The following describes the unwinding or loss in value of 'assets'. The difference for the commodity investors is that we own real assets, not 'distressed assets'. Distressed assets (debt instruments or IOU's) are widely available and worth less and less and in some cases no longer worth anything. Commodities on the other hand are finite and have instrinsic value which is indestructable. The prices of commodity stocks have fallen only because of a need for cash by hedgefunds to cover their losses caused by the vaporizing of these distressed assets. This has hurt NOT and others in the short term .
I THOUGHT the bottom was at $2.25. I was wrong, but I did not anticipate the severity of this credit crunch.
I can't believe that we will hava a price lower then the bottom of $1.48, hit on 9/16, with a slow and steady climb back up from there. Other guesses?
BK.
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From WSJ.
At least three things need to happen to bring the deleveraging process to an end, and they're hard to do at once. Financial institutions and others need to fess up to their mistakes by selling or writing down the value of distressed assets they bought with borrowed money. They need to pay off debt. Finally, they need to rebuild their capital cushions, which have been eroded by losses on those distressed assets.
But many of the distressed assets are hard to value and there are few if any buyers. Deleveraging also feeds on itself in a way that can create a downward spiral: Trying to sell assets pushes down the assets' prices, which makes them harder to sell and leads firms to try to sell more assets. That, in turn, suppresses these firms' share prices and makes it harder for them to sell new shares to raise capital. Mr. Bernanke, as an academic, dubbed this self-feeding loop a "financial accelerator."
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And this from Sept 12, US Global funds
Threat
- Hedge fund liquidations remain the biggest threat to the returns of commodity stocks, but this will come to an end. These are distressed sellers who are being forced to liquidate at prices that do not reflect fundamental valuations, so share prices will rebound.
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Hang tight. What we own is REAL.
