programs will be initiated at current prices except by the financially desperate and the irrationally impatient, and in three years over 80% of all production from current wells will be gone!
This situation, he says, is likely to push oil to a new equilibrium level of $30-$50 per barrel.
For the following few years, U.S. fracking costs will determine the global oil balance. At each level, as prices rise more, fracking production will gear up. Longer term, in about five to eight years, it's possible that U.S. fracking production could begin to peak out and the full cost of an incremental barrel of traditional oil will become, once again, the main input into price. This is believed to be about $80 today and rising."
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If oil stays in the $40's this year it is going to cause a LOT of problems for the industry as most small to mid-size players have taken on huge amounts of debt this past year - this applies to oil, gas, and the service industry.
Grantham isn’t the only one expressing serious concerns about this oil price recovery:
https://www.theweek.co.uk/business/oil-price/60838/oil-prices-chief-analyst-warns-that-the-worst-is-yet-to-come
Excerpts:
1) Tom Kloza a top oil analyst has warned that oil prices are likely to fall further this year before they recover, with West Texas Intermediate crude possibly falling below $40 a barrel in the second quarter of the year.
2) John Kilduff, partner at New York energy hedge fund Again Capital LLC, told Reuters that the report was "a good reminder that there's still a lot of supply to come and it doesn't give much hope for the bulls who say we've hit bottom and are now on the way up".
3) Ian Taylor, chief executive of the world's biggest oil trader Vitol, said he expected a "dramatic" build in global oil stocks over the next few months amid high US production and weak demand.
4) James Marshall, partner at brokerage Atlas Commodities LLC, explained: "Nobody wanted to miss coming off the lows. Nobody wanted to be that guy that watched it fall 50 per cent and then watched it rally 20 per cent and did nothing."
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Disclosure: N/A
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