Bust Coming

I was struck by the following comments in the July edition of the RBC Dominion Securities “Wealth Management Review”

Today, almost 50% of the market value of the TSX is accounted for by the volatile energy and materials sectors. Back in the summer of 2000 they amounted to less than 15%.

The last time resource stocks reached the 50% threshold was in 1980 – just before the collapse of commodity prices and the onset of a multi-decade relative bear market for these groups. We don’t expect a repeat of that experience.

The commodity bubble has already started to “pop.” I don’t expect the same experience either, but I do expect a strong swing down in commodity prices, well below trend, and an epochal buying opportunity for the shares of commodity producers.

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