What’s he talking about? Today, we take a look and invest right alongside his idea. And it should start to pay off with the arrival of the first swallows of spring in 2010. It’s also timely now — in this weak-kneed economy — because it has traditionally held up well even in when the economy is on the ropes. Even the Great Depression couldn’t put this thing down.

We start with simple truths. The world’s population has more than doubled since 1950 — from about 2.5 billion to 6.7 billion. By 2050, there will be more than 9 billion people on the planet. Almost all of this growth will come from undeveloped markets such as China and India. And they will all be doing one thing, for sure — eating.

Now, hang on. I know that is a banal insight by itself, but this story has layers like a tiramisu. The second layer is the mix of food eaten, which is important. These undeveloped economies are getting richer. Predictably, as people everywhere have done and continue to do when they have a little more money in their pockets, they change their diets. They spend more on food. The average Chinese spends 40 cents of every additional dollar earned on food. In India, it’s about 70 cents of every additional dollar. What do they buy?

Read the rest of the story at PennySleuth.com.

Physical demand was also supportive for the precious metal, traders said, who saw the jewellery demand picking as as the festive period in India, one of the top gold consumers of the world, approches.

Spot gold was at $991 an ounce by 1121 GMT, slightly up from $990.95 an ounce late in New York on Friday, when gold hit a two-week low of $984.70 an ounce.

“The stronger dollar is the reason which pushed gold below the $1,000 an ounce level,” said Eugen Weinberg, Commerzbank analyst said. “On the other hand, we’d expect a pick-up in physical demand if prices decline ahead of the festive season.”

Gold’s inverse relationship with the dollar over the past few weeks has become stronger. It is often considered an alternative asset to the greenback, while a higher dollar makes commodities expensive for holders of other currencies.

The dollar fell against the yen but rose against higher-yielding currencies including the euro and the Australian and New Zealand dollars. But the euro trimmed earlier losses to trade at $1.4655.

“The dollar feels like it has to go much lower from where it is and gold could benefit from that,” said Afshin Nabavi, head of trading at MKS Finance.

Over two weeeks ago, gold hit $1,023.85 an ounce, its highest in eighteen months, within a striking distance of its record high of $1,030.80 an ounce struck in March 2008.

BARGAIN HUNTERS

But bullion’s failure to stay above $1,020 an ounce level has disappointed several investors and prompted an unwinding of long positions, which in the U.S. hit a record high for a third straight week.

“We’re seeing some long liqudiation from the speculative side of the market. The major support is at $975 an ounce,” Nabavi said.

The non-commercial net long position in gold futures on the COMEX division of the New York Mercantile Exchange stood at an all-time high of 236,749 lots for the week ended Sept. 22, figures from the Commodity Futures Trading Commission showed.

“Having said that the reason why gold is gradually falling and not crashing is bargain hunters and physical buyers are picking up the dips,” Nabavi said.

U.S. gold futures for December delivery was up 0.14 percent to $993 an ounce from $991.6 per ounce on the COMEX division of the New York Mercantile Exchange. On Friday, the contract fell $7.30.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said its holdings stood at 1,094.107 tonnes on Friday, unchanged from the previous business day.

Silver was lower at $15.96 from $16.00

“Silver is generally vulnerable to Comex profit-taking,” said analyst John Reade at UBS in a research note. “The fact that the surge in Comex speculative longs over the past three weeks has struggled to lift silver prices further flags a specific downside risk over the coming weeks.”

Platinum was at $1,273 from $1,272.5 and palladium was at $289 from $288.

Sept 28 (Reuters)

Since April, the commodity has embarked on an extreme upside move, shooting to highs not seen since sugar hit $0.45 per pound in 1981. The chart below illustrates it perfectly…

Sugar Chart: http://www.investmentu.com/images/sugar_082509.gif

The main reason for such a large jump was news from India, which indicated a potentially low sugar crop.

Over the past couple of weeks, the sugar market has surprised many analysts by trading even higher. I say that because while fundamental news like this often results in impressive-looking moves, its impact has a limited lifespan.

So be warned. Moves like this usually indicate that the news is factored into the price and we’re entering the last phase of the bullish run.

Based on my experience in the commodities markets, where I’ve seen this type of pattern many times, I believe we’re headed for an inevitable turnaround for the sugar market. Here’s what you can do to profit form this, and two other commodities to keep an eye on.

How to Play the Sugar Market to the Downside

If you want to play the sugar market to the downside, I suggest you buy put option contracts, or by selling limited-risk call option spreads. At the moment, the October 2009 and March 2010 option contracts are the most active.

As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.

This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.

So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.

Oil Heading For $80… And Beyond: Three Ways to Play the Move

Given the historic rise and fall of the oil market and the current state of the global economy, you’d never think that it could even consider the idea of moving higher again.

But the market continues to amaze everyone with its resilience and strength, with the current price hovering around the $74.50 per barrel area.

And with conflicting reports on the global demand for oil over both the near term and long term – plus weekly inventory reports that show a strong buildup of supplies one week, followed by draw-downs the next week – it’s easy to see how this can be a very treacherous market.

Here’s the deal: Regardless of what statistics are released and how Congressional attempts curtail oil trading limits, it’s clear that the oil market continues to bring in speculators from all levels – and will most likely keep trekking higher.

Check out the oil chart below. The price is currently trading above all three main moving averages (20-day, 50-day, 200-day) and is now looking to pop above the recent high of $75.27 from June 11. If that happens, we could easily see oil shoot to $80 from there – with $90 probably right behind.

Oil Chart: http://www.investmentu.com/images/oil_082509.gif

There are a couple ways to play the oil market – be it on the long or short side…

• The futures and futures options that trade on the floor of the NYMEX. This is usually best for experienced commodities investors.
• Through an ETF like United States Oil (NYSE: USO), which tracks the price performance. This gives you broad exposure to the market through one investment, rather than playing individual companies. It’s also a less expensive way to play the market and doesn’t require a commodity trading account.

You can either play the USO shares directly, or the options on the ETF. No matter whether you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give your directional call ample time to mature.

The Grain Markets: Summertime Means We’re on “Grain Watch”

Finally, let’s hit the grain markets (corn, wheat, soybeans)…

During summer, these markets can really turn to the upside, as the growing season can be extremely volatile, particularly if the weather is less than ideal.

The June-October period typically sees more speculation in the grain markets than any other time of year, purely because of the prospect of more volatility. Regardless of what any fundamental data may show, nothing can compare to the sheer panic-buying when we receive weather reports that show how a drought could wipe out a year’s worth of crop.

And some of it doesn’t even need to necessarily happen… it’s merely the potential for it happening, based on previous history. Fortunes can be made or lost in just those few summer months.

Buy Corn Commodities Low… And Ride the Bullish Move Higher

This year, for example, we’ve seen corn and wheat prices shuffle around their annual lows, due to government reports that show ample planting, high carry-over levels from last year and crop production that is ahead of schedule.

Corn Chart: http://www.investmentu.com/images/corn_082509.gif

With corn currently at its lows, if any potential weather disruption does occur over the next few months, taking a bullish position here could be a low-risk way to get involved.

Like with the sugar market, the best way to play corn is through limited-risk option strategies. Stick with expiration months of December 2009 or March 2010, so that you give the market plenty of time to mount a bullish move.

Good trading,

Lee Lowell

Source: These Three Commodities Are Set to Move… Are You Ready to Profit?

Fertilizers are a key part in meeting that challenge. And the farmers are financially in good shape to buy more. The debt-to-equity ratio for the U.S. farmer is only around 10-15%.

Overseas, farmers are subsidized directly. In India, the government picks up the tab of higher fertilizer costs. As Doyle pointed out: “With low grain stocks and low yields and 1.2 billion people, they’re not going to drop the ball. They’ll continue to support the Indian farmer.” China has also started to subsidize the Chinese farmer, helping out with seed, machinery and fertilizer.

But since fertilizer application rates fell around the world this year, it is hard to imagine a strong harvest. We will see. As grain inventories are already low, I expect we’ll need a strong planting season in early 2010. That means a strong demand for fertilizers.

At current pricing for potash, there is no incentive to boost production by investing in new capacity. The financial crisis also laid low any plans for more potash. A greenfield project — that is, one started from scratch — needs a higher price to make it work.

As Doyle pointed out, the cost for a 2-million-tonne facility in Saskatchewan is approaching $3 billion. That doesn’t include the infrastructure you need around it. Plus, it would take nearly a decade to get that new project generating a return on investment.

So from an investment point of view, potash still looks very good.

Source: One Commodity Worth Buying

Good day… And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what’s going on this morning, as I just woke up, and it’s very late in the morning! I was very careful to set my alarm last night, and I’ve never been one of those people that hit the snooze button when it goes off, but here I am, waking up late… UGH!

So… I’m writing from home, and then I’ll shoot in to work… We’re short handed this week, so, I’m sure everyone will be arriving to the office, not see my car, and be a little ticked… So, I’ve got a surprise for them, something they’ve never seen… Me come in late!

Well… It looks like Risk is under pressure once again… And the only thing I can see that’s causing this Risk Aversion, is the Corporate Earnings Season… For instance we get 4 banks reporting this week, Goldman (yes, remember they’re a bank holding company now… They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi…

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So… The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I’ve harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I’m talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks… And how I was just wishin’ and hopin’ and thinkin’ and prayin’ that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew… No wait, I can’t say that… I just knew, not that I know anything on the inside, that is… That stocks were going to be under pressure from the Corporate earnings season, and with the “link” still in place… That wouldn’t be good for currencies and commodities… Let’s hope I’m wrong!

The one piece of data we get today is the Budget Statement… Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)… Historically, June prints at a surplus… But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov’t are down 18%, and Year-to-date outlays are up 19%… That doesn’t bode well for “history to come into play here”…

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs… no need to build offices for the “ghost jobs’ that the BLS adds each month, because… THEY DON’T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning… I have to be clear and concise to get this out the door and me off to work!

Well… With the risk aversion back on the table… The two main beneficiaries remain to be Japanese yen and the U.S. dollar… Swiss francs are on the “kids table” but still a part of the beneficiary crowd…

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town… The Brazilian real is seeing a bias to sell, but for the most part has hung in there… Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So… I guess, what I’m saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the “new world currency coin” at the G-8 meeting last week? He said.. “We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies. So… Here it is! This is a symbol of our unity and our desire to settle such issues jointly.”

He then pulled a new coin out of his pocket and displayed to the attendees… Now… Don’t get all tied up and twisted over this at this point. This was simply a “symbolic” move, there aren’t mints all over the world rushing to get these coins minted and out the door… But, if you get the “symbolic” part, then you understand what Medvedev was attempting to do here… He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can’t believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn’t getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves….

You know, I’m not for this “global currency”… I just wanted to make that clear! I’m not for removing the dollar as the reserve currency, for I know all of the “perks” that go along with it being the reserve currency! I’m just here to report the facts, and give my opinion / market commentary on how I think it will affect things…

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it’s how things are done! Treasuries will get their comeuppance too one day… You can’t just keep printing and printing and thinking that “buyers” will be there at the auction every time you print more… It’s not going to happen that way… At least in my thoughts it won’t!

OK… Time to go to the Big Finish… I know, I know, little shorter than usual this morning… But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold… $912.70

That’s it for today… Went to the Futures Game yesterday, to sit through a 4-hour rain delay… UGH! Let’s hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I’m at work… Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season… This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities… I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So… Busy, busy, busy… Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

Source:  Back To Risk Aversion!

This from a recent interview with Steve Forbes, which you can watch in full on Forbes.com

But then even buying Treasuries, you have the risk of under-performing inflation at today’s rate that you’re getting on Treasuries, right? Certainly with today’s yield, relative to the stock market, I would think Treasuries would be a terrible investment. In fact, we’re short an ETF that owns 20-year Treasuries because we think rates are going up. My point, though, is you can do one of two things.

Generally speaking, to the extent that you can, you can own bonds and stocks, and then within stocks you can pick stocks on your own or you can own a mutual fund or an index fund. I think that picking stocks and doing better than the market over time is very, very, very difficult. Most professionals can’t do it and most individual investors can’t do it. Human beings are hardwired to do precisely the wrong thing, which is buy things when they’re high and popular, and sell them when they’re low and unpopular. And of course to be a successful investor you have to do the complete opposite. I think most average people, who don’t have the time and the training to pick stocks, would be better off in mutual funds or index funds.

Tilson is right that we are “hardwired” to buy high and sell low. That’s why here at Notes we follow only contrarian investors – those that take advantage of the crowd’s uncanny ability to do the wrong thing when it comes to their money. As our commodities investing guru Rick Rule puts it, “You’re either a contrarian or a victim.” Amen to that…

There’s never been a better time to invest in commodities. That’s a very simple statement, but it’s backed by three powerful points:

• Commodities tend to do well when more-popular investments (with retail investors) are doing poorly, and when economic conditions are less than ideal.
• When the typical economic underpinnings are at play, a “Secular Bull Market” for commodities tends to last for about 17 years. And right now, the underpinnings are far from typical – and may even be exemplary, meaning this bull-market run could last a lot longer than the norm.
• And last, but not least, we’re only about nine years into this commodities bull market, meaning there’s probably a lot more room to run – probably eight years, and very like even more.

Amazingly, this powerful notion of the “Secular Market Cycle” – despite its tremendous profit potential – is largely unknown to the investment masses, and is rarely discussed by the mainstream business news media. Indeed, it’s so taken for granted that it almost a market secret.

If you’re a long-term investor, however, you’ll ultimately realize it’s one of the most lucrative strategies you have in your investing arsenal. And most amazing of all is that it’s easy to understand, easy to deploy, and easy to profit from.

Let me explain.

The Secret of the Secular Market Cycle

Why is it so special?  Well, with a finite time to invest for your retirement, it’s crucial to recognize and understand what we like to refer to as the “Secular Market Cycle,” or “Secular Cycle,” for short.

As the chart shows, a Secular Cycle, from peak to trough, typically lasts about 17-20 years on average (the period depicted by the chart ends in 2004, but still perfectly illustrates our concept). And there are essentially two types of cycles:

• The “Secular Bull Cycle,” during which regular stocks increase in value, and have their Price/Earnings (P/E) ratios (earnings multiples) expand. That means that stocks get more expensive.
• And the “Secular Bear Cycle,” during which stocks tend to experience a decline in both price and valuation, with P/Es that contract. At best, stock prices move sideways over an extended period, but still see their P/E multiples shrink, since corporate earnings are growing at a time when stock prices are stagnant.

For investors, one key problem is that an overall “Secular Cycle,” from trough to peak, and back to trough, can take 35 years. That’s a big chunk of a person’s wage-earning years, meaning there’s little room for missteps.

Now, there’s no point in fighting a secular market trend – not if you want your investments to grow.

So it’s essential to determine where we are in the cycle, because that will dictate expected returns over the following decade or two.  And since most people only spend about 40 years of their lives investing for retirement, not knowing about the “Secular Cycle” – much less where we are right now in the cycle – leads to guesswork, mistakes and losses, instead of the clear planning that will generate the best investment decisions and, ultimately, the biggest profits.

But in order to see where we are, we need to figure out where we’ve been.  To do that, let’s take a look at a very-long-term chart of the stock market in order to study the historic market trends. Then we’ll look at some other key factors – such as the value of the U.S dollar – to confirm our analysis. This is a process few investors take the time to work through.

Where are we right now?  Well, since about 2000, we’ve clearly entered a Secular Bear Market for general stocks.

All too often, investors read such a statement and conclude that its “game over” for portfolio profits. And that’s just not the case.

There’s an old market adage that says “there’s always a bull market somewhere.” That’s true even today, in the midst of the worst financial crisis since the Great Depression. Even if there’s a Secular Bear Market for stocks, it’s very likely that you’ll find a Secular Bull Market forcommodities. So all you really need to do is to focus your investing efforts on the hard-asset sectors.

The Makings of a Secular Commodity Cycle

The last commodity cycle ended around 1980.  Essentially, a prolonged period of high commodity prices encouraged producers to over-develop their resources.  Demand never fell off.  Instead, there was a massive oversupply, and the commodities party eventually ended.  Prices got pushed off a cliff, so the entire sector became lean in a hurry as profit margins imploded.

As you’ve probably guessed, exploration soon ground to a halt.  And little or no money was invested to expand production.  Over the next two decades, investors rejected hard assets.

Over time, known resource reserves were continuously plundered, and finally gave out about nine years ago. At about the same time, the Four Asian Tigers of Korea, Taiwan, Hong Kong and Singapore were already building a gargantuan appetite, and China’s big growth spurt was gaining momentum and growing in magnitude.

The situation has only gotten worse, with global commodities demand continuing to advance – even in the face of sapped inventories.

The Three Catalysts for Major Commodity Profits

We now know that a typical Secular Bull or Bear market will last 17-20 years.  We also now know that the last Secular Commodity Bull was launched roughly around 2000.  That allows us to conclude that we’ve easily got between eight and 11 years to go before supply catches up with the burgeoning global demand that we’re seeing right now.

Yet according to such renowned market experts as author and investing icon Jim Rogers, a number of “wild cards” are in place this time around, meaning this bull market in commodities may have a lot more room to run than its more-typical predecessors. Three factors in particular are extremely bullish for commodities investors:

• Global Infrastructure Spending: The Organization for Economic Cooperation and Development (OECD) last year estimated that worldwide investments in power-generation, water and transportation infrastructure projects would exceed $40 trillion by 2030 – and that was before countries around the world enactedhundreds of billions of dollars in stimulus-spending programs.

• Improving Worldwide Living Standards: About half the world’s 6.7 billion inhabitants are simultaneously pushing to improve their living standards, a fact that by itself stands to create a commodities demand shock never before seen – enough by itself, in fact, to extend the secular commodities bull by five additional years.

• Modernization Efforts in Major Markets: The modernization initiatives in China, India, Brazil, Eastern Europe and other portions of Asia are extremely bullish for commodities prices.

So if you’re looking for a place to stash your cash for the next 12-15 years, look no further: Commodities are the key profit play to make.

Two Arguments Against Low Current Prices

Unless you’re Rip Van Winkle, or had taken up residence in Biosphere 2, you know that the global financial markets suffered through a panic sell-off, and that we’re mired in one of the worst economic downturns in decades.

We also know that many investors sought refuge in U.S. Treasury securities. In order to buy Treasuries, investors throughout the world first bought U.S. dollars, driving up their value in relation to virtually every other major currency. That anomalous and unsustainable U.S. dollar spike hurt commodities, as they are all priced in terms of dollars.

The fear of a deep worldwide recession – or perhaps even a depression – served to temporarily frighten investors out of commodity plays, since the prevailing wisdom was that the global malaise would cause demand for natural resources to plunge. That, too, dampened commodity prices.

But investors who right now fear commodity plays are looking at this from the wrong vantage point: Instead of representing a dangerous point, the situation now at hand is nothing less than an extraordinary opportunity to either make their first foray into commodities, or to add to existing positions during periods of exceptional weakness.

What investors need to understand is that – in the last seven months or so – they have been witness to an impressively quick and coordinated adjustment on the part of commodity producers.  No time was wasted to pull the plug on unprofitable production, suspend near-term new production, or slash capital spending or investments in all forms of exploration.

Right now, most commodities producers are operating with little or no spare capacity. The fat’s been trimmed, and prices are down a third from this time last year.

It’s a situation that just can’t last – for two very simple reasons:

• First, world demand can’t be reversed on a dime. At least half the world continues to move forward with modernization initiatives. Massive infrastructure efforts continue unabated. And governments from both developed and developing nations are ensuring that this infrastructure-modernization train doesn’t get derailed.

• Second, central governments have recently put on a show of unprecedented fiscal cooperation, unveiling colossal bailout and spending plans. The United States ($787 billion) and China ($586 billion) alone have unveiled stimulus packages worth a combined $1.37 trillion. The addition of all that newly printed money means there are even more dollars chasing a still-fixed quantity of goods. And that can lead to only one outcome: A big increase in commodities prices.

We’ve become used to seeing prices increase. Price increases are merely a fact of life.  That’s why we see pay raises each year; we’re trying to compensate for the prices that are rising all around us.

But the magnitude of recent money-supply increases dwarfs the benign, garden-variety annual price increases of 3% to 6% that we’ve grown used to seeing. In the last year alone, the U.S. Federal Reserve has actually doubled the U.S. monetary base. That can only lead to serious inflation, perhaps even hyperinflation.  This will cause the value of the U.S. dollar – which has been eroding since 2001 – to decline at an even-more-frenetic pace. Over time, in turn, this erosion in the value of the dollar will lead to a big increase in the prices of many goods, particularly commodities imported from abroad.

That’s yet another reason why investors must consider resources of all kinds.

Profit Plays to Consider Now

With class now over, it’s time to put your newfound insights to work, searching out ways to earn the outsized profits that will be available from the Secular Bull Market in commodities.

If you want an automatically diversified approach, check out the various resource sector mutual funds available to you.  That can be a great starting point.  Make sure to look at each fund’s individual holdings, which will give you a feel for that fund’s focus, and that will also help you get more familiar with the individual companies and what they do.

If you prefer individual stocks, you have to get to know BHP Billiton Ltd. (NYSE ADR: BHP).  This $140 billion resources behemoth is the largest diversified mining company on earth.  With an enviable balance sheet and cash flow, this producer of base metals, precious metals, diamonds and energy is way ahead of the pack.  With a current P/E of 11.66, the stock isn’t bargain basement cheap, but it still represents a good value. Besides, this is a stock that you’ll want to hold all the way to the very end of the
Secular Cycle.

Exchange-traded funds (ETFs) and exchange-traded notes (ETNs), on the other hand, provide investors with a more-direct exposure to commodity prices, as opposed to exposure to the stocks of the commodity-producing companies.

The broadest exposure you can get is probably through the ELEMENTS Rogers International Commodity Index Total Return ETN (NYSE: RJI).  RJI, based on the index built by the investing-guru Rogers, himself, is comprised of 34.9% agriculture, 21.1% metals, and 44% energy.  Another viable option is the PowerShares DB Commodity Index Fund (NYSE: DBC).  While less diversified – with 22.5% agriculture, 22.5% metals, and 55% energy – it boasts large trading volume.

You can also get exposure through some of the ETFs that focus individually on agriculture, coal, nuclear power, and steel-related companies.  Van Eck’s Market Vectors’ suite of ETFs – such as its Market Vectors Agribusiness ETF (NYSE: MOO) – is a great place to start.

Finally, you’d be wise to get some gold exposure too.  Gold miners could be an excellent hedge against the enormous inflationary pressures thatMoney Morning has repeatedly warned investors to expect. In this case, the Market Vectors Gold Miners ETF (NYSE: GDX) – composed chiefly of major gold miners – offers both company and geographical diversification, while including substantial leverage to the price of gold.  GDX is based on the AMEX Gold BUGS Index (HUI), which represents a portfolio of 15 major gold mining companies that do not hedge their gold production beyond a year and a half.

The bottom line: As you go about rebalancing your portfolio – or continue rebuilding it as a result of the financial-crisis carnage – make sure to include room for a solid natural resources allocation.

In the next couple of years, as U.S. and overseas economies recover, commodities producers will pay the price for recent major cuts in production, development and exploration – discovering it will be very tough to boost output even as global demand soars.

Shrewd investors will reap the benefit of those decisions: Those shortages will persist, providing quite a tailwind for soaring prices.

Just make sure that your sails are fully deployed.

Source: The “Secret” Investing Strategy That’s Your Best Bet For Commodity Profits

Editor’s Note: If you’re new to the commodities-investing arena, and are uncertain about the landscape – or even if you’re an “old hand” at natural-resource stocks, but want some insights into the new profit plays and new players – consider hiring a guide: Money Morning Contributing Editor Peter Krauth , a recognized expert in metals, mining and energy stocks, is also the editor of the Global Resource Alert trading service, which ferrets out companies poised to profit from the so-called “Secular Bull Market” in commodities. A former portfolio advisor, Krauth continues to work out of resource-rich Canada, which keeps him close to most of the companies he researches. Against the growing global financial malaise, Krauth says that commodities are among the most-profitable and least-risky investments available, and notes that this may well be the most powerful bull market for commodities we’ll see in our lifetimes. He makes a strong case. To read more about his strategies, and the sector plays he likes the most, please click here. ]]> http://www.contrarianprofits.com/articles/the-%e2%80%9csecret%e2%80%9d-investing-strategy-that%e2%80%99s-your-best-bet-for-commodity-profits/18915/feed 0 http://www.contrarianprofits.com/articles/risk-returns-slowly/18902 http://www.contrarianprofits.com/articles/risk-returns-slowly/18902#comments Thu, 09 Jul 2009 14:00:52 +0000 Chuck Butler http://www.contrarianprofits.com/?p=18902 Currencies rebound…  G-8 has no fireworks…  Aussie / China and coal… Entitlements… And Now… Today’s Pfennig!

Good day… And a Tub Thumpin’ Thursday to you! I’m late, I’m late! I don’t believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today… I’ve got to play catch-up! So, let’s get this Tub Thumpin’ Thursday going!

Well… Let’s see… G-8 never had the opportunity to shoot fireworks because China’s leader had to return home to deal with the street riots going on in his country. So… The call for a replacement for the dollar…

So… When I came in on Tuesday, the euro was 1.3920… When I came in this morning, the euro was trading 1.3925… Trading with yesterday’s clothes on. Back and forth, back and forth, the currencies seem to be in a rut… So, what happened to all the thoughts yesterday that China was making its first of many baby steps toward removing the dollar as the reserve currency? Well… They had the cold water of denial thrown on them… And the fact that apparently traders out there don’t believe the “China story” that I put on the table yesterday.

That, and the fact that U.S. stocks saw selling to the tune of -161 points in the DOW… I saw a story last night that came from a report by UBS, that said the euro will suffer in the coming weeks because of the U.S. earnings season putting pressure on stocks… Now, I agree with that statement sort of… I agree that right now, currencies are tied to risk assets like stocks, all thrown in the barrel like some college fraternity drinking party mix.. Not that I would know anything about that… But I’ve heard about it for sure! So, any way, back at the ranch… And I agree that the Corp earnings season in the U.S. is going to be very disappointing, causing stock prices to be weaker, and that will put pressure on the other risk assets, like currencies, and commodities…

But it doesn’t have to be that way! For as long as I could remember, well, back to 1992, when I began dealing currencies, I have not seen stocks, currencies and commodities all tied together for any long period of time… Whey they are thrown together now, has not been rationally explained to me by any one! But they are… The markets have done this, and the markets are “never wrong”… And once again, my thought that the markets always do what they are supposed to (which in this case would be a split of currencies and commodities from stocks), just not “when”!

So… Even though we’ve seen signs of the “break-up” the link / tie is still there, maybe not as strong, but still there…

So… I can hear you asking… “Hey Chuck, what’s it going to take to get these asset classes to break the link to each other?” Whoa there partner! You’ve learned well grasshopper, what a wonderfully crafted, and well thought out questions! Thank you sensei… You’ve trained me well!

OK, enough of all that! Let’s see… What’s it going to take?… Hmmm… Well, it will take a return to fundamentals… And I don’t think we’ll see that in earnest until the U.S. shows some life, and all the talk about additional stimulus goes away… The more we put 100 miles of desert between the financial meltdown and where we might be going, the better the chances of a return to fundamentals.

OK… There’s a BIG debate going on with the two sides in completely different colored corners… In the Blue corner we have those that fear the $1.1 Trillion in money supply that the Fed has put into the economy, and the fear that the Fed will leave rates too low for too long, thus creating inflation on the other side of this current phase of asset price deflation… In the Red corner, we have those that are true believers of the Fed and that they will be able to remove the stimulus of money supply and low interest rates without even a hint of inflation…

In the Blue corner is where you’ll find me… John Williams… And Morgan Stanley among other notables… In the red corner is where you’ll find a handful of economists, and Goldman Sachs… Speaking of Goldman, you wouldn’t expect them to say anything else but to support the Gov’t / Fed on this would you? I mean, it’s almost like they are related to each other! It gets a little creepy for me… But I think you get what I’m saying here…

And down south in Brazil, where one piece of good news from the country is followed by another, as witnessed by yesterday’s announcement that Moodys was going to review Brazil’s ratings for a possible upgrade, which was followed by a research report from Merrill Lynch. The brokerage that owns a bull, but is now owned by Bank of America, issued a research report saying that “Brazil’s real may gain the most among Latin American currencies in the 2nd half as a rebound in prices of the country’s commodity exports buoy the trade surplus.”

Well… The 1st half wasn’t so darn shabby for the real, as it gained over 16% VS the dollar in the 1st half of 2009… But we must temper this euphoria with the real with a dose of “reality” (get it?) This real is one volatile currency! The wild swings are enough to give the faint of heart a need to grab the heart pills! And… It IS AN EMERGING MARKET! And we all know that EMERGING MARKETS can be trying on one’s patience…

OK, having said that… You can’t deny that Brazil has really turned things around from 8 years ago… And now they’ve teamed up with heavyweights Russia and China, and brought along India, to form the BRIC’s, which have been giving dollar bulls major headaches in recent days as they demand to be a part of the world’s financial discussions, and work together to bring an alternative currency to the world’s stage…

The G-8 meeting that has been on most currency traders’ minds is going on as I write… At this point, China has not been allowed to speak, but they will be given that chance soon enough… Right now, the discussion is going on about how to make oil markets more stable… Hmmm… I’ve got the answer to that one… Find an oil reserve in your country, and then forget about everyone else’s oil problems! HAHAHAHAHAHA!

In Australia overnight, Consumer Confidence is on the rise, even if the currency has taken a step back… Consumer Confidence is up 9.3% in the recent month, following the 12.77% gain in June… Unfortunately, as I said the currency has taken a step back… The A$ has lost not only the 80-cent handle, but the 79-cent handle too, in the last two trading sessions…

All the March through June euphoria regarding a global recovery is getting dragged through the mud right now, and the U.S. earnings season won’t help matters any either… So, watch this currency as a proxy for world economic recovery… It will all be on the sleeve of the Aussie dollar…

Do you know what “shadow inventory” is? Well, it’s the new buzz-word that’s getting quite a bit of attention… Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale — a number that’s increasing. It also includes homes that owners want to sell but are waiting to put on the market until it improves.

Well… I told you a year ago that the housing problem was being made worse by all the inventory of houses that needed to be sold… And even our Mr. Magoo, former Fed Chairman, Big Al Greenspan, noticed the inventory as being a problem… Well, this shadow inventory could be adding to the already too big inventory… It’s like this “inventory” is hanging over the housing market like the Sword of Damocles!

So according to the data I saw… 3.5 million homes are now for sale… This Shadow Inventory is larger than that! The result, as this inventory comes into the market? Well… It will continue to put pressure on home prices downward… Oh boy! Just what house prices need, more downward pressure!

As this housing meltdown drags on… (and I might add, for those that were drinking the kool-aid, and wouldn’t listen to me when I kept harping about the housing bubble bursting, this has got to be very painful) you can see why there are those (and I’m one) that believe the housing recovery won’t come for some time… Maybe not until 2012! But probably 2011…

And then there was this… Google has announced that they will be selling an operating system to compete with Microsoft… I guess they didn’t take too kindly to Microsoft’s entry into the search engine arena! HA! I say that in jest, as these things take long periods of time before bringing them to the markets, obviously! I just found this story to be interesting…

And did you hear about how the Swiss government said Wednesday that it was prepared to seize UBS client data rather than allow the bank to hand it over to the United States to settle a tax case? Another interesting story…

And finally… The Eurozone printed 1st QTR final GDP results at a negative -2.5%… So… Again, we go back to the conversation regarding who’s car is uglier? The U.S. contraction in the first quarter was -5.7%… And in the Eurozone it was -2.5%…

Oh… And one more thing… I get people all the time telling me that China is fudging the numbers with their growth figures… Well, that may be, but it’s all we have to work from, we don’t live there, we don’t have any idea but what the Gov’t tells us! And the Gov’t told us in April that it was +6.1%, and I fully expect for them to tell us it will have risen to 8% in the 2nd QTR… Just go with it… It’s all we know… It’s not like here in the U.S. where we can see the difference from the reports the Gov’t tells us are true…

OK, on to the Big Finish… This has dragged, uh, I mean carried, no, I mean moved along so nicely that you don’t want it to end… Yeah, that’s the ticket!

Currencies today 7/8/09: A$ .7865, kiwi .6285, C$ .8590, euro 1.3920, sterling 1.6090, Swiss .9185, rand 8.1315, krone 6.5290, SEK 7.6575, forint 199.25, zloty 3.1780, koruna 18.68, yen 94.30, sing 1.4615, HKD 7.7505, INR 48.89, China 6.8325, pesos 13.42, BRL 1.9975, dollar index 80.63, Oil $62.47, 10-year 3.47%, Silver $13.07, and Gold… $921.65

That’s it for today… A crazy day in the currencies yesterday… Glad that’s behind us! Had a nice long talk with my economist friend yesterday. She is always so upbeat about stuff, and I’m always so reality based that we even out the conversation! I look forward to these conversations that take place about twice a year… I wish it were more, but she’s busy, and I’m busy, and there just aren’t enough hours in the day sometimes! I asked the question… If the Gov’t thought AIG was too big to fail, how can they sit there and watch what’s going on in California, the world’s 7th largest economy falling deeper and deeper into the abyss? We came to the conclusion that the Gov’t probably won’t watch it too much longer without reacting… So, there! You were a part of an economist discussion! Made your day, I’m sure! OK… Time to get to work… Let’s say this over and over again this morning… It’s going to be a Wonderful Wednesday!

Source: Back and Forth We Go!

Mr. Market is about to heal America’s collective amnesia.

Investors will once again remember why they were selling stocks last March, and they will also remember why they used to invest in natural gas.

Share prices have gained a lot of ground during the last few months, even though the economy has not. The major averages have rallied about 40%, but many stocks are up a whole lot more than that. Seventeen of the thirty-three stocks I have recommended to the subscribers have gained more than 50% since those March lows. Eight are up more than 100% and one is up more than 200%.

Robust rallies like these are not uncommon, even in the worst of markets. By now, you’ve probably read about how the stock market rallied 41% in early 1930 after the crash of 1929. Yet that rally fizzled and the stock market tumbled to even lower lows, and had years of hard slogging ahead of it.

I’m not saying this is 1930, but I would caution against overconfidence. Investors should be looking to hedge their bets after this recent rally… and should be looking for a margin of safety. I believe natural gas might be a great place to hide.

Natural gas is, simply put, super cheap. As most other commodities – including oil – have rallied, natural gas has remained stuck in the mud. In fact, the ratio of the price of crude oil to the price of natural gas topped 18-to-1 recently, which is a ratio we have not seen since 1990.

The spike in this ratio is due to two very simple facts: oil prices are rising, gas prices are not. The prices of these two energy sources tend to loosely track one another. But as the chart below illustrates, the prices of oil and natural gas have diverged dramatically during the last six months.

This trend has not been pleasant for natural gas producers, nor for the folks who have been investing in natural gas stocks. In this market, where nearly everything is rallying, the shares of most natural gas companies have been conspicuously sluggish. But the past is not necessarily prologue. I have not seen a better opportunity in many years to buy natural gas stocks.

Let me lay it all out for you before you click “delete” on this e-mail.

There are two reasons why natural gas prices are likely to rise from their current depressed level:

1. Natural gas exploration efforts are dropping rapidly, which will lead to a drop in supply.
2. Government initiatives will create significant new demand for natural gas.

Let’s begin by acknowledging that the price of natural gas fell because there was too much of it. We are in a recession, after all. Industrial demand for natural gas has fallen through the floor and into the basement. But the best cure for low prices is low prices.

Producers are cutting back, thereby reducing supplies. The rig count has collapsed. It has fallen much faster than in the 1981/82 collapse, the worst drop since the Great Depression, and one that still makes old-time natural gas men cringe to this day. Meanwhile, the decline rates on shale gas plays (which helped contribute so much gas to supply during the last few years) are 60-75% – meaning that the flow of gas from these wells will drop by this percentage in the first year.

Another point: The marginal cost to produce natural gas for the vast majority of natural gas companies is somewhere around $6-8 per thousand cubic feet (mcf).

Production costs are an important guide to natural gas prices, as the nearby chart illustrates. The natural gas price usually bounces off the “cash cost” of production. No producer makes money below cash costs. So supply drops. Conversely, when gas prices gravitate toward the marginal cost of production, supplies increase, thereby putting pressure on prices.

Right now, the spot price of natural gas is under $4 – sitting right on the industry’s cash costs, but well below marginal costs. In short, natural gas supply is going to start to dry up here really soon.

Meanwhile, the war on so-called greenhouse gases is officially under way. As this war progresses, clean fuels like natural gas will attract growing demand. Each passing month brings us closer to capping, taxing or cutting the gases thought to cause global warming.

I don’t think investors appreciate how far-reaching such efforts could be. And there will be definite winners and losers as a result. Some of these are far from obvious and some are in plain sight.

The first obvious big loser is American coal, from which we get half about of our electricity needs. Already, you see companies reacting to this news. Consol Energy, a big coal company, said it halted two big mines in Appalachia because of uncertainty over the costs of pending new regulations. If you own a U.S. coal miner, I’d fold the hand, so to speak.

Coal-fired power plants look like big losers, too. And the utility AEP, the biggest user of coal in North America, is looking to shutter some of its coal plants. It is also looking at how high rates would have to go to comply with possible rule changes. In some places, rates could rise as high as 50%. It is no sure thing that AEP could get such rate increases. Natural gas-fired plants, by contrast, may be one winner relative to coal. Natural gas, in general, looks to be a winner.

Beat the rush; buy your natural gas stocks now.

Source: To Do: Buy Natural Gas