The Higher They Climb...

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While the bulls and the bears may now be around equally split on whether commodities and metals would in due course continue in a supercycle uptrend, in place since late in 2001, there is no question that resources stocks overshot on the way up, given the retrenchments that can now be simply and empirically measured.

Within just a few months, the world's eight dominant mining stocks have surrendered a total of $292bn in market value, as investors retreated on the classic market story of "always undershooting, and then always overshooting"...

Recent credit market processes, as the Bank Credit Analyst has argued, were the drivers that sent commodities and metals surging as investors "aggressively discounted the magnitude of liquidity creation that will ultimately be needed". Just last week, when the Federal Reserve made yet another interest rate cut, but lesser-than-expected in point terms, investors panicked, leaving commodities, metals and resources stocks bloodied for the second day in a shortened week.

While the bulls and the bears may now be around equally split on whether commodities and metals would in due course continue in a supercycle uptrend, in place since late in 2001, there is no question that resources stocks overshot on the way up, given the retrenchments that can now be simply and empirically measured.

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