Thursday, September 15, 2011

Money Show, John Stephenson

He works for First Asset Investment Management Inc. The title of his talk is “Hot Commodities”.

He first talks about the Euro. The name itself was a compromise as they did not want to name it after any other currency. Next the pictures on the bills are bridges. But they did not put on any particular bridge, but a stylized version of European bridge types. The Europeans could not agree on any real European thing to put on the bills. He feels that we are facing a crisis and it will start in Europe. Europe is only growing marginally.

He feels that commodities have held up well. This applies to both the commodities themselves and the commodity producers. China is number one user of all commodities except oil and in this they are number 2. Commodities are difficult on the supply side. This will go on for a long time. There is just tons of demand.

It takes 10 years from discovery to production for a mine. The average copper mine costs $5B to start. Lots of mines cost $1B. Mining is very complicated work and as an investor you should be cautious.

He is cautious himself. First he has 50% in cash. He is playing it safe with dividend paying stock and he is staying with boring government regulated stocks like TransCanada (TSX-TRP) and Enbridge (TSX-ENB). He is staying away from Canadian Banks. They do have limited exposure to Greece but all banks are connected so we should be cautious. The good thing about corporate bonds is that if the company goes bankrupt, you will get something back. This does not happen for stocks.

He says that commodities go in 20 year cycles. The current cycle is being pushed by Asia because Asia is changing. He does not feel that gold is in a bubble. People are looking at it as currency. People do not trust paper currency. (He sees as a real problem that the Europeans could not agree on a currency name or any currency pictures.) However, he feels that the world will eventually stabilize.

He likes silver and feels it will go up. He recommends Silver Wheaton (TSX-SLW). Diamonds are one of the best performing commodities. They have real tangible value.

He likes oil. Most oil companies are owned by countries. We have the Canadian Oil Sands and our companies are cheap. Oil service companies will also do well. Oil companies that are owned by countries will partner with or call in an oil service company, but not another oil company.

He likes HudBay Minerals (TSX-HBM). They have copper and zinc. There is a demand for copper but not currently for zinc. This company has lots of cash and it is defensive. It should do well after we are past the European crisis.

He is bearish on gas at the moment. He thinks that the coal industry is great and specially coking coal. Canada and Australia has coking coal. US have lots of coal, but little coking coal. Agricultural companies will do well (corn, wheat soybean). US have 65% of the export corn and there is a problem with weather this year (too little rain). He thinks fertilizer companies are good. Farming is a very technical business and it will only continue to more and more technical.

Someone asked him about rare earths. He says it is a tiny market worth only about $2B worldwide, with 97% of rare earths coming from China. He says it is strategic, but not investable. You will probably not make any money from it.

He thinks copper mines are good. He also likes gold equities and feels that they will now grow faster than the price of gold. These companies are throwing off a lot of cash.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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