Myopathy

I tend to be rather myopic in my investment philosophy and that can be a blessing and a curse. Since this is often the case, I have to force myself to step back and consider the contrary point of view quite often, just to check myself.
As those who know me can attest, I have been a proponent of silver for several years. The question is, has this become an obsession for me?
I think not.

As the prices for commodities and commodity related stocks have been hammered lately, the urge to take your lumps and sell out is almost overwhelming and questioning your reasons for investing in this sector becomes constant.
This is the danger that is ever present in the investing world. It is insidious and expensive. It is what causes the average investor to buy high and sell low. It is that nervous pit in the bottom of your stomach that keeps reminding you of how much money you've lost and it doesn't care that the losses are not yet realised until you sell and that voice has been obeyed.

If I were one of the unfortunate people who had to ride the housing market and the financials down into oblivion, I wouldn't have much credibility but I have been warning against those investments for years. Long before the words "sub-prime" became part of our national lexicon.

Everything that has been happening has been predicted. But for every accurate prediction there are infinite inaccurate predictions. So much so that it is easy to be swept up and carried away by someones "story". And as their story fails to pan out, that someone, justifies, rationalises and flat out invents their way out of their theory. I see that happening now. Everyone is pointing at the latest pull back in commodities and saying commodities are dead and the dollar reigns supreme.
Well that remains to be seen. I would much rather look at the macro-picture and remember why I buy precious metals, energy and agri-business. And here is the macro as I see it and how I have seen it for years;

Let's start at the Internet bubble. As that mania deflated and 9-11 played itself out, interest rates were cut to stop a major recession. Rather than let the free markets self correct, the government stepped in to artificially prop up the markets. The creation of essentially free money, through artificially low interest rates, inflated the housing sector. At the same time our financial institutions discovered that they could use this housing boom to make a ton of money by manipulating their books and abandoning traditional reserve requirements (lending money they didn't have). This was allowed by changes in government policy. Seeing the trillions of dollars in the derivatives market and the runaway inflation that they were causing, Uncle Sam, got scared and tried to tap the brakes by successive interest rate increases. Just like a car flying down an icy road, tapping the breaks caused the inevitable spin out. Housing collapsed. All that money that the banks created out of thin air went POP! And disappeared.

Now our government, which caused the problem to start with, is going to fix it by replacing the phony money that the banks created and subsequently lost, with "real" money.
Casey Research reports that in just the last 2 months alone, monetary supply has increased 38%
And they are just getting started.
Now back to the macro-picture.
Bull markets are defined as too many dollars chasing too few goods.
Despite an imminent global economic slowdown, people still have to eat and last I checked world population is increasing faster than our food supply.
It takes energy to grow food and support those people. We are years behind in the development of new energy resources and sources.
Gold and silver are monetary metals and by the very nature of their scarcity, will rise in price as monetary supply is increased. Monetary supply is growing world wide at alarming rates.
Commodity bull markets last for years, typically 15 years. We are currently in year 8.
The only two things that end a bull cycle is when the supply increases to meet demand, or when demand is reduced to relieve the strain on supply. Neither of these has happened in commodities and in the case of the food supply, demand destruction is truly a frightening thought.
There are many arguments and scenarios that people will offer to debate the positive case for commodities, but it is just noise. A lame attempt to invent their way out of a bad theory.
With this pull back in prices, comes what I believe to be a rare opportunity to add high quality resource stocks to your portfolio at discount prices. This will give you and your families safety and security in what are, unarguably, tough times ahead.

It is not that I think I am smarter than anyone else, it's that I have "been there, done that" before. I know what those voices sound like and I know that once you hear them it is crucial to understand their nature, step back and logically re-evaluate, then either listen to them and act or tell them to shut up and stick to your guns.
You can do what you want, but I'm, not only sticking to my guns, I am reloading, taking aim and emptying the magazine.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.