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Deep Freeze for Canadian Commodities

This article was my first for Minyanville.com. I intended to post it here on Friday but I was having Internet issues. I have it on good authority that high speed Internet exists in Cabo San Lucas, just not where we were staying.

Checking sector for signs of life.

One of the worst places for performing markets on the planet over the last year is the TSX Venture Exchange. From a high of 2735 in May 2008 to its current 902 level, the TSX Venture Index has a chart only a Canadian could love.

This former penny-stock playground is now the Canadian boulevard of broken dreams. The vast majority of TSX Venture Exchange companies are junior mining companies created in response to the recent commodity bull market. In hockey parlance, the TSX Venture Exchange is the farm team. Companies of substance get called up to the Canadian big leagues, known as the Toronto Stock Exchange.

I was recently moderating a Sunday-morning panel discussion at the Vancouver Resource Conference, where the majority of exhibitors were junior mining companies. The panel was a bit nervous. Would there be an audience? How would people react after getting wiped out in illiquid juniors? It turns out, over 1000 people filled the hall with some standing at the back. The conference registration reached 8000 - almost as many as the previous year.

Canadians love to invest in junior mining stocks, and they were all looking for the next baby bull market. Emerging themes included lithium (they're making batteries the size of houses in Arizona!) and rare earth elements (you can't make a Prius without them!). Gold stocks are always in favor at these conferences. If the price of gold isn't going up, it must be a conspiracy. Just ask the Gold Anti-Trust Action Committee.

Jim Rogers consistently reminded investors that "the shortest bull market in commodities I could find lasted 15 years, and the longest lasted 23 years." The global financial crisis served up a nasty black swan to Rogers' book sales. Commodities are no longer hot. Several hundred mines have shut down globally, and construction of new mines stopped almost instantly last fall. Oil-sands projects in Alberta were cancelled.

Now Thom Calandra, founding editor of CBS Marketwatch and early adopter of the commodity bull market, is bemoaning the fact that there are 4000 junior miners to choose from - the majority of these being Canadian and Australian companies. "An investor could spin that wheel once each minute for almost 3 days running and come up a winner maybe 20 times."

Why do Canadians persist in this futility? Many of us are descendants of farmers, miners and oil-patch workers. The successful companies become household names (before being sold off to international conglomerates) and the failures are soon forgotten. We have a common understanding of how important these industries are to our economy. Did we just witness the shortest commodity bull market in history, or are those penny-stock players in Vancouver ahead of the crowd?

Like many Canadians, I'm looking for signs of life in the unloved commodity sector. I'll make sure to let Minyanville readers know when I find a pulse.

Reprinted by Permission C 2009 Minyanville Media, Inc.