As with all bull moves, the supply of equities rose to meet investment demand. Moribund companies sprang back to life, and new ones popped up out of nowhere. Everyone had a story to sell, everyone could get financed, and as long as the supply of investment dollars stayed ahead of new offerings, the market could rise. Of course, this was all predicated on rising commodity prices, which for a while seemed like a shoe-in.

The mining and energy sectors had some additional spin added with the concepts of Peak Oil, Peak Gold, and well... Peak Everything. Unfortunately, close examination reveals a flaw in the premise. If the cost of energy is rising along with the price of say, copper, then where's the advantage in mining more copper? If copper is a rapidly depleting resource, doesn't it make more sense to hold back production in anticipation of higher prices? Even if we did ramp up to full production, what happens when we go to replace reserves? If Peak Theory holds, then it ought to be more difficult to find good deposits, and this against a backdrop of rising energy costs. You see the problem, right?

So, where does that leave us as investors?

To summarize: At the end of a seven year bull market [driven by excess credit creation that has now hit the wall, done the dead cat bounce, and is about to turn south], we have an excess of companies to choose from, very few of which will find anything of economic value (assuming they're even looking). Meanwhile, the marginal investor is out of the game, probably for good. I'm talking about the damage done in 2008. When you're out of work, your mortgage is underwater and your car just got repossessed, the last thing on your mind is mining stocks. If you still have some, you're looking to sell not add.

A metric that I sometimes use is my own response to a situation. I reckon I'm probably closer to average than I like to admit, so I just look at what I'm doing myself and extrapolate. In this case, I've cut my allocation from 25% down to 10% and I'm seriously considering zero. Another metric that jumps out at me is the current shrillness of the letter writers. Check your inbox for confirmation. These guys are competing fiercely for your business now. That wouldn't be happening if there was enough to go around.

All in all, it leaves me bearish on the miners, regardless of commodity prices. I'm not saying the market will whither - there will always be *some* action - but I don't see a favorable risk-reward scenario, and given that this sector is risky at the best of times, why should I take the chance?

Anyone care to counter my argument? I'm not totally convinced as yet, but I'm leaning hard in that direction.

ebear