My Stock Market Analysis (2008)
Over the past few years, I have analyzed a great deal of data to form my opinions on the stock market. In this article, I will present a summarized version of my analysis to provide some insights. If you would like to learn more about the conclusions I drew from this analysis, please refer to the notes at the bottom of this article.
Global Demographic Trends
According to the International Monetary Fund (IMF), the world’s population is projected to reach 9.1 billion by 2050, with virtually all population growth occurring in less developed countries. Additionally, it is projected that by 2050, 89 countries will have a median age above 40 years, with 45 of these countries in the developing world. The world’s urban population is expected to grow by 1.8 percent a year between 2000 and 2030, almost twice as fast as global population growth.
If you would like to read the IMF’s complete article about global demographic trends you can click here.
World Urbanization Prospects
The United Nations (UN) projects that 60 percent of the global population will live in cities by 2030.
If you would like to read the UN’s complete article about world urbanization prospects you can do so by clicking here.
Mineral Resource Scarcity
Chris Clugston’s report, “Increasing Global Non Renewable Natural Resource (NNR) Scarcity“, concluded that 50 of the 57 analyzed Non-Renewable Natural Resources (NNRs) (88%) experienced global scarcity during the 2000-2008 period, and 23 of the 26 analyzed NNRs (88%) were likely to experience permanent global supply shortfalls by the year 2030. While the earth’s mineral resources are finite, the author predicts a volatile price environment related to one or more of the earth’s resources. The current prices of the most scarce mineral resources from Clugston’s table are expected to increase in the long term.
According to Clugston: “At the end of the day, we are not about to run out of any NNR; we are about to run critically short of many.” Here is the relevant table taken from his report:
Permanent Global Non-Renewable Natural Resource (NNR) Supply Shortfall by 2030
|
|||
| Nearly Certain Probability (5) | Very High Probability (8) | High Probability (10) | Low Probability (3) |
| Cadmium | Cobalt | Chromium | Bauxite |
| Gold | Lead | Coal | REM |
| Mercury | Molybdenum | Copper | Tin |
| Tellurium | PGM | Indium | |
| Tungsten | Phosphate Rock | Iron Ore | |
| Silver | Lithium | ||
| Titanium | Magnesium Compounds | ||
| Zinc | Natural Gas | ||
| Nickel | |||
| Oil | |||
The Central Banking Revolution
The following graph is taken from a special report from Reuters titled: The Central Banking Revolution.
Since the financial crisis of 2008, central banks have increased the volume of credit by expanding their balance sheets. The consequence of printing money will eventually lead to inflation, leading investors to shift more and more of their holdings to tangible assets instead of paper assets. This shift will create an extra demand for the earth’s resources, and I predict that this demand will also help increase the current prices of the most scarce mineral resources in the long term.
Conclusion
While global demographic trends and urbanization indicate a sustained long-term demand for earth’s mineral resources, their finite nature may result in volatile prices due to scarcity. Creating a watchlist of companies involved in specific mineral resources can help investors react quickly to declining prices.
The best resource companies to invest in have large resources, low debt and operate cash flow positive. Mineral exploration companies with a big resource and brownfield exploration potential in safe jurisdictions with significant cash reserve to survive for at least five years may also be viable investments.
The printing of money by central banks may eventually lead to inflation and investors may shift from paper assets to tangible assets to store their wealth. At the end of the day, storing wealth in a paper asset whose value can be manipulated by central banks is not advisable. Therefore, demand for the most scarce mineral resources may continue to rise in the long term. Investing in earth’s mineral resources can be a viable option for investors looking for tangible assets.
2008 vs. 2023
This article was originally published on UndervaluedEquity.com in 2008. While my reasoning and conclusions from that time remain valid, I have since expanded my circle of competence to cover a broader range of sectors and industries. As of 2023, my interest in the energy and mining sectors remains strong, but I now also investigate various other areas for potential investment opportunities.
