To OTC Journal Members:
 

The Commodity Bubble: Fantasy or Reality?

I believe the market moves from bubble to bubble. One sector inflates, and eventually the bubble bursts. The more it inflates, the more painful for those holding the stocks when the air rushes out. The tech bubble of the 90's was probably the biggest bubble in history. It burst in March of 2000, about 2 years after a lot of smart money predicted it.

Right now, there is a massive bubble forming in the commodities sector. Oil is near it's all time high in the $73 per barrel range, and gold recently blew threw $700 per ounce like a Shaquille O'Neal going one on one with Dick Vitale.

Every time I turn on CNBC or read the paper I hear the mantra of massive supply imbalances. Worldwide demand for oil and gold is skyrocketing, and supply is falling far behind. Sound anything like Merrill Lynch's Henry Blodget predicting Amazon would be bigger than Microsoft? 

I stumbled on some fascinating research which challenges the supply/demand imbalance myth. Take a look at this chart. It goes back to 1987, and compares the supply of oil with the demand for oil. Of note: since early 2003 supply has outstripped demand. Where's the massive imbalance?

Here's a table on gold which compiles data provided by the World Gold Council. Of note: Total supply of gold in 2005 was 3,859 (probably some metric of weight), and demand was 3754. According to this table, supply is outpacing demand.

So, if the table and chart are accurate, what's fueling this monster bull market in commodities? Sometimes things go up simply because they are going up. 

There have been many momentum fueled rallies in the past. Today, big mo is more prevalent than ever, driven by the growth of the hedge fund industry. To understand this phenomenon, you have to look at the meteoric growth of hedge funds. 

Some studies estimate hedge funds are responsible for 2 out of every 3 trades done in the market today. Many hedge fund managers are primarily momentum players. They buy stocks because they are going up, and sell stocks because they are going down. 

The mantra of the hedge fund manager is "don't lose money". They live and die by their monthly performance, desperately hanging on to fickle sources of capital. A few down months could send their investors fleeing for more productive ground. As such, many hedge fund managers tend to have "itchy trigger fingers".

I suspect oil and gold are going up because they are going up. Does this mean it is time to get out? Hardly. As long as they keep going up, they will keep going up, and stop going up when they go down. The higher they go, the more painful it will be when they fall apart.

Let's keep making money in this sector: i.e. Golden Peaks (TSX: GL) and US Energy (OTC BB: HYFS). Keep the inevitable bursting of the commodity bubble in the back for your mind don't forget the hard learned lessons of the 2000 "Tech Wreck". In my view, the environments are becoming more alike everyday.

Now here's a review of very impressive Q1 numbers from a company that would benefit greatly from a swing back to telecom:
 

TelePlus (OTC BB: TLPE) Delivers Impressive Q1 Results

Apparently, 20 years in the microcap world has addled my brain. In fact, I have often admitted at times it seems as if I only have one brain cell left, and that brain cell only works part of the time.

I have always felt TLPE had significant upside from a fundamental perspective, but expressed concerns about potential supplies of stock hitting the market as they relate to the recent SB2 filing of 272 million shares on behalf of a note holder. No shares have been issued in satisfaction of the $9.25 million in debt. The shares being registered are security against the debt, which doesn't mature until late 2008.

When I first read the number of shares I did the math in my head. At about $.35, 272 million shares would equate to $9.25 million; Right? No, wrong. At $.35, it's only about 27 million shares. The number simply remained stuck in my head, and was overstated by a factor of 10. 

In computing the potential dilution I simply made a bone headed mistake. The ramifications of this registration, although not totally without some technical risk, was greatly exaggerated in two of my BLOG postings. I apologize to the company and to anyone who received my faulty information. If you want a better understanding of the technical risks associated with convertible securities, the SEC has a description at their web site. Simply click here to visit the proper page at SEC.GOV.

Moving back to the upside of the equation, TLPE delivered a strong quarterly performance in Q1. The numbers were out yesterday. TLPE delivered record revenues of $6,797,553 for the quarter, and what really amounted to EPS of $.03. The bottom line was 1 cent per share, but 2 cents went to one time expenses associated with closing their unprofitable division. Profits go a long ways towards minimizing risk.

This company is on a roll. 

Since I have been off the mark on this one, I strongly recommend you get the accurate facts by tuning into the company's 9AM EST time webcast on Monday morning. Instructions can be found in this news release concerning the Q1 numbers which came out yesterday. For your review:
 

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