I could write volumes about the reasons for this, but simple explanations are always best: a new position at a global financial institution, followed by several high intensity 60-hour workweeks. For the moment, life is back to normal.
So, what has changed since the last post?
For one, the subject of the last post - the lawsuits expected against Baja Mining - have now begun.
On July 27th, a large shareholder initiated a class action lawsuit for over $250 million, claiming "misrepresentation" by Baja. Although the shares are now sure to be worth almost nothing (creating a loss for me) I am nevertheless satisfied by this development. As a speculative buy, I own just enough BAJ shares to be annoyed at their drop in value, but not enough to affect me in any material way whatsoever. In this case, justice is more interesting than profits.
In anticipation of the inevitable slowdown of the Chinese economy (something The Frost Report has been writing about since early 2011), the XME Metals and Mining Index has dropped more than 50%, exactly as expected. Interestingly, established mining companies were hit just as much as companies that own nothing more than a piece of land. And, those that produce gold were hit just as much as those that produce iron. One of these days I will remember that when a sector drops, even the best companies drop right along with it.
With many commodity-producing companies running at P/E Ratios of around 2.0, opportunities certainly abound. Long-term investors would be wise to consider making regular purchases of commodity index funds, such as XME. I say "regular purchases" because December of this year may mark the low point. In December, many investors will be doing year-end tax loss selling of the most battered stocks.
The global housing market slowdown (also something that The Frost Report has been anticipating since 2011) is now well underway.
In Israel prices have notably softened and they are preparing for a hard landing (i.e. a drop that they will not be able to control). In Canada, regional bank branches that were doing 6-10 mortgages a week in the spring of 2011 are now lucky if they do 2. And in China, home prices are officially stable and robust, signifying that the government is lying its pants off.
And finally, the thing that hasn't changed at all since the last post...
Retail Investors remain deathly afraid of stocks.
A Financial Planner a few days ago mentioned that in 2006 their company's best-selling mutual fund was composed of 80% stocks. Now, their best-selling mutual fund is composed of 80% bonds.
It seems that stocks are still, and for some time will continue to be, shunned by regular investors as a dangerous game. And so it is, if you don't know what you are doing.
If you are a long-term investor with a eye for value, the 2008-2012 (+) period will likely be the single greatest stock purchasing opportunity of your lifetime.
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"The day I went to work in 1932, steel mills were running at eight percent of capacity. I remember days when the trading was so slow people played ball on the floor of the exchange."
David Babson, as told to Adam Smith in Supermoney
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