Devoted to understanding the basics and fundamentals of investing

After I wrote my post last night, I had dinner with one of my dearest friends, Becky.  She does private wealth management for Wachovia Bank and does it better than anyone I know.  We first met in Bogota, Colombia when we were both relatively young bankers.  We ate at a Vietnamese restaurant.  The food was yummy.  It's a little unmarked restaurant on the east side of 9th Avenue between 19th and 20th Street.  It has bamboo around the door.  Get there before 7:30pm to avoid a crowd.

Yesterday I wrote about the Energy sector side of the title.  Today I will write about the Metals sector.  The bottom line?  Like energy, metals companies are doing very well. 

Metal prices have sky rocketed over the last three years generating good profitability for the companies.  The free cash flow has allowed them to pay down debt and repair their balance sheets.  Yesterday copper hit $8,800 per metric tonne.  The companies are profitable with copper at much less than half that price, so it is an indication of how good things are. 

That high price begs the question of whether or not prices are peaking and there is no more expectation of further growth.  If that were the case, you would want to avoid the sector as your investment in stocks wouldn't perform. 

Goldman Sachs developed metrics to look at copper prices back to the industrial revolution.  After World War II and during the industrial revolution, copper prices hit over $12,000 per metric tonne on an inflation adjusted basis.  So, with inventories non-existent and with persistent demand, the outlook for investment in the sector looks good.

There is some concern over companies with extensive mine holdings in Latin America.  Governments have been elected in many of the countries that are seeking what they feel is a more equitable division of the profits from their natural resources.  Depending on what happens, the companies might not be compensated fully for the investments they have made.  Negotiations are under way, and there is nothing definitve yet, but it is worth noting and watching to avoid getting burned.

If any of you have need of an excellent private banker, leave me your email address and I will forward it on to Becky so you can get in touch and see if you are a match for each other.

Now go out there and make some money!