Waiting for The Sun


Today the tsunami of deleveraging is washing up on European shores. The eruption started in the United States but there are fault lines all across the globe that are reacting to the initial shock. Our odds for financial survival are looking pretty good now, following the dark days of 2008 and 2009. That the destructive wave is just now hitting Europe gives us some valuable information. It lets us know how fast this thing is moving. This is a wave in slow motion that has yet to hit China and the developing world but it will.

Some countries will fare better than others during the leveling of worldwide debt-to-equity but they will not be immune to collateral damage. Canada has strict banking rules that have served it well through the storm and Russia hoarded cash during the oil boom. I like growth in these countries in natural resources. Their domestic economic engines are not flooded with debt and soon demand from the re-started US market will keep them growing. Russia is riskier because of their tenuous grip on the idea of democracy but the rewards could be greater. Canada may be the safest place to invest in the world. Risk adverse investors can also look to Switzerland, though I don’t understand their country’s opaque business practices.

Miners have continued to be unloved despite the uneven but consistently rising demand for metals. This will change. Canadian miners will see increasing profit margins that should be reflected in modest stock price appreciation next year. After the leverage wave does its damage, Europe will survive and then China will experience the same crisis and then resolution. I am sorry to say we are looking at another five years before seas are calm and world demand has its next opportunity to really pick up speed. I’m willing to wait for Canadian metals miners to have their day in the sun. You may want to bet on Russian miners if you can stomach the uncertainty.

Most money managers are picking US equities with quality dividends for the next couple years. That’s a good strategy for preserving capital and getting paid something but there will not be a big payoff when the world recovers. You know your tolerance for risk and need for reward.

Even in a bummer world market, some stocks of breakout companies will do well. The trouble is by the time you have heard of them, it’s too late. These breakout small companies will not look good on paper now nor will they be followed by legions of analysts. I’ve read the small articles and make lots of small bets. One winner pays overwhelmingly for ten losers. Why would I make a long term bet on Australia’s tiny Clean Seas Tuna? Check it out, ASX:CSS. The whole world has gone sushi crazy and the resource has become extremely expensive, limited and in some cases radioactive. Clean Seas has got a shot at growing exponentially. It could also turn to fish food. I have lots of these little finds in the Fall 2011 “Financial Futurist” on Kindle.

One more thing. As long as the world economic engines are wet, inflation will be in check. When growth in the US hits 4% and unemployment falls to 7%, look out. This is another reason to dig Canadian miners, especially those with proven gold and rare earth finds. The other sure thing inflation will do is finally stimulate the housing market. Buying a house is the best way for most Americans to protect against rising housing costs. Speculation in housing was an anomaly caused by flawed government policy ideas and greed. It will not happen again in our lifetimes. Traditionally, the family house was a refuge for economic safety. It will be again.

When most of the pundits on CNBC are talking about what to trade in the next hour, it’s time to remember that what they do is gambling. Investing is measured in years. I am predicting the next major move up is about 4 to 5 years off. I know, sorry, that’s a major buzz kill.