-- Posted Friday, 15 April 2011 | | Source: GoldSeek.com
The correction in February-March certainly took some heat out of the market, however as the fear subsided post Japan earthquake we are now seeing further signs of a “speculative bubble” forming.
For a number of those in the market it will be their own version of “The Million Dollar Drop (TMDD)” although with more tension throughout than a Williams’s sisters final or a Hopman Cup dead rubber. Some of the best educational tools for investors on fear/greed are the cheesy game shows we take for granted as something to pass the time before the six o’clock news. In the case of TMDD it is apparent that it is oh so easy come easy go and the contestants never really had the time to feel like an instant millionaire.
As the bundles of twenties are dropped into oblivion they become quite jovial and relaxed and it makes for good television as it becomes obvious why they were selected in the first place. They say that it is actually more exciting to book a holiday than to go on it, and I think the thought of becoming a millionaire would give a more tingling sensation than actually experiencing it. Hence why the “rehab” bubble has now spread to our soapie shores, and there is more “Charlie” around than the man himself.
In saying all that when the MS Mega Home Lottery comes around in Western Australia each year I now go massively long as the odds of winning a $1.6m house are 1 in 50,000 which is far more attractive than anything to do with lotto. Part of me hopes I don’t end up with an easy windfall as I am likely to go out and buy a car I would be too paranoid to park anywhere, and I would be tempted to build a cold, dark and lonely mansion where we don’t even sit on the balcony to admire the city views. Throw in hookers and blow and the path to destruction becomes clearer.
“If there is one take away from this article it would be to throw away the motoring or real estate section during any speculative bubble”
AUSTRALIAN SPECULATIVE MARKET
If you pay close attention to advertisements you would have picked up on the “Female Insurance and funeral plan” bubble we are now experiencing. For some parents it will be like those awkward sexual moments on Home & Away, and never before has such a delicate subject been thrust upon us and dressed up with all the tricks of the marketing world. Makes the sports betting bubble look well not like a bubble at all. We are all expert tippers until Monday in the AFL and Tuesday in the NRL. On the weekend past form would have told me that Essendon have the wood on The Saints, however there is no way I am going to put that bet on or buy another video game console ever.
Early days but I am now starting to see the number of advertisements for seminars on US property investments increase steadily. First movers and promoters could do very well here, and with the property market in Australia a Limp Bizkit I would expect momentum to increase with a chance of frenzy at some stage.
Australian gold stocks continue to underperform their West African counterparts. Catalyst now would be a major discovery along the lines of Tropicana, Salt Creek, or Garden Well. Companies with projects in other first world countries such as Canada are also struggling with market capitalisations that are an insult to management. When Independence Group (IGO) bid for Jabiru Metals (JML) I thought we would have seen further activity and perhaps even in the gold sector. I should remember that tops are often signalled by M&A on crazy multiples and why should this time be any different. Further observations on the Australian speculative market include,
Ø Uranium sector up off the canvas after being belted into next week. Buying a selection of the majors and Hotcopper favourites during the selling frenzy would have paid handsome returns, however they will struggle now until sentiment improves considerably. We could see some opportunistic M&A activity to keep things bubbling along.
Ø Potash again creating strong interest with juniors such as Fortis Mining (FMJ) demanding significant airtime on Your Money Your Call and going vertical at the same time. FOMO here so anyone touting potash or even considering looking at it will come in for some attention.
Ø Another mini-biotech bubble is forming with some very strong runs in the majors such as Mesoblast (MSB) and Acrux (ACR). There has been some frenetic daytrading activity in Antisense (ANP) and already the daytraders are suggesting the next one. The biotech sector has undergone more false starts than a Monday diet, yet this time like every other time appears to be a little different. The momentum generated thus far is enough to see it continue, however a major breakthrough would be the catalyst to propel the sector even further.
Ø From my conversations with a number of other fund managers it is apparent that there is a groundswell building with biotech IPO’s, although Peter Public are still miles away from becoming even remotely interested. This is where those with the knowledge and courage to get set early can make their 200% to 500% gains before the blow off phases in some stocks.
Ø The “Nexts” are now starting to finally come through. A gold junior I floated and stupidly at the time referred to it as the “next” Kingsgate (KCN) have finally delivered and another gold producer I was calling the “next” Dominion (DOM) is now breaking out of a tight trading range. This could turn into an Abbot and Costello routine here but will refrain. Some of these companies to graduate through the ranks could take 3-5 years yet speculators struggle to hold something for 5 minutes. The romance may have disappeared but the potential gains remain. (Yes I am a part-time Metallica fan)
The major lesson I have taken from the speculative market is that the fundamental reasons why you purchased a stock on most occasions come to the fore, it is only our expectations on timing that let us down.
Ø The silver sector worldwide is firing, yet in Australia we have as much choice as a lazy Saturday afternoon on commercial television. Silver is much different to uranium, potash, coffee shops, or juice bars in Australia as with any other sector we all would have been soaking in it. I set up my SMSF in 2003, and called it “The Silver Boom Super Fund”, and eight years later I am living the dream. No doubt some IPO’s are being hatched along with some project acquisitions in South America yet the supply/demand imbalance has some way to go yet.
Ø Coming out of the GFC we saw a number of capital raisings from major Australian companies such as Wesfarmers (WES), Rio Tinto (RIO) and the banks. Now many juniors are rightfully tapping the market with large equity raisings based on their ability to now sell the production “dream” to investors. Tops are often signalled by placements to those with larger egos than most Mums and Dads, however there are no signs of this just yet.
Ø Panel shows that were mainly for blue chip investments are now infiltrated with callers generating charts that look Viagra test results. The chatter is now very TAB like, minus the smelly carpet and stale tobacco stench from my early years as a punter. The losses now are far more private, yet the husband will continue to tell his wife that he always wins the mini-jackpot and a poker machine is a game of skill.
Suggested sectors and themes to watch
Ø I still remember the call made that the “Alternate energy bubble will be like the Nasdaq bubble on steroids” Obama had a massive impact on lithium, so be interesting to see the next issue he takes on board.
Ø Shale gas now a front cover issue on Time Magazine. Sure there are environmental concerns and there will be plenty of windows smashed and cars overturned in future, however the benefits cannot be ignored. The progress of Beach Energy (BPT) and their JV partner Adelaide Energy (ADE) are worth following in this regard. ADE’s share price has already tripled on the promising news to date, and the key with becoming a YouTube star or paper clip trader is to always be the first. My dreams of stupid lyrics and auto tune were recently shattered by Rebecca Black.
Ø Major discoveries always attract attention in any market. Exploration budgets are now back to normal and it will only take another DeGrussa, Hillside, or 800m drill intersection from a junior to flare another near-ology bubble. Experienced long-term speculators would be thinking back to the good old Gawler Craton days. Now the regions to watch include the Thomson Fold Belt, Cloncurry, Byrah Basin, and even a rich mining district such as Broken Hill is being rejuvenated.
Ø Although the sector is now at full blown “contrarian” status the geothermal sector has some influential supporters and some ASX listed companies are now forging ahead in Europe, China, and Indonesia. Although some mileage was gained at uranium’s expense, nuclear is far from a spent force and relying on the bad luck of others is no way to grow an industry.
Ø Volume scans making a comeback and some forum posters now gaining cult like status. Prior to the blow off it is very much appreciated, however as always it will be like Lance Armstrong in reverse when the bubble bursts. The Nasdaq fiasco was for more destructive in this regard, however we have seen repeats with the uranium bubble and GFC.
Tony Locantro
tony@locantro.com
Personal Disclosure: I have personal holdings in speculative shares in gold, silver, base metals and industrial sectors and may at times liquidate or increase these holdings as I see fit.
Disclaimer: The opinions contained in this article are purely my own and any prior to any investment decision you should contact a licensed financial adviser. Speculative shares are volatile, should be considered high risk and can result in significant financial losses.
About the Author: From November 1998 to November 2010 I was a client adviser for a major stockbroking/investment firm in Perth Australia. During this time I have written a numerous financial articles, educational papers and exams for the finance industry and in 2001 I wrote The Green Room, A guide to speculating on the Australian Stock Market (no longer available). I have now formed Locantro Asset Management, and am the author of the newsletter “Locantro’s Life”.
-- Posted Friday, 15 April 2011 | Digg This Article
| Source: GoldSeek.com
