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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Skeptical Speculators See things Differently

A recent Canadian Press article "Inco CEO says strong metals market 'far from over,' despite recent slippage" provides some clues as to why it is hard to make money acting on financial news. I am a long term bull on metals and energy but I am not going to jump on any bandwagons because of what I read in news articles.

When the president of Inco says "In our view, strong metals markets are far from over," I think it is important to remember that company executives NEVER predict downturns in demand for their products in advance of a price declines. Once prices decline THEN you hear about the declining demand story. It is no accident that this story is during a week when base metals were knocked on their keester. This sort of declaration rarely moves markets but it can suck new investors at a bad time.

The article then features Bank of Montreal Assistant Chief Economist (titles are a big deal at banks), Earl Sweet's commentary. He invokes hedge fund trading and the threat of high oil prices creating an economic slowdown for the drop in metal prices. Most of us have no clue what hedge fund commodity traders are up to so it is fruitless to try and use that statement to make money. The price of oil is high and it could slowdown world growth. He didn't mention the influence high oil prices will have on the production of commodities (inflationary spiral anyone?... we'll have to wait and see).

As I read this article one thing and one thing only came to mind. I need to look at a price chart of nickel. The drop to ~$6.00/lb doesn't show up on the longer term charts yet but it doesn't paint a pretty picture. The best thing that could happen is that prices drop a bit more or stabilize for a few months. When silver crashed it took ~4 weeks to reach a bottom. It has taken 20 weeks for silver to claw back 50% of that 4 week drop. I like metals and energy and believe they are in a long term bull market but I am not very interested in participating in nickel until the the falling knife stops its fall.

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