 | The Investment U e-Letter: Issue # 611
November 24, 2006 The Current Commodities Market: Why "Mr. Silver's" Bullish on Commodities
by Dr. Mark Skousen, Chairman, Investment U
Over 600 well-heeled investors showed up last week at the New Orleans Investment Conference, the first in two years due to hurricane damage.
There were dozens of mining companies on exhibit, and commodity investing was all the rage. I ran into Ross Beaty, chairman of Pan American Silver (Nasdaq: PAAS), who has amassed a fortune in silver and other Canadian mining stocks. I've known Ross for many years; he appears forever young. Here's what "Mr. Silver" had to say… Current Commodities Markets Are Headed HigherBeaty gave me three reasons the bull market in commodities is bound to continue over the next decade. "Today's correction is not the end of the commodity bull market," he insisted. Here's why… - The China-India Factor: Beaty travels regularly to Asia. He predicts that Asia - especially the two big nations of China and India - is the dominant influence in the global economy today. "The United States no longer drives commodity demand, Asia does!" he explained. The U. S. is not the engine it once was, and now represents only 30% of demand for base commodities like copper and aluminum. "When it comes to commodity demand, who cares about the U.S.? Only Asia matters!"
- A Decline In the U.S. Dollar: Beaty admitted that oil, gold and other commodities are priced in dollars, but he insisted that the dollar can only get weaker over the next 10 years. "The trend is clearly downward," he stated. But what about Fed policy? The U.S. may not carry the weight it once had in terms of economic demand, but it still controls the supply of U.S. dollars around the world. I pointed out to Ross that the U.S. dollar has been strengthening lately against the euro and yen, especially now that the U.S. is raising interest rates. He reluctantly agreed with my analysis. [Note: I have just learned that the money supply, M2, has started growing rapidly again at a 7% clip, so inflation may be back soon… and a declining dollar!]
- Supply Constraints: Beaty said that global production of commodities across the board is showing signs of topping out. It's not just peak oil, but peak copper, gold, aluminum, zinc, and other commodities. "The discovery rates are falling," he said. "Everywhere, mines are being depleted and mining companies are producing lower grade base metals." If this trend continues, it will squeeze production levels for many years, and force prices to skyrocket.
But what about technological breakthroughs, which allow us to use less commodities and be more efficient? For example, we use 50% less energy in our automobiles since 1985. Beaty agreed that there will be new technologies, but at the same time, there will be limits to expanding supply. "Even the new hybrid cars use four times more copper!" Beaty has been right so far. Look at the five-year chart of the base commodities index, which includes aluminum, copper, zinc, nickel and lead.
Source: www.kitco.com Commodity prices and stocks are advancing again. If you haven't bought, now's the time to get aboard, especially in the companies paying dividends: Freeport-McMoRan (NYSE: FCX), Southern Copper (NYSE: PCU) and Goldcorp (NYSE: GG). Good trading, AEIOU, Mark Today's Investment U Crib Sheet - Get live spot quotes on all of the base metals. And stay tuned for more insights from commodity "insiders"…
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