What’s going on? We are in the midst of a short- to medium-term correction in the trends for energy and resources. Keep this in mind: This is a CORRECTION, not a fundamental change in the long-term correlation of things.
The long-term trends are still upward, in terms of value and pricing. But for now, the money is leaving energy and resources for pastures that look greener.
What pastures are greener? Well -- speaking of green -- the U.S. dollar is strengthening. It turns out that the euro is not the powerhouse currency that a lot of people believed it was. So the dollar has been strengthening against the euro for the past couple of weeks.
The Euro Can Go Down
And it turns out that euroland has its own economic problems. In fact, the euro can go down against the dollar, as well as up. That’s exactly what has happened. Euro down, dollar up. So in consequence, we are seeing the dollar going up, and oil and gold going down.
There is more to the equation. The economists are describing a recession occurring in parts of the euroland economic space. Germany -- with Europe’s largest economy -- has been hard hit, so there’s been quite a bit of drag on the euroland economy.
And then there are indications that the long-awaited U.S. recession is finally just around the corner. Really, we are just in the middle innings of the banking meltdown and housing crash in the U.S. The recent stock market turnaround may just be the seventh- inning stretch. I expect to see more large banks and investment houses either fail or get bailed out before the end of 2008.
So with two of the world’s largest economies about to enter the doldrums, world markets are seeing demand for energy and commodities slacken.
The mining stocks are down. The oils and service companies are down. It’s painful to watch. But it’s not a reason to give up.
As I said, this is a correction. This is an August swoon. Share prices are down, so it’s time to look at your shopping list. You can pick up shares in 2008 and pay 2005 prices. You can build a portfolio for the next five years with some prudent stock picking in the next couple of months.
Some of the most beaten-up oil and oil service companies are Apache (APA: NYSE), Halliburton (HAL: NYSE), Baker Hughes (BHI: NYSE) and Superior Energy Services (SPN: NYSE).
Some of the most beaten-up miners are Kinross Gold Corp. (KGC: NYSE), Yamana (AUY: NYSE), Hecla Mining (HL: NYSE) and the development-stage NovaGold (NG: AMEX).
When oil and gold turn around -- which they will -- all of these companies should do very well.