The Commodity Investor Q&A
With Matt Badiali
October 22, 2008
Q: Do you think OPEC will cut oil production? And if so, will that raise the oil price again? – H.J.
A: Yes, I think OPEC will try to cut production. However, I don't think OPEC countries have the willpower to make the cuts it would take to spike oil prices up again.
Several OPEC nations are facing a squeeze no matter what. Nigeria and Venezuela, which make up 14% of OPEC's production, are in a particularly bad spot. These countries grew incredibly fat and lax on high oil prices. And I suspect they didn't save that cash for a rainy day. I'd bet they spent it all, every centavo...
Venezuela donated oil and cash to all of its allies in South and Central America. In Nicaragua, President Daniel Ortega joined with Venezuelan President Hugo Chavez to build a series of power plants run on Venezuelan fuel oil. Those programs are going to pinch now.
So these countries have seen the price of their major export cut in half since July. Now OPEC's going to ask them to cut production.
Inevitably, OPEC countries will fall back on their tried and true method of raising funds: cheating on their quotas. That'll undercut the reduced production and keep oil prices low.
Q: Do you have a favorite commodity investment right now or are you running scared? – T.D.
A: I'm not focused on any one commodity. Instead, I'm looking for the survivors that will lead the way from here.
I've been thinking a lot about the Panic of 1873...
It started with a housing bubble, similar in cause and effect to the current one. The turning point was the failure of Philadelphia blue-chip bank Jay Cooke, similar to our Bear Stearns sale for $2 a share.
Once the bank fell, the credit market locked up and nobody was lending money. Companies failed by the thousands. Unemployment soared to 25% in New York City.
But some businesses flourished.
Companies that could finance themselves from their cash flows reaped huge rewards. John D. Rockefeller, who founded Standard Oil (the parent of nearly all the major U.S. oil companies), bought out his competition at fire-sale prices. Andrew Carnegie, who built U.S. Steel and became history's second-richest man behind Rockefeller, did the same thing.
These men converted their companies into empires. The years following the Panic of 1873 became the Gilded Age of Industry.
That's why I'm looking for the absolute best blue-chip companies in the commodities sectors. Those are the companies I want to own.
I'm not buying yet, but the world's best commodities businesses are getting so cheap, we'll see hundreds of percent returns over the next five years.
Good investing,
Matt
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Argentina Struggles with Debt
Argentine bonds plunged, sending benchmark dollar yields over 24 percent, and stocks sank to a four-year low on speculation the government will nationalize pension funds in a bid to attain financing and stave off a second default this decade.
President Cristina Fernandez de Kirchner... will nationalize the system, giving the government control of $29 billion in retirement accounts, La Nacion reported, citing government officials it didn't identify. Read on...
Copper "Worst Slide Since 1989"
Copper tumbled below $2 a pound for the first time since December 2005 on speculation that the world economy is headed for a recession that will reduce demand for metals.
China, the biggest contributor to global growth, expanded at the slowest pace in five years in the third quarter, a report showed yesterday. U.S. lawmakers and officials moved toward forging a second fiscal-stimulus package to stem the economic decline. Before today, copper dropped 30 percent this year as consumption slumped. Read on...
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Biotech rally resumes... Questcor Pharma, Emergent BioSolutions, and ImClone hit new highs. |
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Time for a European vacation... greenback hits a new high against the euro. |
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Gold stocks carve out bottom... Gold Fields, NovaGold, and New Gold hit new lows. |
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Earnings today... AT&T, ConocoPhillips, McDonald's, Merck, Boeing, Wachovia, GlaxoSmithKline. |
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Last |
Change |
52-Wk |
| S&P 500 |
907.84 |
-9.03% |
-40.99% |
| Oil (USO) |
60.73 |
-6.61% |
-9.33% |
| Gold (GLD) |
83.31 |
+1.35% |
+10.90% |
| Silver (SLV) |
10.27 |
-5.43% |
-23.92% |
| U.S. Dollar |
82.06 |
+0.02% |
+5.04% |
| Euro |
1.35 |
+0.36% |
-4.87% |
| VIX |
69.25 |
+25.61% |
+245.90% |
| HUI |
231.32 |
-10.40% |
-43.73% |
| 10-Year Yield |
4.01% |
-0.01 |
-0.56 |
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| Company |
Sym |
Industry |
Questcor Pharma |
QCOR |
biotech |
Emergent Bio |
EBS |
biotech |
Gehl |
GEHL |
farm machinery |
ImClone |
IMCL |
biotech |
Life Partners |
LPHI |
insurance |
|
| Company |
Sym |
Industry |
Texas Instruments |
TXN |
semiconductors |
Western Union |
WU |
cash transfers |
Logitech |
LOGI |
computer parts |
Lexmark |
LXK |
printers |
Gold Fields |
GFI |
gold |
ProLogis |
PLD |
industrial REIT |
Gentex |
GNTX |
auto parts |
Kimco Realty |
KIM |
REIT |
Millicom |
MICC |
foreign telecom |
Anixter |
AXE |
electronics |
Dillard's |
DDS |
dept store |
BlackRock |
BLK |
asset mgmt |
Telecom Argentina |
TEO |
telecom |
Dana Holding |
DAN |
auto parts |
Carlisle |
CSL |
materials |
Titan Intl |
TWI |
tractor parts |
Celestica |
CLS |
electronics |
Redwood Trust |
RWT |
mortgage REIT |
Winnebago |
WGO |
RVs |
CS Euro |
FXE |
ETF |
Tenneco |
TEN |
auto parts |
NovaGold |
NG |
gold |
Polaris |
PII |
ATVs |
Edenor |
EDN |
utilities |
Dolan Media |
DM |
publishing |
Banco Macro |
BMA |
bank |
Intermec |
IN |
computer parts |
Charlotte Russe |
CHIC |
clothing |
TeleTech |
TTEC |
outsourcing |
New Gold |
NGD |
gold & silver |
Sappi |
SPP |
paper products |
Asbury Auto |
ABG |
auto dealer |
4 Kids |
KDE |
media |
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