Calling NASA about mining stocks

On the best day, in the best markets, investing is difficult and stressful. But the current market environment is far from the best of anything. Even so there are a few things we can definitely say about this current cycle. Most notable is that this may well be the year of raw resources, commodities, and the mining and energy companies that find them.

As many of the stockbrokers I have worked with are wont to say,

“You don’t need to be a rocket scientist to figure this out.”

[Something I stopped saying after having said that to a rocket scientist who still disagreed with my analysis of a stock position.]

Energy is a critical issue in every world market right now. Whether it comes from oil, ethanol, coal, geothermal or any other source. Considering the constant demand in the U.S., the increasing demand in China and India, and the growing desire to have cleaner energy (for whatever reason) this is not a short-term issue. Yet oil and energy companies are under political attack. And thus there is an opportunity. If you know where to look.

There are far too many speculating in the commodities markets, particularly oil, right now. The rise in oil is attributed by many to be directly tied to that speculation. Given the current political environment and election I would not be surprised to see legislation enacted to raise the margin requirements in commodity trading up to 50%. Even if it is not raised (or to that level) the mere action of talks occurring in D.C. will hit that market hard. So I suggest another old broker ideal, look where the market isn’t hottest.

Coal. It’s one area that isn’t getting a lot of conversation on cable news channels at this time. It’s a fuel that is available, abundant in the U.S., and with current and future technology cleaner than ever before. It’s also easier to improve technology to make it even more clean, and last I checked no environmentalists were seeking to block its mining to save any owls.

Gold. When economies are shaky, or perceived to be, everyone wants their hands on at least some of this yellow metal. With Lehman Brothers reporting a $6 billion bailout similar to other financials earlier this year, the economy is in question still. While gold has retreated in recent months from its run at the start of the year its way off the lows. And it would take little to spark another run, like maybe a weak dollar. Sound familiar?

The other precious metals. If gold is good, platinum is sweet. And silver is their poor cousin.

Uranium. If we aren’t using oil, and coal hasn’t been looked at, the only immediate answer left is nuclear. Short term it solves many questions, and it’s very clean. As pressure builds for politicians to investigate all energy alternatives nuclear will hit the table again. Add just one or 2 new power plants and there will be a spike in this mined resource on expectation of a growth spurt in the industry not seen since the 70’s.

Now there are other reasons to be in mining stocks for the near, mid and long term. I don’t think most need more though. No one knows which of these mined materials will be the first to run. The political environment hinges on the person elected President. The economic forecast is in shadows currently.

But probability says at least one if not all of these will have their value increase. And the best hedge may be owning the mining stocks as opposed to the particular individual material. Yet another old saying is

“don’t mine the gold, sell the picks and axes”.

The turmoil in the stock market is hardly over. The price of oil may even out. At least till winter hits. But I will guarantee that talk about energy, and therefore mined materials will not end before the Presidential election at it’s soonest. Any rocket scientists want to speak up?