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Acero-Martin - New Commodity Cycle
September 29th, 2008
Vancouver, BC
Dear Shareholders and Investors,
Below is a current article by Lawrence Roulston that provides a strong case that the next commodity buying cycle is on its way.
The buying opportunities in the resource sector are currently at levels not seen since 2003.
Acero-Martin Exploration (www.acero-martin.com) has recently completed a non-brokered private placement raising $1.6 million and is currently awaiting the assay results from our 2008 drilling program at our 100% owned Pinaya Gold-Copper Project.
Best Regards,
Ryan Fletcher
Acero-Martin Exploration Inc.
(604) 999-5603 Phone
(800) 884-5269 Toll Free
(604) 646-0640 Fax
Email: ryan@acero-martin.com
www.acero-martin.com
Riding Out the Storm
By Lawrence Roulston - Editor of Resource Opportunities
Investments are down across the board and around the world, but the worst damage was inflicted on commodities
The demise of two more of Wall Street's most venerable firms highlights the fragile nature of the U.S. financial system and further intensifies investor insecurity. Comments from Henry Paulsen, U.S. Treasury Secretary, link the latest troubles to the on-going problems in the housing market.
The takeover of Merrill Lynch by Bank of America provides value for shareholders of Merrill and makes sense from a business perspective. The combination will seemingly create a stronger firm in the long term.
Shareholders of Lehman Brothers were not as fortunate, as the firm was forced into bankruptcy. After intensive efforts to find a buyer, no company could be found to take on their massive liabilities. The fact that no buyer was willing to take over a firm that was once respected as a top investment bank leads investors to wonder how bad the situation in the financial markets really is.
The intense volatility and uncertainty over the past year has led many investors to simply run for cover. Investments are being dumped on the market with no thought as to the underlying value. Speculators have fled the commodities markets, pushing most of the prices sharply lower from their recent highs.
It is not a complete surprise that commodity prices corrected. Oil had soared to a level that even the most bullish forecasters could not have imagined. Wheat, rice, fertilizers and virtually every other commodity had spiked in value.
That speculators were hard at work was evident. Even stodgy pension funds were playing the commodities markets. Investors were putting money into oil, potash, soybeans, platinum and other materials that they knew little about.
For many commodity investors, it was beyond hoping for further rises in prices. Fears of a collapse of the American financial system and further deterioration in the value of the dollar led a large number of investors into the commodities markets as a place to park some wealth until the dust settled.
Since August 2007, when the extent of the idiocy in the banking industry became evident, a favorite play among hedge funds was to short the American financials and go long on commodities. Hard assets, especially commodities with their world-wide appeal, were seen as a safe place to have your money as the financial sector was sinking and taking down the dollar.
The shorts in the financial sector were putting intense downward pressure on the banks at a time when they desperately needed to raise new equity to offset the massive losses from their over-indulgence in the mortgage market. The American financial sector was literally on the verge of collapse.
The enormous influx of capital into commodities propelled some of the prices well beyond levels that could be supported by even the strongest fundamentals. The soaring oil and food prices were becoming a political hot potato in an election year.
The griping from voters about gasoline prices was bad enough. A far greater concern to government officials was the growing sense throughout the economy that inflation was inevitable. The policymakers are keenly aware that the most significant contributor to inflation is the belief that there will be inflation. As rising fuel and food prices were working their way through to consumers, the expectation of ever higher prices was taking hold on Wall Street and on Main Street. Clearly, the notion of rising prices had to be doused before there was a widespread move into inflation mode.
Donald Coxe, chairman and chief strategist of Harris Investment Management in Chicago, is one of the most respected investment authorities in North America. His September Basic Points provides a well-written and insightful account of the steps taken by the U.S. government to head off disaster.
The Treasury Secretary and the Chairman of the Federal Reserve were facing the biggest potential crisis since 1929. They had to move fast to avert a catastrophe. They knew that hedge funds and other speculators held large and highly leveraged commodity contract positions. They were also aware that there were large short positions against the banks and other financial firms such as Fannie Mae and Freddie Mac.
Strong and decisive action was taken on Sunday, July 13 when the government expressed their intent to prop up the financial sector and to put a halt to soaring commodity prices. Their announcement was timed to hit the open of the Asian markets.
The promise of strong government support for the financial sector made it clear to Asian traders that the long commodity/short banks trade had run its course. Investors moved quickly to unwind their positions. In the thinly traded Asian markets, the prices of the banks moved sharply higher. Commodities headed in the opposite direction.
When the markets opened in Europe, the momentum continued to build. By the time traders got to work in New York on Monday morning, it had evolved to a classic short-covering rally for the banks. Traders scrambled to lock in whatever profit remained in their trades... or to cut their losses.
The Securities and Exchange Commission joined that concerted government effort to right the wrongs of the market place. Their first move was to impose new rules that restricted short selling of American financial firms. They supported the other side of the government mandate by announcing that they were planning to impose restrictions that would limit pension funds and other institutions from participation in the commodities markets.
Fund managers didn't stop to think about the legal or practical implications of the government telling investors what they could or could not invest in. With commodity prices already in a free fall, they couldn't get sell fast enough.
Perceptions among some American investors that the slowing US economy would plunge the rest of the world into recession contributed to further downward pressure on the commodities markets.
As always, the pendulum swings too far to either side. From a position of overbought, commodity prices moved decidedly into oversold territory.
Now that the speculators have been largely flushed out of the system, what's next for commodities? Donald Coxe, in his latest Basic Points, notes: "the next phase of history's greatest commodity boom will have some new characteristics that should make commodity stocks even greater out-performers once the world emerges from the current economic downturn."
Coxe, who has been in the forefront of commodities investment since the beginning of the bull market stated: "We are leaving our Recommended Asset Mix Unchanged---as are the long term fundamentals of commodity investing." (his highlight)
He further comments: "We have no clear idea how long it will be before we can look back to today's prices for commodity stocks and say, "Wow! I wish I'd loaded up then!" We remain certain that day is coming." (his highlight)
He added: "When the financials do roll over, gold and gold mining stocks should move swiftly back into favor. Inflation remains above central bank target levels in the US---and in many other countries across the world. And any return to pronounced weakness among the bank stocks will be strongly bullish for gold."
Frank Holmes, CEO and Chief Investment Officer of the hugely successful U.S. Global Investors, which has consistently scored among the top performing mutual funds, said the following on Sept 10, 2008 in response to our query as to his current outlook for commodities: "Global infrastructure spending is the key demand driver for commodities. With Morgan Stanley estimating over $20 trillion to be spent over the next 10 years and commodity supplies constrained, the long-term fundamentals for the commodities sector stocks look healthy. These stocks are trading at very low price-to-earnings ratios and at large discounts to cash flow."
At Resource Opportunities, we monitor a great many publications, covering a range of outlooks. The following are some of the other opinions from experts in this area, all people with long and successful track records.
David Morgan, who writes the The Morgan Report , a highly acclaimed publication that which is available at www.Silver-Investor.com, has said: "Coming back to the precious metals, it is difficult to gather enthusiasm when each passing day seems to bring lower prices, but this is exactly the type of sentiment that signifies bottoms."
Al Korelin, whose popular radio program The Korelin Economics Report is broadcast nationally in the U.S. and available online at http://www.kereport.com, noted on September 5, 2008: "Most of the current activity in this market is propelled by short-term investors who have a real need for liquidity. They are experiencing an increase in their cost of living, they are unable to generate cash from their homes, some of them are losing their jobs and, as a group, they are selling whatever stocks they can regardless of their respective prices."
Scott Hunter, a broker at Haywood Securities, who has worked in this industry his entire career commented: "We are seeing frustration selling into a market with no bids. Patient investors will be well rewarded if they take advantage of this weakness in the market. They should have a short list of good companies with underlying value and wait for the right price." Scott warns of the potential for further weakness from tax-loss selling, but also notes that a lot of the tax-loss selling that would normally occur closer to year-end has already taken place.
In a recent interview, Doug Casey, editor of the widely read Casey Report, said: "I think it is very much like what happened from 1974-1976 during the last great bull market when these stocks melted down 50, 60, 70%, but that was just a prelude to the explosion that happened from '76 to 80 when they subsequently went 10, 20, 30 times in price. I think that's what is going to happen now." In Casey's September newsletter, he went on to say, "If your cash for speculative investments is not fully committed, back up the truck for the spectacular deals available right now. Don't worry about whether or not the market has bottomed (though we suspect it has).There are some screaming Best Buys out there."
Jim Dines, of the well-known Dines Letter, has said: "How low will these stocks go? Until all those who are frightened complete their selling and are afraid to repurchase."
Eric and David Coffin, authors of the acclaimed Hard Rock Analyst publication , at the end of August said: "The big issue now is that assets are not being valued by the markets... we suspect the 'sudden oversupply' of metal people are worried about, especially on the base metal side, will disappear quicker than the pessimists expect... Right now the market focus is on cash flow and near cash flow companies, and even these are weakly priced to potential. ... this is not the time to be selling in frustration and fear. Fall is, on average, the best season for resource stocks. Fall is near so we will wait this out and try to be ready to be able to bargain hunt with confidence at a bottom that we hope will not be long in arriving."
Jay Taylor, publisher of the highly regarded Gold, Energy & Tech Stocks newsletter said on September 4, 2008: "It is when others don't want to buy that you can make the most money by stepping into a market... Right now, I think we have some fantastic opportunities to buy stocks that are selling below their cash value and also have ounces of gold in the ground."
Mary Anne and Pamela Aden, two influential and highly regarded investment analysts, said in late August in their publication The Aden Forecast: "Even though there have been some wild swings, the major trend is still up and as long as that's the case, we recommend holding your positions... Gold is extremely oversold. This means it's fallen too far, too fast and it's poised to rise in the weeks and months ahead. The same is true of silver, and gold and silver shares... Even though it's still early, we're starting to see some signs that the worst is probably over, or nearly over. For example, gold, silver, oil, the base metals, and some of the soft commodities and currencies are either stabilizing or beginning to bottom at extreme lows. The same is true of some of the gold and silver shares, natural resource and energy stocks. They are all bottoming at extremely oversold levels."
The popular media is still extremely negative. That is to be expected, as their focus is backward looking, reporting on what has been. And, in case you haven't noticed, there is a strong bias in the popular media to report on disasters, pending disasters and disasters that might be there if we look hard enough. Things always look bleakest at the bottom of the market.
Those who evaluate the past and present and use that knowledge as a basis to look into the future see that there will be a return to normalcy. The fundamentals have not changed in spite of government actions to rein in the over-exuberance that was beginning to show up in some of the commodities markets. In the longer term, the efforts to prop up the financial sector will contribute further weakness to the dollar and that will translate into gains for gold and other hard assets.
Commodity prices, measured in dollar terms, will naturally rise as the dollar shrinks. Furthermore, renewed downward pressure on the dollar will lead some investors back to gold and other hard assets to protect them from the falling dollar.
Looking quickly at fundamentals for the metals: Debate still continues about whether the U.S. is or is not in a recession. Whichever side of that line the economy eventually falls on, the net result is that the country will use roughly the same amount of metals this year as was used last year.
Headlines scream out that growth in China has slowed. Reading beyond the deadlines: Growth in China in the latest quarter slowed to 10.1%, down from a level of 11.4%. That pace of expansion, and growth in many other parts of the world will see demand for metals continue to grow.
Supply disruptions continue to plague the mining industry, highlighting the tight supply/demand balance for many of the metals.
The August 23, 2008 issue of the venerable Economist magazine explains that future metal supplies will likely decline. "Kona Haque of Macquarie Bank points out that copper mines have produced 1m tonnes or so less than planned in each of the past three years (over 5% of global output), and are likely to do so again this year." The article goes on to note that, for mines in general: "the quality of the ore is falling as the richest seams are exhausted" and noting that shortages of people and key components are creating bottlenecks. "Such bottlenecks have been hampering the opening of new mines and the expansion of existing ones."
When you add it all up, demand for metals continues to grow, supply is constrained and mines are being depleted. Nothing has changed the basic premise that new metal deposits are needed by the mining industry.
With share prices of the exploration and development companies having been beaten down to absurdly low levels, we can look forward to a flurry of take-over bids as the larger companies take advantage of the low prices to secure quality metal deposits.
Clearly, it will take some time for investors to get over the shock of the past few weeks. Many individual investors will never come back to the equities markets. Some of the institutional investors who were hurt will steer clear of commodities. Yet, there are many others -- both individual and institutional -- who will have the wisdom to understand the fundamentals and see the profit potential in this sector -- especially from the current oversold positions.
Over the coming weeks, as a market bottom becomes apparent, bargain hunters will turn more aggressive. Once upward momentum has been established, other investors will come back into the market.
For further information, contact us at
1 877 646 0067
Email: info@acero-martin.com or visit our website http://www.acero-martin.com |