Is it time to remortgage your house & Buy mining stocks?!

2 mins. to read

I’m obviously joking about the title of this blog!  

This said, one of my all time favourite contrarian indicators has just fired for the mining sector; an official sell recommendation from one of the “expert” research teams of a Wall Street investment bank.

As soon as these organisations crank up their PR departments to start sharing their wisdom with us mere mortals then 9 times out of 10 (and I’m possibly being generous there) you know it is time to do the exact opposite of what they say. Time and again I’ve seen this pattern repeated. Investment banks continue to make vast profits from their trading desks, but the research they release to the public gives bum steer after bum steer. If they followed their own advice they’d be out of business.

But of course they don’t follow their own public advice. The market is set up to lose you money and the more sheep that can be corralled into a pen ready for slaughter, so much the better.

In many ways it’s quite funny how they continue to get away with this little act and people still lap up the nonsense they are served. Lazy journalists regurgitate the misleading twaddle, as if it is somehow respectable. Stick the stamp of a 100 year old financial institution on a press release and it seems you are given free rein to get away with saying whatever you damn well please.

Oil heading to $150/barrel?… Not a bit of it – more like on the verge of falling to $70/barrel… Gold definitely going to break $2,000/oz?… Pah! How about collapsing to $1,200/oz instead, over the next two years?…. Buy, buy, buy stocks?…. well the jury’s out on that one, but it’s a brave person choosing now as a time to get long this market.

So in the time honoured tradition of disingenuous market guidance, please step forward JPMorgan Cazenove’s equity strategy team with this brilliant bit of analysis.

Short mining stocks?!

Mining stocks, which have suffered one of the greatest collapses in value in living memory?!!!!


Whether or not you share our view that mining stocks present a generational buying opportunity doesn’t really matter. Would you seriously consider shorting a market that has had the stuffing knocked out of it over two years?

Below is some interesting empirical data as to what history has shown to expect when buying asset classes down by the following percent levels. Makes interesting reading…

Average 3 year nominal returns when buying a sector down since 1920s:

60% = 57%

70% = 87%

80% = 172%

90% = 240% 

Average 3 year nominal returns when buying an industry down since 1920s:

60% = 71%

70% = 96%

80% = 136%

90% = 115% 

Average 3 year nominal returns when buying a country down since 1970s:

60% = 107%

70% = 116%

80% = 118%

90% = 156%

Of course it’s hard to buy something when its down 80%, especially if you owned it when it was down 30, 50, then 80%. But usually that is a great time to be wading in…Some recent examples of assets that have gotten clobbered include tech in 2002, homebuilders in 2009, and Greece and (Junior) Gold Miners now.  

So, thank you Barrons for sharing this delightful little insight with us. You’ve filled us with confidence that we are right and 2014 will be a great year for the miners!

Meanwhile the Baltic Dry Index keeps on chugging along at 1,500…

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