Watching Europe spiral into chaos this year has been painful.
The cat and mouse game of rumours and headlines has created a volatile market that’s been great for traders. But if you’re trying to invest with a time frame of longer than five minutes, it has been a frustrating year.
Few more so than for small-cap resources stocks.
Why? Well, smaller companies are risky and sell off faster during market falls. Also, mining stocks have suffered worse than most on the back of falling commodity prices.
The index that best represents the type of resources stocks you’ll find in Diggers & Drillers is the S&P Emerging Companies Index (XEC). The ASX200 (in blue) has fallen around 12% since the market peaked in April. Compare that to the XEC index (in red), which is now down 25% – or double the fall of the ASX200 blue chips in the same time.
But, believe it or not, this could present you with an opportunity… Because at this level, these resources stocks are now cheap.
You could argue that the US, which is far and away the world’s biggest economy, is showing signs of life. By this I mean the economic data out of the US is starting to point in the right direction. There is also growing talk of more quantitative easing (read money printing) from the US Federal Reserve to gee things along. Obama has to do something to stand a chance of re-election, right? And China is also pulling a few stops out to get banks lending a bit more, which may see economic activity start to accelerate again.
And who knows… Maybe the Europeans will be able to conjure some sort of solution out of thin air… Even if they just manage to kick their debt troubles down the road for six more months.
The fact is no one knows what will happen next in the market.
You will always find people that can convincingly argue it’s about to crash, and just as many who can make a good case for it to rally.
The current market seems to more to do with government intervention than fundamentals.
And I’m convinced as the wider market becomes more aware of this, investors will turn to commodities that have real value. Tangible assets that are in short supply and huge demand. Assets that can’t be manipulated or interfered with by the government.
My focus remains on finding quality investments in the areas of the market that will still ‘work’ no matter which way the ship turns… like precious metals. This year, gold stocks have been some of the best performers in the portfolio, and have kept us ahead of the market.
And as the storm continues, I plan to keep the recommendations coming. If you’d like to read more about which resources stocks and sectors I think could give you the biggest gains in 2012, please click here…
Dr. Alex Cowie
Editor, Diggers & Drillers
[Ed Note: My old pal, Diggers & Drillers editor Dr. Alex Cowie has just released a special report and presentation. He outlines his best ideas for helping investors make the most from rising gold and silver prices... including a silver stock that could make you $4,935 for every $1,500 invested, click here for details...]
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From the Archives…
How to Turn Paper Money into Silver and Gold
2011-12-09 – Kris Sayce
Will Silver Break Through $50 an Ounce in 2012
2011-12-08 – Dr. Alex Cowie
Investing in the Market for Survival and Prosperity
2011-12-07 – Aaron Tyrrell
China, the U.S. and the Scramble for Commodities
2011-12-06 – Dr. Alex Cowie
Santa Claus: A Market Rally Not Worth the Risk
2011-12-05 – Kris Sayce
For editorial enquiries and feedback, email moneymorning@moneymorning.com.au
