Haven’t witnessed such doom and gloom in a very long time! It...

Haven’t witnessed such doom and gloom in a very long time! It amazes me how quickly market sentiment shifts and all of a sudden people are talking about market crashes and all that kind of thing. This is commonly referred to as the herd mentality. Thought I might throw a bit of a positive thought back into the mix to even things out.

Attitude A: ‘The markets are going to die and there will be blood in the street’ – there seems to be a bit of a prevailing view that this is the case and that we should dump equities and bury our money in the backyard. I encourage you to stop and have a think about all this – regardless of whether you are a technical or fundamental investor. One of the big determinants of whether there is going to be blood on the floor is the Fed Meeting on 18th Sept where the market is expecting an interest rate cut in the US. A couple of the local banks here in Oz are also calling the Fed to cut this month and then back up with another cut later in the year (25 pts a pop). One of the key factors supporting this is that the US financial system is under some massive amounts of strain and in dire need of some relief. Admittedly, the key goal of central banks is to manage the economy in such a way that inflation is kept under control – however an oft overlooked responsibility of central banks is to provide a financial framework which will foster SUSTAINABLE economic growth through the implementation of monetary policy. Looking at this second goal, one would assume that there is a case for the Fed to cut rates in the short term.

The implications of a cut are pretty clear. Sentiment will improve, speculative money will flow back into the market, commodity prices will take off again, yada yada yada. The funny thing will be the presence of people in this forum who will start high five’ing and calling AIM to hit $3 at the end of the year. Always makes for interesting viewing.

The implications of rates being kept on hold … well we may very well see the market drop quite a bit on this basis given that expectation is for a cut. How far … well realistically not all that much here in Australia I would suggest given that economic growth is still strong here at the moment (yesterday’s numbers were above expectation).

Attitude B: ‘AIM is about as interesting as watching paint dry and due to this fact will collapse in price’ – Admittedly possible that the price will deteriorate especially given people are worried about the price of zinc and all that kind of caper. The interesting thing with AIM’s product is that it is going to be used to blend with other concentrates in order to enhance the quality of the smelter’s product. This naturally means that the price that AIM will get for it’s ore will be only loosely correlated to the LME zinc price … just something worth remembering.

Also worth remembering that just because nothing is being announced to the market doesn’t mean that there is nothing going on in Burkina Faso. It just means we (the investors) haven’t been informed as yet. Take a look at the announcement on the 1st August though about the drilling rigs arriving at Burkina Faso – they would have been drilling for quite a while now and could be a lot further through the program than we realise. Admittedly progress reports would be nice however that is just the way things are.

Good luck to those who are still in … I continue to hold. Congrats to those who got out and were happy with their profits.