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The Mara River Meets Wall Street

By Tom Dyson, publisher, The Palm Beach Letter
Monday, September 18, 2006

Every year in June, in search of grass and water, three million wildebeest move from the Serengeti grasslands in Tanzania to the Maasai Mara grasslands in Kenya. And every October, they go back again.

The scale of this migration is hard to imagine. Try this: From a satellite in space, the animals look like a black stain moving across East Africa.

The Mara River crossing is the final – and most perilous – hurdle of the long journey. It’s nature’s way of controlling the wildebeest population. The banks are mostly jagged and cliff-like, so in most places, it’s a long drop into the river. It’s easier to cross the river where the banks are depressed and there’s less vegetation. The herd gathers at these points.

The river is high from rains upstream and the current is strong. The mud beside the river is very heavy too. But a worse danger lurks in the water: crocodiles. The waters are crowded with Nile crocodiles. They know there’s a walking banquet on the way, and they gather at the fords.

The animals pace up and down the bank, grunting loudly, eyeing the dangerous river. They are anxious. No one wants to go first. Finally one animal takes the lead and lunges in. The crowd then surges into the river behind.

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Carnage follows. Thousands of wildebeest charge the river. Some animals are trampled to death. Others panic and dive in where the bank is too sheer. Many drown, especially the young. And all around, crocodile jaws thrash about in the water, snapping at the weak swimmers.

It is estimated that up to 25,000 wildebeest die at the Mara River each year.

I love Africa… and I’ve written about investing there many times this year. But this column is not about Africa. It’s about the manic behavior of investors in the commodity markets this month. They’re acting like wildebeest. And right now, the crocodiles are tearing their guts out.

News of huge inventories is spooking the energy pits. “Storage is almost maxed-out,” said one analyst. “Soon they’ll have to cap the gas wells.” Oil is down 19.6% in the last 35 days. Natural gas hit its lowest price in two years yesterday.

The Financial Times says the panic in oil and gas has spread to the metals. Gold is down $65 in the last eight trading days, a 10% loss. Silver is down $2.50 over the same period; a 21% drop.

Wall Street says this is the beginning of a new bear market in commodities. I found research from Morgan Stanley, Deutsche Bank, Merrill Lynch and Citigroup in the last few days on this matter.

Wildebeest. Don’t believe them.

The fact is, commodity investing is a volatile business. These panics are nature’s version of the Mara River. If you don’t have conviction in your long-term investments when the panic hits, the crocodiles will eat you. They call it “shaking out the weak hands.”

So the message is this: Commodities are in a bull market. Don’t panic. These corrections are good news. They make the herd stronger by culling the weak and they give us an opportunity to buy more at cheaper prices.

Good investing,

Tom





Market Notes


NEW HIGHS OF NOTE LAST WEEK

Akamai Technologies (AKAM)… Internet toll road
Vail Resorts (MTN)… resorts
Oracle (ORCL)… return of big tech
Cisco (CSCO)… return of big tech
Pfizer (PFE)… return of big pharma
Merck (MRK)… return of big pharma
Quilmes (LQU)… Argentine beer
General Motors (GM)… automaker
Berkshire Hathaway (BRK-A)… Warren Buffett & Co. 
Morgan Stanley (MS)… financial
SonicWall (SNWL)… Dan Ferris Extreme Value pick
iShares Telecom (IYZ)… telecoms
iShares Insurance (IAK)… insurance
iShares Real Estate (IYR)… REITs
iShares Financial (IYF)… financial giants 
iShares Healthcare (IXJ)… big pharma
iShares S&P 100 (OEF)… mega cap stocks
Harley-Davidson (HOG)… motorcycles


NEW LOWS OF NOTE LAST WEEK

Wilsons Leather (WLSN)… leather retail
Cheniere Energy (LNG)… LNG plants
Soybeans, Japanese Yen, Swiss Franc

-Brian Hunt


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