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"The market can remain irrational longer than you can remain solvent" - John Maynard Keynes
Tuesday, December 27, 2005
Thoughts for 2006
Pundits often post their thoughts for the coming year. I'm going to do the same but with a twist. I'm going to limit my comments to those that I actually have a position in.
1. NASDAQ tanks - inverted yield curve, bull market long in the tooth, crazy valuations, presidential cycle, fed tightening all portend an economic slow down which will almost certainly drag the NASDAQ down
2. Silver rises - silver demand has not been met by mine supply for decades, there is less silver in the ground than any other metal, silver is consumed by industrial processes, inflation. These have been the case for some time so I expect this to continue crawling in my direction
3. Oil doesn't drop - No big oil discoveries in decades, reserves have not been replaced by majors for a decade, Saudi Arabia has no more light oil, Alternative sources will come online but only at high prices. Canadian Oil Sands (COS.un COSWF) reaches a yield of 10% on today's price.
4. Lead (the metal) doesn't drop more than 10% - China, India, Brazil continue to grow at very high rates and consume lead products (cars, batteries), lead in deficit, decline of the dollar. Ivernia (IVW) does well in this environment.
5. Uranium doesn't drop - High oil prices, increasing energy demands, Uranium is the cheapest source of energy, Uranium in deficit. STM doubles and is probably bought out (I'd rather it wasn't!)
6. Coal doesn't drop as much as the experts expect - Coal is the second cheapest source of energy, coal is required to produce steel, over production of steel requires more coal (steel can drop and coal increases), supply constraints due to infrastructure, Australia is closest to China and India, developing technologies like hydrogen and coal gasification support coal demand. Felix resources up.
7. The drop in the NASDAQ scares the market and everything drops for a while and then commodity stocks revive without a revival in the NASDAQ.
8. US Rates peak for this cycle and fall from that peak, USD falls against Canadian dollar, USD falls against AUD.
I'm sure I’m going to be right in these calls just not sure that it will happen over the next 12 months. The only time based position I have is in my QQQQ puts which expire in Jan 07, I'll probably buy more expiring in Jan 08. There is a chance that the drop in US markets will create a gun shy environment for stocks and even though commodities will outperform, commodity stocks will not. That is the second most likely scenario.
Worst case scenario, NASDAQ rises, commodities fall signficantly, USD rises against all currencies. Quite unlikely.
Disclaimer and Disclosure
Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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