“We’re seeing either a major bottom in commodity prices… or the end of the world,” Robert Friedland, executive chairman of Ivanhoe Mines Ltd., declared Tuesday to the attendees of the Sprott-Stansberry Natural Resource Symposium.
“But I don’t think it’s the end of the world,” Mr. Friedland continued. “The U.S. economy continues to recover bit by bit; the European economies are finally starting to improve… and the Chinese economy is much stronger than the financial media would have you believe. So I think we’re getting close to a major low in commodity prices.”
“But,” Mr. Friedland was quick to add, “you can’t just buy any commodity… The commodities I’m buying with my own money are copper, palladium, platinum and zinc.”
Mr. Friedland’s cautiously optimistic outlook seemed to resonate with the standing-room-only crowd here in Vancouver. But at the same time, conditions in the commodity sector have been so grim for so long that most natural resource investors have become accustomed to misery. And they can’t bring themselves to believe that the misery might end soon. Instead they couch their few remaining shreds of optimism in terms like “eventually” and “over the next few years.”
No one wants to try “catching a falling knife” in the resource sector. After all, anyone who has tried to catch “cheap” resource stocks during the last few months has lost a few fingers… if not wrists, arms and shoulders as well.
Even Robert Friedland admitted to as much. “I thought my stock [Ivanhoe Mines] was cheap at higher levels. So I bought stock at $2. I bought more at $1.50.” Yesterday, the stock closed at $0.51.
The flip side of this painful sell-off in resource stocks is that the lower they fall, the greater the likely magnitude of the ensuing bull market that may occur… eventually… over the next few years.
Steve Sjuggerud, editor of True Wealth, quantified the potential reward very poignantly during his presentation. “If a stock falls 95%, then jumps 100%, where would it be?” he asked the attendees. When no one blurted out the answer immediately, Steve answered the question himself: “A stock that falls 95% and then jumps 100% would still be down 90% from where it started.
“Lots of resource stocks have fallen 95%,” Steve continued. “So even if they were to double from here, they would still be down 90% from where they started. They could triple and they would still be down 85%! So there’s a lot of room for beaten-up resource stocks to run.”
Cheers,
Eric J. Fry
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