Way back at the end of 2009, I went to a presentation given by a leading USfund manager. These were heady times: investors were still reeling from the shock collapse of Lehman Brothers. Real fear was in the air.
The fund manager said something that shocked everyone. He said that he was very bullish for shares.
He was spot on. From that moment on global equity markets staged a powerful two-year recovery, led by a stampede into the natural resources sector and cyclical industrial stocks.
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But now this phase seems to be coming to an end. Stock market indices are going sideways at best. Fear seems to be displacing greed in the hearts of share traders.
And now, the mighty Goldman Sachs has weighed in with advice to sell shares in natural resource stocks. So...
Should we take Goldman seriously?
I believe that the global economy is at a turning point. In western economies, the recovery phase is now over. Governments are turning their attention - with varying degrees of determination - to deficit cutting. This is bound to squeeze growth.
Meanwhile, the emerging economies are getting increasingly concerned about inflation, which is probably as much a political as an economic issue. In a hugely significant development, the Chinese seem to be finally encouraging their currency to appreciate.
Even if this has less to do with pressure from its trading partners and more to do with a desire to head off inflation, it is still a very important change of policy. Last week the Chinese Premier Wen Jiabao said that Beijing would further improve the yuan exchange rate mechanism and increase yuan exchange rate flexibility to eliminate inflationary monetary conditions'.
This means that the yuan will be allowed to rise, lowering the price that China pays for imported goods and also taking a bit of steam out of its export sector and thereby out of the economy as a whole.
I doubt though that this will have much impact on Chinese growth. Chinese political leaders know that their continuing in their positions of unelected power and influence depends upon economic growth. The new Chinese five year growth plan envisages growth of 7% per annum, only a tad down on the 7.5% enshrined in the previous growth plan, which was comfortably exceeded.
Yet investors seem to have got cold feet. Share prices of natural resource stocks have been in retreat. As projects have progressed from one stage to the next, the necessary capital-raising has sapped investors' cash. A sense of heightened political risk has been prompted by tensions in North Africa and the Middle East, and bellicose noises from some African nations.
The headlong flooding of the market by private investors at the turn of the year was a warning in itself. And the flotation of commodity trader Greencore might also be interpreted as a signal that the resource boom is getting long in the tooth.
It's a bluff: time to buy commodities and luxury brands
But the bears' argument has one significant flaw. There is little weakness in the price of natural resources. Commodity prices remain generally high, with oil and gold hitting new highs and the price of the industrial bellwether copper steady in the $4.10-$4.60 range.
There is little sign that the basic supply and demand equation for commodities is changing in a material fashion. This is what will ultimately count for producers. With production costs largely fixed, the biggest impact on profitability comes from selling prices. So long as these remain high the outlook for producers generally is highly favorable.
The question then is whether the world's investors are beginning to sense a real setback in demand. In their determination to curb deficits and rein in inflation, will governments bring economies to a standstill?
The answer has to be - not if they can help it.
Economists are said to predict ten recessions for every one that actually occurs. Investors now seem to be predicting a setback in resource markets, but this does not seem likely. With product prices remaining high, my bet is that the current phase represents a buying opportunity.
But there is one other important investment message today. As the yuan rises, the Chinese will find that they can buy more foreign goods. We know what they like: luxury goods, overseas holidays, western education and David Beckham.
Last week Burberry became the latest luxury goods manufacturer to report strong sales to China. While natural resource companies selling to Chinese industry look well placed, so increasingly, do those companies feeding the aspirations of the Chinese consumer.
I will be keeping you up to date on these exciting opportunities in the months ahead.
Until next time - enjoy the weather over the Easter weekend.
This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.
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