The most extraordinary bull market ever
The Crash of 2008 interrupted a long commodity cycle that will carry junior resource stocks to a remarkable future, says this advisory.
The biggest bull market has yet to come.
The big explosion of 2008 got in the way, but it will come. And it will last for decades.
This may sound a bit like the introduction to a new science fiction epic. In fact, it is the scientific conclusion of Mr. John Kaiser, author of Bottom-Fish Action Report.
We are on the verge of “the most extraordinary junior resource bull market we have ever seen.”
It will not resemble the commodity bull market of 2003 to 2008. And retail investors who stayed away from that bull market will be eagerly lining up for this one.
Sounds good. And it looks good on paper. Studying his charts, the economic trends sweeping the globe, and the capital that is being freed up for resources, Mr. Kaiser makes his case.
A transplanted Canadian who observes the market from his home in California, he also talks about one rising commodity, rare earth metals, and updates us on his favourite stock in that field.
Dereliction of duty
The unwinding of the commodity boom of 2003-2008 is partly due to the fact that China got a little bit inscrutable for many analysts. Certainly, the rising power in the east was, and is, thirsty for raw materials.
But it has since become apparent, Mr. Kaiser says, “that the engine driving China’s growth was a credit bubble made possible through low interest rates, mortgage securitization, and an extraordinary dereliction of duty by the financial services sector.”
At the same time, a vast amount of the capital poured into commodities during the five-year boom went to advanced projects, not fresh exploration. Many of the projects were those “discovered, delineated and abandoned” during the Cold War years as un-economic.
Acquired by private capital during the commodity bear market of 1998 to 2002, they “were whistled into shell companies which tapped into institutional and sophisticated investor capital through the funding mechanism of private placements whose popularity soared when the 12 month holding period that applied during the eighties and nineties was reduced to four months.”
In short, money sniffed out known resources that promised a pretty quick turnaround.
Waking up the bull
One of the spurs to the new bull market is the freeing up of money.
“One of the themes I have harped upon is that the amount of capital tied up in restricted paper has been a dangerously high percentage of the value traded,” says Mr. Kaiser, “in effect a private placement ‘timebomb’ hanging over the market which prevented a pricing bubble from developing in the resource sector.”
Restricted paper consists of blocks of shares that cannot be sold for a specified period of time and thus put a crimp in the movement of capital.
The problem is shrinking. Mr. Kaiser displays a private placement chart for the Toronto Venture Exchange showing that “during the first quarter of 2009 both private placement and traded value have been in an uptrend and bear a remarkable similarity to the second half of 2003 when the commodity bull was waking up.”
A sea of Asian demand
While the private placement picture improves, both institutional investors and retail investors are coming back into the frame. Institutional money is coming back off the sidelines after many managers got out of the last boom too soon, or hung around too long.
More importantly, retail investors who sat out the 2003-2008 boom because they were “unaccustomed to the exploration discovery play narrative or the apocalyptic gold bug prophecies, and did not understand, trust nor want to believe this ‘Rise of Asia at the expense of the West’ narrative, has started to come back into the market,” is Mr. Kaiser’s rather thorough explanation.
This editor’s unfailing assertion has been that the world is undergoing a “civilization scale change” in the most populous part of the world, Asia. The west can no longer “leverage” its technical innovations to dominate the larger populations of the emerging nations of Asia.
Thus commodity prices that once surfed on western consumption and development can now remain buoyant on a sea of Asian demand.
Highest value footprint
If a junior resource bull market is about to break loose, one fast-running group of commodities will be rare earth metals. These minerals, with exotic names like lithium, tantalum, indium and gallium, have found a home in today’s technology, in superconductors and hybrid cars, for instance.
Avalon Rare Metals (TSX-AVL), has projects in Ontario, Nova Scotia and, most crucially, Thor Lake in the Northwest Territories. A month ago, Avalon announced a $17 million financing that was quickly snapped up.
“Of the North American rare earth projects with a suite of heavy rare earth elements, Thor Lake is the most advanced in the race to production and has the highest value footprint,” says the editor.
Mr. Kaiser’s original “bottom-fish” call at $0.19 was up over 1,375 per cent and his Speculative Value buy at $1.76 was up some 59 per cent. His recommendation to his subscribers: hold positions for a target of $5 to $10 in the next 12 months. The stock closed at $3.75 Friday.
If this analyst is right about a new bull market for juniors, some of the metals may be rare, but profits should be thick on the ground.
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