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The Commodity Investor Q&A

With Matt Badiali, editor, S&A Resource Report
Wednesday, April 2, 2008

Q: Even if the U.S. should go into an extended recession and dampen the global markets as well, won't the emerging markets' need for oil and other material commodities continue to boost demand and prices? – L.H.
A: This is the billon-dollar question when it comes to commodities. The United States is far and away the largest economy in the world, so of course, a severe recession would dampen demand for oil and other raw materials.
On the other hand, China and India are cramming decades of industrial revolution and massive infrastructure expansion into the next five to 10 years. From what we've seen so far, this build-out (which requires awesome amounts of raw materials) is offsetting the decline in U.S. demand.
However, speculating on demand is more like gambling than investing. We've got to consider supply constraints...
The mining industry survived on such low prices for so long that now very few new projects are in the pipeline. In addition, some of the industry giants are in decline. For example, metal production from Chile's Codelco, the world's largest copper miner, has fallen for three straight years... and 2008 doesn't look any better.
And new giant projects are suffering from the same higher costs hitting everyone...
The construction estimate to build the Galore Creek mine (NovaGold and Teck Cominco's giant copper and gold project in British Columbia) escalated from $2.5 billion in 2006 to over $5 billion in late 2007. Most of that increase came from the rising price of basic materials like fuel and steel. Also, the cost of Canadian labor rose dramatically on the strength of the Canadian dollar.
However, I think the market is giving us an opportunity. I think we should own the companies that own the best new projects – ones that won't produce anything for the next year or two. Those projects, because of the risk of development and the state of the market, are essentially free right now. (You can read about one of my favorite projects here.)
Q: What is the deal with the "Toronto" and "Venture" stock exchanges? I don't know how to buy stocks on those things. – B.W.
A: I get this question a lot, because many of the world's top mining companies are listed on foreign exchanges. Resource investors who limit themselves to the NYSE, Nasdaq, and AMEX are putting large shackles around their ankles. I often recommend stocks on the Toronto (TSX), Toronto Venture (TSX-V), London Aim (AIM), and Australian (ASX) exchanges.
But few discount brokers will buy these stocks directly on the exchange. While you can work your way through the deal, you often wind up paying huge fees for the service. Starting a position down 25% because of fees is a lousy way to speculate.
If you want to buy stocks on these exchanges, you've got to be prepared to elevate your game. If your regular broker can't execute the trade without gouging you, I know of three brokers who can buy and sell international stocks with ease:
Global Resource Investments Ltd.
(800) 477-7853
Jeff Winn – International Assets
(800) 432-4402
Dave Sjuggerud – Key Investment Group
(877) 539-1004
These brokers have provided honest, solid service to many of our readers in the past. They have excellent reputations for a reason. Neither Stansberry Research (publishers of Growth Stock Wire) nor I receive any kind of compensation for mentioning these guys. This is simply a short list of reputable brokerages that can buy these stocks.
If you want to use an online broker, I believe E*Trade and Interactive Brokers both trade stocks on foreign exchanges. But I've never tried either one myself.
And if you want to trade these stocks online, I recommend doing some research into the rules, tax laws, and currencies of each country. A good place to start on the currency research is EverBank's currency research portal.
There are pitfalls out there for the unwary international investor. I actually found a company that U.S. investors were not legally allowed to own. It was a Canadian Trust that had my mouth watering... but it was for Canadians only. That's why I recommend using a qualified broker to buy foreign stocks.
Good investing,
Matt Badiali

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Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%