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The spectacular, early-spring run-up of commodity
stocks came to a sudden halt within the first two weeks of May. At this
time the growing crescendo of commodity speculation by investors and
traders was rampant. Traders became full of greedy bravado and investors
crept lower and lower down the food chain of investment-grade securities.
Now, this is not to imply that we believe that the
ebullient mines, minerals, oil and gas mega-rally is over for this
current cycle. On the contrary, we believe that the recent sell-off is a
healthy, necessary and long-anticipated breather to allow the excessive
investor speculation and greed to work itself off.
We believe that once commodity prices and their
common share cousins consolidate and flush out the inordinate recent
investment fear, we expect to see a recovery of prices and another
attempt at new highs. Of particular attraction to us is the
languishing, natural gas price and undervalued natural gas-related common shares. We
believe that these securities are unduly depressed and could exhibit an
extraordinary price recovery when the long-awaited summer air
conditioning season arrives.
Overall, we remain relatively optimistic with
respect to the North American economy. We expect creeping inflation to
be contained, rising interest rates to plateau and corporate profit
results to remain healthy. We continue to believe that common shares are
the last major asset class to participate in the mid-2000 decade asset
price run-up which includes gold, silver, base metals, real estate, art,
jewelry and collectibles. In effect, we believe that it is cheaper to
drill for oil on Bay or Wall Street versus actually drilling for oil in
the ground in Alberta, Texas, the North Sea or the Middle East.
Moreover, not only does this example cover oil and gas, and other
natural resources, but it also holds for basic industry, retailing, real
estate, etc.
In summary, it is our contention that selective
fundamentally-undervalued common shares offer excellent long-term
investment opportunities for the patient and discerning investor.
Thank you,
Irwin A. Michael, CFA |