Al Alper: This is Al Alper. I'm talking with Jim Letourneau, who has the Big Picture Speculator.  Jim, would you like to tell our readers about your own background.

Jim Letourneau: I was born and raised in Alberta.  I'm a petroleum geologist by training, and I went to the University of Alberta specializing in petroleum, geochemistry and hydrogeology.  I worked as a consultant to most of the big companies.  I specialized in unconventional gas, low-pressure gas, which I really enjoyed.  But about five or six years ago I started doing a lot of investing for myself and saw there were a lot of opportunities for people who were willing to do their own research and do self-directed investing.  As a geologist, I could also see it looked like we were heading into a long-term commodities bull market. 

I knew about bear markets because I graduated in 1985 during a bear market.  We had a very large geology class size, and probably less than 10 percent of our class found jobs right away in what they really wanted to do. So, it's been interesting.  Since then, things have gone up and down, and it looks like we're heading into a down period again, but that's sort of the gist of my background. 

Al Alper: So you started the Big Picture Speculator. I think investors can benefit from adding the insights of a geologist to their investment related reading. What are your impressions of what's going on today with this economic crisis?

Jim Letourneau: Since I started writing my newsletter it's been a very interesting time because typically, commodities bull markets were thought to last roughly 15 to 20 years, and we were just getting started in one. Then we had this global economic collapse that kind of killed it.  That hadn't happened before.  I don't think too many people saw it coming, and now we're regrouping and reevaluating.

I'm really encouraged, though; a lot of the fundamentals still seem to be in place.  We see China making very large acquisitions all over the world in oil and in metals.  Very quickly in 2009 they've probably made $50 billion in acquisitions already with promises of loaning money for big projects that will give them access to metals and oil.  The story is shifting.  It's not so much about U.S. demand and what's happening in the United States.  It's more what's happening in the developing countries with large population bases and fairly low standards of living. 

So, it's an interesting shift, and I think a lot of it's only going to be understood once it's happened and we have the benefit of being able to look backwards.  It's a really hard time to make predictions.

 Al Alper: Many of my readers and investors have been hurt in this unexpected downturn; and I was wondering what would be your advice right now?  What investment areas do you think should be under consideration, where should they be putting their money and when do you think things might improve?

Jim Letourneau: I would say right now people are probably overly cautious, but they need to be really careful for the next few years.  We're not going to get a green light that we're into a bull market for some time.  There's looming inflation.  The United States is playing a lot of games with the currency, none of which is making it a strong dollar. So we have the potential to see the dollar drop. That, automatically, is going to raise the price of commodities again. The short answer seems to be, hard, tangible assets are a way to preserve wealth.  Cash is a good way to not lose wealth, but in relative terms, especially if you live in the United States, you might want some kind of hedging against the devaluation of the U.S. dollar. 

It may not matter to Americans who don’t travel.  It doesn’t really affect them until the prices of imported goods and things start to go up.  I still think we're sowing the seeds for another big bull market in energy, and demand for metals is still high. Because we only had four or five years of a buoyant commodity market, we didn’t have time to build any new mines.  We have some half-built ones that are kind of in limbo.

A lot of investment went into oil, and that was able to maintain supplies, but we didn’t increase supplies or capacity.  Probably the one big surprise during this last bull market has been the natural gas market and how unconventional gas through new technology has created a glut of supply, which no one could have predicted five years ago.  At that time most people at unconventional gas conferences were talking about coal bed methane. Suddenly, the ability to fracture shales, new technologies and horizontal wells created a huge glut of natural gas.  So, that's sort of an indication that human ingenuity and good engineering and geology and geophysics can make a big difference in the supply of certain commodities. But short of other amazing leaps forward in technology, it takes a long time to get replace the supplies of other resources.  Even though this global economic collapse has caused a diminished demand for a lot of these vital resources, it's not going to take too long for the demand to come back because the supplies aren't there.

Al Alper: When do you think demand will start coming back, and which do you think will come back first energy or base metals?

Jim Letourneau: One thought about energy is even if demand stays constant, a lot of oil fields are declining quite quickly, and that will create a bull market anyway.  We don’t even need increased demand because we're not going to have as much investment in new supplies, so natural decline of oil fields will create a bit of a shortfall fairly quickly.  In terms of base metals, we've seen a bit of a rebound in copper prices, the Baltic Dry Index, so a lot of these leading economic indicators of activity are starting to bounce back.  Whether that's sustainable and we get back to where we were or whether we need more up and down and corrections, remains to be seen. 

It was a very sharp drop.  I don't think we're going to have a sharp recovery.  It could take a year or two.  It's usually longer than people think for things to get back on track.  As investors and speculators we tend to be forward-looking, so even though we may not completely recover, sometimes the markets in certain commodities will start to move, especially in junior mining companies.  Sometimes they'll move in advance of the economy recovering based on the anticipation that it's recovering.

So, I don't have a magic number, but I'm leaning towards longer than we think, and that could be two years.

Al Alper: Well, now, a lot of people say you should be putting your money in gold and silver.  What are your thoughts on that?

Jim Letourneau: I just chaired a panel this morning, and a fellow out of Calgary, Dave Forest, said you should talk to your insurance company and ask them if they provide financial disaster insurance, and he said none of them will, but if you have gold, you have that insurance.  So, I think it's prudent to have 10 percent gold. That is sort of the standard number people say; just to have some as insurance.  I'm not sure gold breaks out and makes new highs this year.  It may take longer than we think.  Everyone was cheering when people mentioned gold this morning, but all the people that want to own gold may already own it. In fact because the price did get higher, we've seen a lot of people selling their gold both in India and the US.  In the United States there are companies where you can sell your gold, cash for gold, money for gold, those sorts of things.  So, the price has risen enough that people are already cashing it in.

The last really big gold market, that market top when people were lining up to sell their silverware, all their old jewelry, melting it down for bullion.  I don't think we're at that stage yet.  I do think we have a long ways to go for the gold market to top, but it might not happen as fast as we'd like.  There's some, technical resistance at $1000.00 an ounce.  It was flirting with that in February.

Al Alper: Yes it was about 990 in late February.

Jim Letourneau: If it gets over $1000.00 an ounce and can sustain that gain people pile in and it could have a really nice move to get past that round number resistance sort of thing.  So, I'm long-term bullish, but I wouldn't know the timing.  It might take six months to a year to kick that market.  When it goes, it's really going to go, but it might take longer than we'd like.

Al Alper: Thank you for sharing your expertise with our readers. I enjoyed talking with you.