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We’re in a brave new and very scary world.
But it’s also a world chock full of new opportunities and profit potential. I’ll tell you about one of my favorite sectors in a moment.
First, at the risk of sounding like a broken record, let me repeat my previous forecast, and help you keep the long-term picture in focus: If you think the great bull markets in natural resources are over, think again.
Natural Resources Will Drive Tomorrow’s Economy
Ask yourself the following three very important questions …
Question #1: Will 3 billion souls in Asia who have just entered the 20th century, let alone the 21st, suddenly stop demanding new, better lifestyles for themselves? For their children?
I don’t think so.
Question #2: Will the severe supply restrictions in many of the world’s precious natural resources suddenly disappear, creating an oversupply instead?
I don’t think so.
If anything, with less capital and credit available today, the supply constraints in many natural resources are bound to get worse, not better.
Many mines are being shuttered right now. Oil companies have put new exploration projects on hold.
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| The slowdown in the world economy is actually more bullish for natural resources than it is bearish. |
And keep in mind: it’s a lot easier to shut down a mine or an oil well than it is to crank them up again.
So actually, the slowdown you are seeing in the world economy is more bullish for natural resources than it is bearish.
It will undoubtedly cause a setback in new discoveries and new supply sources yet again, crimp production levels, and ultimately create even more upside price pressure on natural resource prices.
Now, ask yourself another, and very important, question …
Question #3: Where is the $3 trillion that is now being spent by the Federal Reserve and the U.S. Treasury to bail out the financial system going to come from?
From you and I, the taxpayers? No. Even if taxes were raised, there’s no way the tax base can even make a dent in the amount of money that is going to be spent to bail out the system.
From investors in our bond markets? Yes, part of it will come from there.
From foreign investors buying government IOUs? Yes, partly. But even there, it’s highly unlikely that nearly $3 trillion will be raised in the bond markets.
This means bond prices — and the dollar — are going to get crushed by the new supply of treasuries that are going to flood the markets.
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| The ever increasing supply of paper money and other factors are going to put major upside pressure on natural resource prices. |
And the ever increasing supply of paper money, along with the forces I mentioned above via the questions I asked and answered for you, are going to put huge upside pressure on tangible assets and natural resource prices, again.
But there’s one more aspect to the financial crisis, and to the ultimate fate of natural resources that I think you need to know and understand …
It’s the concept of a “crisis in confidence” that you’re hearing so much about in the media, and from other pundits.
What really is a “crisis in confidence?”
Is it simply nervousness about investments, or anxiety about the markets or the economy?
That’s what the media would like you to believe.
But it goes much deeper than just that.
From my studies of economic history, a “crisis in confidence” generally takes on two distinct stages …
Stage I of a Crisis In Confidence …
That’s when investors have diminishing confidence in the private institutions that service the public. We’re seeing that currently in the backlash against Wall Street.
When there’s a lack of confidence in Wall Street, investors abandon paper investments in droves. They sell stocks. They dump bonds. They move largely to cash and money markets.
That’s what’s happening now.
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Then Stage II of the crisis in confidence hits …
That’s when investors, indeed, the entire public sector, lose faith in the government — in the public institutions that serve the public.
Right now, the public is largely buying into the government’s bailout of the financial system. They’ve put their faith in the central bank and in Washington to fix the system.
But that’s temporary. When the public realizes what the government is doing to their money — devaluing it — to save the system, the crisis in confidence will hit the public institutions as well.
And that’s when the real, full-blown crisis sets in. When the public neither trusts the private nor the public sectors of the economy.
And in those situations, paper assets — especially stocks and bonds — get shunned big time.
In their place investors buy tangible assets like crazy, everything from gold to oil to food. Assets with intrinsic value.
That time is coming, and it’s closer than most think.
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| A crisis of confidence makes investors leery of stocks and bonds and eager to own tangible assets like gold, oil and food. |
And when that shift from paper assets to tangible assets goes full tilt, you will be amazed at how high — and how fast — commodity prices can skyrocket. That includes the companies that deal in them, even if the broad stock markets are falling.
As I said at the outset, we’re in a brave new and very scary world. But one that’s also full of profit potential.
So instead of seeing panic, keep your wits about you and look for opportunities. Because there are more opportunities cropping up now than I’ve seen in decades.
Look at one of my favorite sectors, for instance: The valuations of oil and gas shares. Consider the following …
— Devon Energy, with more than 2.37 billion barrels of oil on its balance sheet. Yet its share price has been beaten up so badly by panic selling, the company’s oil is now valued at a mere $12.50 a barrel!
Imagine that. Right now, by purchasing shares in Devon Energy, you would be effectively controlling oil at just $12.50 a barrel!
A bargain? You bet it is.
Or how about …
— Pioneer Natural Resources, one of my favorite oil and gas plays. Its oil is currently valued at less than $6 a barrel!
— Or Suncor Energy, with almost 15 billion barrels of oil, currently valued at less than $2.60 a barrel!
Cheap valuations? You bet they are.
Time to start buying? No, not yet. Why? Because we’re still in Phase I of the “crisis in confidence”, where investors sell just about everything that’s not tied down.
Wait for Stage II of the crisis in confidence, keeping fully in mind the longer term view of the natural resource markets, via the questions I posed above, and answered for you.
Do that, wait for my signals, and you could make more money in the next few years than you have in a lifetime.
Best wishes,
Larry
P.S. Don’t miss my next buy signals! If you’re not already a Real Wealth Report subscriber, join now. The $99 membership is peanuts compared to the huge profits available when the next stage of the “crisis in confidence” hits!
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
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