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Caution: Natural Resource Stocks Are Dropping — We Can Guide You

Rounding the corner, an endless sea of pink filled my vision.

Through the waves of pink, blotches of red, purple and yellow popped out.

I scoured the aisle dedicated to the holiday of love to find an orchid. Tucked behind a field of roses and tulips was one perfect orchid.

With the orchid in tow, I made my way through the pink ravine. Teddy bears and Beanie Babies clung to the end of the aisle. They bid me farewell as I made my escape.

Valentine’s Day has a way of creating a last-minute mania. Forgetful men such as myself flock to their local shops to grab last-minute gifts.

Tulips and Beanie Babies once created manias of their own.

Tulips are responsible for the first recorded mania. As the story goes, tulips were all the rage among the Dutch in the late 1600s. Speculators extrapolated the meteoric rise in popularity of this perennial flower and jumped on the bandwagon. Prices of tulips hit a fever pitch.

But they came crashing down. People realized that tulips weren’t necessary.

Beanie Babies, prized collector’s items of the ‘90s, had a similar fate as the tulips. Now they’re just another brand of stuffed animals.

The natural resource space is no stranger to manias. The cyclicality of natural resources seems to invite them.

Quick to Rise, Faster to Fall

The pending electric vehicle revolution drove a mania in battery metals.

In 2017, lithium and cobalt rallied. These battery metals were produced in small quantities.

Demand from the coming electric vehicle revolution was sure to outstrip the current supply.

But prices came back down to earth.

Lithium and cobalt are roughly 60% below their highs

This past month, another mania unfolded.

Vale, the international base metal miner, was responsible for a dam failure that released a tidal wave of toxic waste in Brazil.

The event killed over 300 people and devastated many towns.

In response, the iron and nickel markets shot up.

Iron ore climbed 19.8% in the days that followed.

Nickel’s rally saw a sharp peak. Vale’s future looked bleak following the disaster, and many assumed production would grind to a halt.

Nickel is already down 7%.

News that Vale’s Onca Puma nickel mine isn’t likely to be shut down took the wind out of speculators’ sails.

Iron ore is still sitting at highs.

Your Guide for the Natural Resource Cycle

Talks of worker protests at mining company BHP’s copper mine in Chile caused prices of the red metal to spike.

The talks resolved, and the price of copper came back down.

Manias are a dangerous place for investors. Getting in late can mean losing a sizable piece of your investment quickly.

Attempting to bet against the mania is just as dangerous. Prices can continue to climb to irrationally high levels.

At Real Wealth Strategist, we help investors navigate the natural resource space. We unlock value by looking at long-term trends in resource cycles. We don’t follow the herd to the day’s hot bet.

Good investing,

Anthony Planas

Internal Analyst, Banyan Hill Publishing

 

 

 

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