Playing the Metals, Human Capital and MIM3
Human capital--it's not a catch phrase, it's the best way to communicate the special people who make the 'Ville what it is.
The phrase "the sharpest corrections happen in bull markets" has been used by you and others to describe the meltage in the mining and oil stocks recently. Now, I'm very familiar with the term and what it means but somewhere in the back of my head, I recall hearing that exact phrase in March/April 2000. It was a raging bull market at the time and most everyone was conditioned to buy the dips because THEY ALWAYS bounced back higher. We know how that ended, most never bounced back - EVER.
So, with the fantastic run in the metal and oil stocks, why or how is it different this time?
Mind you, I've been long both sectors for the past few years and fortunately, I'm mostly in a cash position right now (thanks in large part to the "stuff" you guys write here!). Now, I'm looking at these sectors again with some stocks down 20-30% in a few weeks time. Goldcorp (GG) has dropped from 41 to 28.75 in 7 trading days -- now that's a heck of a sharp correction. Imagine what people would be saying if say, Google (GOOG) had a similar drop from 410 to 290! Is it April 2000 or Fall of 1998?
Both presented sharply lower prices but one made you a ton and one got you blown out of the game if you didn't practice proper money management. As you say, you want to see both sides of the trade before you put on a position and that's what I'm trying to do. I'd be interested to hear what you guys have to say.
Totally separate question in regards to MIM3. I'd been considering going to MIM3 but backed off after looking at who the conference is targeted to. See, I'm just a small-time investor who manages his own family's money during the day and writes software at night and you guys are way, way, way above my level in the investment world. Then, I read what you said last week about "treating it as a vacation that is a worthy investment" and that makes me want to reconsider. Plus, it is my wife and my 10 year anniversary next week and she said it's okay with her for us to go, kind of like a combo ten year anniversary/vacation plus a chance to meet the many Minyans. I guess I'd just like your honest opinion on if it makes sense for a small-time investor like me to attend. And don't worry, my feelings won't be hurt if your answer is no.
Ground Control to Minyan Tom,
Great question. In short, no, there's no way to know if this is '98 or '00 in the metals. It's a multi-variable dynamic and is dependent on many things (some of which have occurred and others which have yet to unfold). As I've said often in the 'Ville over the last few years, I reckon that metals and energy will outperform tech and financials for a long time. Of course, IF (big if) there's outright asset class deflation or a contraction in the aggregate risk appetite, nothing is safe on an absolute basis. That's the risk and, given my concerns about the financial fabric (debt, dollar, derivatives), it's one that I think has a higher probability than most in the mainstream suspect.
With that said, and to drill down a bit deeper, I've recently layered into a slew of upside exposure in the metal space (vs. other shorts, mainly in the financials) as I've been waiting for legitimate oversold readings (and now we have 'em). Remember, we wouldn't get to oversold levels unless there were very real reasons for folks to sell the space. And there are--nationalization, overzealous hedgies, structural smoke--but I've faded (read: bought) this latest smack lower. How? Through defined risk calls, as I'm not smart enough to know if I'm right but I'm disciplined enough to manage my exposure if I'm not.
There was a fair amount of press this weekend discussing the "commodity bubble" and I'll offer that, as much as I would like to pin another bubble on the back of the Fed, I simply don't see it. While our economy is decidedly finance-based (dependent), I believe that anything with a tangible supply demand--energy, metals, water--will trade at a premium for years to come. Further, before the commodity boom is over, I have a high degree of confidence that energy will resume the top weighting in the S&P. And we're a long way from there.
The risk to this trade--and something we all must watch--is the level of the US Dollar--and not because of the traditionally inverse correlation between gold and the greenback. As we've so often discussed, my sense is that the only way asset classes can continue to trend higher is if the greenback is allowed to devalue. And if the DXY is indeed forming reverse dandruff, all bets are off for the commodity complex and my aforementioned metal bet. That's the "other side" of my trade and one that continues to plague the financial markets.
Regarding MIM3, I most certainly will give you an honest answer---you should definitely attend. I try to keep my enthusiasm for the event contained on the site but this is so much more than a financial conference. It is a celebration of our community and the human capital that makes us who we are. Think about those words--human capital--it's not a catch phrase, it's the best way to communicate the special people who make the 'Ville what it is. Last year, we had a ton of individuals (non-professionals) and, one and all, they were thrilled they pulled the trigger. I guarantee you that you'll feel the same and come home very happy with your choice. You know me--honest to the end--and that's as honest as I can be.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at email@example.com.
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