Investors might disagree on the best stocks to trade or what the best secret wealth-building trading tactic might be, but there's one thing that all investors agree on right now: We're living in unpredictable times: Markets are haywire, oil spills are wreaking havoc, and few can really discern a clear way forward.
We spoke to Jim Letourneau, recently, just after speaking at the World Resource Investment Conference in Vancouver Canada. Mr. Letourneau is a noted speaker and geologist, and runs the site BigPictureSpeculator where he shares his views on the mining industry. During our brief interview, Mr. Letourneau packed in a lot of insight, sharing with us his take on just about everything from BP to markets to trading techniques. Smart investors would be wise to hang onto his every word.
Mr. Letourneau tells us that he's paying close attention to what is going on in the Gulf of
Mexico, not only from a geological perspective but also from a political, social, and economic perspective. "I'm interested in what's going on in the Gulf right now because of my background as a petroleum geologist," he says. "There are a lot of implications because of the BP disaster: Over 30 rigs that were drilling have had to stop in the middle of their wells. This creates all kinds of unemployment and there's the natural disaster that everyone is worried about." He calls it a modern day Three Mile Island incident.
The implications are interesting: "There are a lot of people against offshore oil drilling now,especially in the United States. And the US is very a big importer of oil from Venezuela so it's one of those choices that people don't like to make. 'Do I want to buy my oil from Venezuela or do I want to take the risk of having these oil spills?'"
Mr. Letourneau draws from his experience in the petroleum industry to share an interesting fact: "The Gulf of Mexico has a lot of natural oil seepage anyway. There's the equivalent of 2 Exxon Valdez tankers of oil that leak into the Gulf of Mexico every year naturally from many oil wells in the area. So, oil presence is natural in that system already (although not to the degree it currently is) and the ecosystem should be able to recover, although it will take a few years."
BP themselves should recover, too, believes Mr. Letourneau, and he also points out that their problem-fixing efforts are still superior to recent financial debacles that impacted the marketplace. "BP, along with partners Anadarko, and MOEX Offshore 2007 will fix the problem… and they'll pay for it. That's unlike what we saw with the banking system and the auto business where the government had to come in with financial assistance. In this case, we have one industry that can actually pay its bills and it seems to be getting a lot of bad press right now."
In terms of BP as an investment opportunity, Mr. Letourneau appears cautiously
optimistic: "There's always a lot of risk in these situations but if they can cap the well off and then pay whatever they are expected to pay, they may snap back. BP is severely undervalued and we're in a bear market right now. BP will pay the price and I think they will redeem themselves."
Then we turned our attention to the market and whether we were in a bull market or a bear market. In fact, that was the subject of his talk at the World Resource Investment Conference in Vancouver. His talk was entitled, "Is the Commodity Bull Market Over?”. He explains to us the reason for his talk: "I don't see bull market charts. I don't think we've been in a commodities bull market for a while. If we look at a longer time frame, we'll eventually see new highs at some point but we have to go through at least 4 to 10 months of a bear market before we get there."
This doesn't sound like good news for investors who are hoping for a recovery but Mr.
Letourneau gave us some guidance based on his opinions about the market. There is a little bit of market timing required, for example, if investors want to enjoy some success in the coming years. "Right now the markets are not kind. It's going to be very hard for junior companies to raise money. We're not creating commodity supply right now. What we have to do is look at it over a 20 year time frame: The last two years have been quite bearish but we should see an increase in the future."
Ultimately, Mr. Letourneau points out, it's about identifying the market cycles and determining where we are in the cycle then investing appropriately. "It's always good to ask the question, 'where are we in the cycle?'. We haven't seen the top of the commodity cycle; we haven't seen stockpiles of commodities built up; we haven't seen a lot of mania."
Admittedly, he pointed out, there has been some "mini mania" or "pocket mania" and he listed a few, including uranium, rare earths, molybdenum. "Everyone can pick their obscure element that has a little mania but we haven't had a major commodities market mania yet, which is usually the end of a cycle… in terms of pocket manias, I think gold and precious metals might not take off until the fall. They've held up very well and the longer term looks great. They may not take off in the next little while."
So the big question that every investor wants to know when trying to discern the market: What should they consider buying into and what do the experts own? "As of this moment," says Mr. Letourneau, "I'm really reluctant to put my money into anything. I'd look at inverse ETFs. I'd want liquidity; I'd not want to lose capital. When companies start trading near their cash positions, that's a great time to pick them up. Things might change in August but I'm not bullish on stocks today. Cash is good; gold is good. You won't lose money and that's half the battle."
Liquid inverse ETFs are an interesting way to play the market. We don't talk about them very often on MetalsNews so we asked him to elaborate. "They're a good way to balance the market because I don't know how low the market will go. I'm looking at the simplest one – it doesn't have double leverage – it’s the S&P/TSX 60 Inverse ETF (HIX.TO).
According to Mr. Letourneau's insight, the market has some opportunity to grow but investors may have to walk through some challenging short term conditions. However, by holding onto a lot of cash and keeping liquid positions, a rebound will eventually occur and investors will be in a better position to grow with the market.
Reference
http://www.jimletourneau.com/