Seems as if the market is finally catching on to what I’ve been saying in this blog for months: any recovery in the economy must necessarily lead to a rebound in commodities, especially considering the producer cutbanks in response to plunging prices. Today’s Wall Street Journal carries an article along similar lines:
Energy and materials stocks had been lagging the rally until last month, as oil (and gold) made impressive moves in May. While I am no longer publishing my portfolio publicly, I will say my returns now exceed the NASDAQ index, even while holding 26% cash and making a few untimely exits in stocks like Freeport-McMoran (FCX), Northgate Minerals (NXG) and Ensco International (ESV). Mind you, I’m not sure if those were mistakes, perhaps the FCX sell was, but they were untimely moves nonetheless.
Make no mistake: in the ongoing debate between green shoots vs. bear market rally, I lean more toward the bearish view. An economic recovery at this point after such wanton carnage seems a bit myopic. Nevertheless, I continue to hammer a familiar theme: the macro view informs my investment outlook but I am wary of letting it be a dominant consideration in my strategies. Some stocks go up, even in a bear market.
In the case of resource stocks, specifically energy, the investment thesis for select companies is compelling even if green shoots are a mirage. The reality of ever-constraining reserves will assert itself in the market and the global economy at some point. If investors can target the companies solid enough to survive a prolonged downturn, they should be rewarded in time.