The Resources Boom Happening Under Your Nose

I swear I’m trying.

I’m trying so hard to write about something that doesn’t lead back to bitcoin or cryptocurrencies.

As you can see, I’m struggling.

Not that there aren’t other opportunities out there to tell a story about.

There are…

Oil’s now above the key US$60 level. Economic indicator ‘doctor’ copper has gained a monumental 41% over the past 12 months. Amazon’s just launched in Australia. The All Ordinaries has broken the 6,000 mark…

Yes, there’s more going on in the investment world than just bitcoin and crypto.

And with this month’s crypto mania reaching new highs, perhaps the smart thing to do is to look to these overlooked sectors instead?

But in comparison to crypto, it all seems a bit dull.

To me at least.

I’ve even neglected my favourite field of small-cap stocks, to an extent.

I looked on as a watchlist stock of mine, MyFiziq [ASX:MYQ], went from 5c to over 70c in just under three months. And I still didn’t write about it or invest a penny on my own account.

Such is the pull of crypto.

It truly is a rabbit hole that’s hard to escape from…

But today I’ll try. Because today I want to talk about that other speculative sector.

Australia’s literal and figurative goldmine. The sector that was the original hot money sector, back in the early 2000s. Because it’s actually undergoing a silent boom right now.

Resources resurgence?

Check out the chart below:

ASX 200 Index $XJO | Material Index 07-12-2017

Source: Incredible Charts
[Click to enlarge]

The blue line shows the total ASX 200 market. That is the top 200 companies in Australia

The green lines show the materials index, which contains companies in the top 200 list with a focus on materials.

This includes resources heavyweight stocks like BHP Billiton [ASX:BHP] and rising star lithium miner Galaxy Resources [ASX:GXY] for example. But it also includes building materials companies like James Hardie Industries [ASX:JHX] and Adelaide Brighton [ASX:ABC].

Over the past two years this sector has been the best performing sector in the Australian economy.

Investors in this index would have made 65% in just 24 months.

I know that’s not crypto gains, but it’s still pretty good. Especially when you consider the market average is about 15%.

Four times better than average is pretty good in my book.

But here’s the thing. No one’s talking about it.

The economic news is still pretty gloomy. No one believes in the bull market yet. They are still waiting for a coming crash.

There will be one. But no one knows when. 

Memories of the GFC are still fresh, and commodities and resources companies are still mostly on the nose. And whether you are making money in booming property or booming crypto, there’s no great lure to get back into speculative miners.

But maybe that’s a signal to start looking here?

While everyone’s looking at the current hot sectors, the best opportunities usually lie the other way.

This could be the first two years of a new commodities uptrend. No one can ever can tell the early stages of a new boom.

That’s why there’s no press hype right now. Everyone still thinks resources are dead.

Now let me be clear. I’ve not got any data for you today to back up this contention. Aside from a vague notion I’m researching that says India could be the new China. An argument I’ll save for another day.

But it does make a bit of logical sense. At the conceptual level, at least.

Economies move in cycles. Dead sectors eventually boom. And boom industries eventually bust. There’s no getting away from that fact.

From hot frenzies of investment to cold graveyards of investor dreams.

It’s like the difference between going to an auction and being the only bidder, or being one of 20 bidders.

You’re more likely to get a bargain when no one else is there.

A strong buy indicator

In the bullish spirit of the times, let’s finish off by looking at some technical reasons which could confirm we are indeed entering a new resources bull market.

Check out this chart of BHP:

BHP Billiton Ltd 05-12-2017

Source: Incredible Charts
[Click to enlarge]

It has just broken a seven year downtrend from 2010. At the same time, it’s right at a key support/resistance price, indicated by the orange line.

In my analysis, if it can make a clean break of the $28 level and sustain it, we could be set for higher moves in 2018.

Or not. Charts don’t tell you what’s going to happen. But they do give you clues at important points.

Anyway, that’s my attempt at a non-crypto related article today.

It was tough, believe me. But I’m glad I did it. It’s reminded me that early stage, undiscovered opportunities are where the lucrative dollars are to be had.

That’s what bitcoin was when I first discovered it.

And I know there will be a time when cryptocurrencies are no longer an early stage play, but a late stage one.

But I’ll be clear, I don’t think we’re there yet.

It’s not the first act. It’s probably the second. But that leaves two or three acts to go…

So you can get set for more cryptocurrency articles coming soon. A lot more!

Ryan Dinse,
Editor, Money Morning

Ryan Dinse is an Editor at Money Morning.

He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur.

With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle.

Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.

Ryan's premium publications include:

Money Morning Australia