Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Wednesday, July 25, 2007

Will The Subprime Meltdown Affect Commodities?

I think gold and oil are looking great lately. The pullbacks we see are a normal and necessary part of any bull market, and they should be bought.

Meanwhile, the subprime market is in full meltdown. Countrywide Financial is the largest US mortgage underwriter, and its earnings just imploded. On the earnings call, deeply tanned (have you seen this guy on CNBC?) CEO Angelo Mozilo said: "The company is seeing home price depreciation at levels not seen since the Great Depression"

So how does this affect natural resources? Well, this adds to the credit crunch, which makes it more expensive to borrow money. This in, turn, makes it more expensive for the kind of small-cap natural resources stocks I recommend to expand their businesses. It also has the potential to slow down the merger mania that is sending some great little stocks popping higher.

I'll keep an eye on the situation, and adjust our investment profile if necessary. Just remember, my outlook is longer-term, and longer-term, things look great for natural resources.
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