Weekly Status + Pescod Talks Stocks While I'm In Mexico

MOTHER SAID THERE WOULD BE YEARS LIKE THIS!
This year started out with so much fun in the natural
resource sector, but now it’s ending abysmally.

We assume that the worse will be out of the way with the end
of tax-loss selling in the next 10 days, but it has been
horrific of late. Many resource stocks have dropped
50%, uranium stocks even worse. And of course there’s
banking, financial and brokerage stocks—ouch! Glad
we missed that!

We’ve been a big follower of Don Coxe, who has
been an advocate that for the decade we should have
fun in the commodity sector. We expected there would
be bumps along the way, but this is more than a bump.
In the most recent Don Coxe weekly webcast, he
talks about how bad this had been. “It’s a true global
financial crisis and it’s more serious now than it was
earlier.” He continues, “there’s no precedent in financial
history for what we are experiencing and today,
there has never been a better time to make sure you
have your financial ducks in a row.” “This is a big deal”
he repeats.

He makes the great comment looking at a chart of
Citigroup that “if this were the chart at the end of the
hospital bed, for someone in a hospital, you would
probably be sending flowers to the widow.”


lot of cheap stocks out there right now.
Meanwhile, one of our other favorite commentators,
Jeff Rubin, the head market guy at CIBC has been making
outrageous prognostications that have almost always
come correct (two decades ago when he suggested Toronto
real estate would drop 25%, he raised lots of excitement)
and he’s a big believer that energy prices will remain
high if not higher and the sector six months from
now will be better than ever.

Meanwhile, since we’re in this frame of mind, let’s review
the biggest component of oil and gas (at least in Alberta)
and that’s natural gas, and it’s been ugly.

Take a look at some of the charts outlining this and it shows you
over the last two years how absolutely beaten natural gas
stocks have been. Remember, if you are talking oil and
gas in Alberta, 70% of the revenue comes from natural
gas. Most trusts, and oil and gas companies are dominantly
gas. It’s very few that are oil in the majority and
have benefited from $90 oil.

All have been hit by what’s happened in natural gas
where we’ve seen relatively low prices as well as a soaring
loonie, high labor costs, high service costs and now a
government that hasn’t figured out that it’s gas that pays
the bills!

With the upping of royalties coming in down the road,
this could make things worse. Maybe we’ll see many
other companies doing what Exalta did, and just give up
and sell themselves for whatever they could get.
What happens next for some of these natural gas companies?

Well things could get even tougher as so far,
there is no sign of winter through much of North America
except for a brief bit in the U.S. Mid-West, and with inventories
at near record levels, it’s hard to get excited about
this sector. If winter doesn’t come, one wonders how
many gas companies will be left.

Source:Pescod