Commodity Stocks May Have Been Severely Oversold, Buy at, or Near the Bottom

Source: Mineweb  (10/14/08)

For commodities, there is little doubt that the euphoria of only a year or so ago with talk of a supercycle driven in particular by the huge growth in countries like China and India, has been well and truly replaced with a gloom and doom scenario as the Western World slowly but surely moves towards recession.


The market has moved beyond logic to serious panic as evidenced by not only the enormous declines in commodity stocks, but in stocks in general. Blue chips have fallen alongside those with less illustrious antecedents. Only gold seems to be bucking this trend and here price movements have been volatile - up $50 one moment, down $50 the next.

This is symptomatic of uncontrolled selling off of virtually any assets to meet liquidity needs, aided and abetted by computerised stop loss selling which in turn leads to a lowering of prices triggering further sales. Sometimes it seems world markets are descending into some kind of bottomless pit. Meanwhile bankers and the press, and some who should know better, have been talking the world into a global recession.

For commodities, there is little doubt that the euphoria of only a year or so ago with talk of a supercycle driven in particular by the huge growth in countries like China and India, has been well and truly replaced with a gloom and doom scenario as the Western World slowly but surely moves towards recession. This could easily become a depression on the scale of that of the U.S. depression of 1929, with drastic job losses and bankers leaping from high buildings as fortunes are lost, although nowadays the stigma of bankruptcy is probably no longer sufficiently demoralising to cause much in the way of mortal self destruction...

Key to watch will be whether China really is continuing to grow at just under 10 percent. If it is, then selected resource stocks have to be strong buys at current levels, with the current setback turning out to be effectively a huge correction in an ongoing bull commodities market. If Chinese growth falters severely, then we could still be in for a rough ride...