Calgary Resource Show: The Good, The Bad and the Ugly

This weekend, I spent some time at the Calgary Resource Show. My goal was to get a sense of what people were thinking in terms of where the investment world was heading while at the same time learn about a few small cap companies that might have some potential for big returns down the road.

This post will focus on the Macro-Economic ideas that were presented by speakers at the conference. I will follow up with a post latter on in the week focusing more on particular companies we should be watching this year.

The first speaker I attended was Dr. Michael Berry who was speaking about "The New Currency Regime". He began by stating that Gold and Silver are now being traded as currencies. As indicated by the chart below, the US dollar has been in a 10 year bear market and has lost much of its purchasing power.




This drop has ignited the price of commodities which have all hit new highs in the last couple of years. Dr. Berry went as far as saying that copper is now being held as money by countries like China. He believes that there will continue to be a wave of takeovers in the base metal area and favors projects that are in good locations (Peru, Argentina, Chile and West Africa) and have access to gold as well.

The second speaker I attended was John Lee from Mau Capital. He has spent lots of time working in Asia and truly believes that they have the capital to continue to fuel commodity prices for years to come. Investing in commodities is part of a hedge strategy that they are employing to protect themselves from a continual devaluation of the US Dollar and US Treasury Bills (which they are the biggest holder of). On the investment front, he is really bullish on Moly which is a base metal used to strengthen metals in pipelines, nuclear reactors, etc. His favorite company in this sector was Roca Mines (ROK-V). He also is thinking that this is a good time to start looking at Natural Gas. He thinks that the market is putting too much faith in shale gas plays and that they are now finding that production out of these areas is less and offer shorter reserve lives than traditional gas production. He mentioned Anderson Energy (AXL-V) and Prophecy Resources (PCY-V) as two of his favorite small caps in this space.

On Sunday, I attended a presentation by Danielle Park who is the best selling author of the book, Juggling Dynamite. She started her presentation by asking the audience how many people were bullish on the American Economy. Only a few hands went up but everyone admitted to being bullish on the Canadian economy. Her contention was that export economies like Canada, Australia and China suffer the most when the US Economy is struggling. She then went on to discuss interest rates and how low interest rates have created an abuse of debt by individuals, companies and even countries. Currently, we have a 398 percent debt to GDP ratio in the US which will create a big drag on the economy. Banks are keeping the money that they received from TARP to protect against default on their obligations and are not using it to stimulate small business. She believes that we have excess capacity around the world. This includes having too many houses, too many cars and other products. You can see from the Baltic Dry Index chart below that world shipping rates have recovered from their lows but have a long way to go to reach their highs. She sees this as one of the biggest indicators of an "economic" recovery.




Overall, she believes that we are once again caught in a speculation thesis not an investment thesis in the last year of our stock market rally. This has been fueled by the US Dollar Carry trade and overall US dollar weakness. With the US dollar starting to strengthen again, there is a high probability that the market will correct. She ended by stating that Canadians will not be left unimpacted by this coming correction. Canadian Real Estate is some of the most expensive in the world and we have followed our american cousins by taking on too much debt. Currently, the average canadian has a debt to income ratio of 145 percent. We owe way more than we make which does not leave us in a good position if the economy turns. Overall, Danielle's main point was that we need to be realists as investors and not try to think that we are immune to what is happening in the world. She sees modest growth for Canada down the road but nothing like we have had recently.




I also got a chance to listen to Mark Leibovit who is a stock market timer...and a very good one at that. He credits alot of his success to the book Stock Market Almanac written by Yale Hirsh. His strategy for timing the market is called "Volume Reversal Analysis" which essentially looks at changes in volume in the stock market and how this can be a leading indicator for what might be occurring. He also likes to look at what the media is saying and invest contrarian to their opinion. From his analysis...he sees a correction or change in direction coming in the market in late spring...early summer. This recent video provides insight on his current thoughts on the market.



As per usual, there was lots of enthusiasm at the conference for the small cap sector. It was mentioned many times that the venture exchange outperformed all markets in 2009. This is the good of the story and the fact that there are some very good juniors out there that are creating value for shareholders. The bad is the fact that we have been in a huge bear market rally fueled more by speculation and cheap credit than by a recovering economy. The Ugly is the fact that as Canadians we still haven't bought into the new Economic Reality that we are faced with and could get burnt like our American cousins unless we change our thinking. I will be adding another post shortly with a few of my specific picks from the conference.