This phenomenon will push price inflation much higher, giving you an opportunity to profit on the “reflation trade” that will play out over the next decade.

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/the-russia-pick-i-recommended-to-you-is-up-39-in-53-days/17399 http://www.contrarianprofits.com/articles/the-russia-pick-i-recommended-to-you-is-up-39-in-53-days/17399#comments Mon, 01 Jun 2009 20:50:20 +0000 Ted Peroulakis http://www.contrarianprofits.com/?p=17399 For quite some time I was interested in recommending that my readers invest in Russia. I still had concerns about some political issues and organized crime in the country.  Most experts out there tell people to stay away from Russia, so I knew I had to do further research myself.

One day I told my lovely wife to get her passport ready because we were going to Moscow.  She was quite excited because Moscow is a shopping mecca with many historical sites to see.  But, I assure you—I was there for business.

We traveled to Russia in December of last year and I saw firsthand how the country operates.  I observed that the Russians are a hard working and productive people that…

We are in the middle of a global economic crisis and commodities are on sale. Buy commodities now while they are still cheap. When we finally emerge from this global economic crisis — prices will explode higher. I’m talking about another long-term bull market in commodities. Let me explain…

Inflation Will Push Commodities Prices Higher

Our Federal Reserve Chairman Ben Bernanke is an inflationist, which is an advocate of the policy of deliberate inflation achieved by increasing the supply of available currency and credit. They call him helicopter Ben because he once quoted a statement made by Milton Friedman, about using a “helicopter drop” of money into the economy to fight deflation.

Bernanke is a student of the causes of the Great Depression, and he has written extensively on this subject. Bernanke knows that deflation is quite negative for an economy and should be avoided at all costs. We have recently seen deflation as prices for real estate and commodities dropped during this recession. But, Ben Bernanke’s Fed and other central banks around the world have fired up the printing presses to combat deflation. They have been dumping new currency into the economy to reverse deflation and stimulate the economy. It’s working! One measure of inflation- the Consumer Price Index (CPI) has recently turned positive. Deflation is out—Inflation is starting.

The problem is, inflation could really skyrocket, especially when we finally emerge from this recession. Inflation eats away at your purchasing power and takes away your wealth.

One of the best ways to protect against inflation is to invest in commodities.

In the 1970s, when inflation in the U.S. was high and the economy was in a deep recession, commodity prices soared.

You want to own tangible assets like metals, energy, agriculture, and livestock as these commodities hold their value in inflationary times.

Exploding Population and Living Standards will Push Commodity Prices Higher

We have already seen a surge in demand for commodities from developing countries, like India and China. Plus, global commodity supplies are low; the inventories for food are the lowest they have been in 50 years. Rising income levels in emerging countries and the spread of western ideologies are having an effect on food consumption. We are seeing greater consumer demand for certain foods like meat and poultry.

The Earth’s population is estimated to be about 6.77 billion, and the world’s population is expected to reach 9 billion by the year 2040. The world’s masses are already demanding more vegetables, fruits, meats and dairy products. Imagine what the demand for agricultural products will be in 10 to 20 years.

Growing global demand from population growth and a rising standard of living will push commodity prices much higher.

Some Good Commodity Picks

The fundamentals make commodities an extremely attractive investment.

Plus, adding commodities to your portfolio gives you added diversification.

Here are some good ways to invest in commodities right in your normal brokerage account:

GLD - This gold tracking Exchange Traded Fund (ETF) mirrors the price of gold.

SLV - This silver tracking ETF mirrors the price of silver.

DBA – This ETF tracks widely traded agricultural commodities like corn, wheat, soy beans and sugar. As agricultural prices rise the price of this ETF goes up.

MOO – This ETF comprises a basket of companies engaged in various sectors of agribusiness like agricultural chemicals, livestock operations, agricultural equipment and ethanol/biodiesel.

PCL – One of the best timber producer stocks. Historically, timber prices have done exceptionally well under inflationary circumstances.

FCX - Freeport is one of the world’s largest copper producers and this copper stock goes up when copper prices go up.

XOM - Exxon Mobil Corporation, a great way to invest in oil.

Take a close look at investing in commodities. We are at the beginning of an unprecedented bull market in the commodity sector.

Source: Commodities Are The Best Place To Be For The Next Decade

And, ominously, the price of contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac and to protect against a default doubled in the past two months.

What about the government’s implied guarantee of the debt held by the companies? It seems investor confidence in short supply.

Stocks in Fannie Mae have shed 73 percent in the past year on the New York Stock Exchange. Meanwhile, Freddie Mac dumped 60 percent.

Yesterday currency expert Chuck Butler said the markets were smelling blood in the water. Chuck says the markets now  think Fannie and Freddie will need about $75 billion in new capital to remain viable companies. But a rumored bailout didn’t happen. More from Chuck:

Could these two be the next ‘risk events’ that I keep talking about in the U.S.? It’s all rumors and hearsay now.. But like the song goes… There’s no smoke without a fire…. There’s no heat without a flame…

Or… Could it be the news from Indy Mac, who agreed with regulators to halt new loans under an agreement with the regulators, and then announced that they would cut half its staff as mortgage losses mount? Again, folks, I’m not picking on these companies because I have some vendetta against them… I’m just reporting what’s on the news wires, as something that could affect the value of the dollar in the long run.

Jennifer Yousfi in Money Morning says the end of the housing slowdown is a long way off…

We might be getting closer to the bottom. In fact, existing home sales rose in February, the first such increase in the past seven months. But it’s probably too soon to get excited about a full housing recovery.

“It looks like this may be a temporary pause,” Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Mass., told Bloomberg News after the existing homes sales report was released. “The price declines have helped, and people are still getting financing, though not on the good terms they could before.”

“We’re still a long way from a recovery in housing,” Gault said.

Where to put your money as the credit crisis rollicks on? Invest abroad, says Jennifer. Anywhere but the US…

With foreign economies growing that briskly, there will be plenty of profitable investment opportunities available in the 12 months to come.

With growth sputtering and a recession still possible here at home, investors should turn their attention to such U.S.-based multinationals as McDonald’s Corp. (MCD) and Yum! Brands Inc. (YUM). Both firms derive substantial portions of their sales from overseas markets, where growth is likely to continue over the next 12 months, regardless of what happens to the U.S. economy.

And while these firms offer significant foreign-market exposure, the fact that they’re U.S. based means such corporations as McDonald’s, Yum! Brands and such others as The Coca-Cola Co. (KO) and PepsiCo Inc. (PEP) offer the transparency of U.S. financial reporting requirements and the relative protection of the U.S. investment-regulatory system.

But if you prefer to invest more directly in foreign growth, then Hutchinson – the Money Morning contributing editor – says to try South Korea’s largest wireless service provider, SK Telecom Co. Ltd. (SKM). SK is well positioned to capitalize on the growing Asian markets. Likewise, the Hsinchu, Taiwan-based Taiwan Semiconductor Mfg. Co. Ltd. (TSM) [commonly referred to as TMSC], the world’s largest dedicated semiconductor foundry, is another Asian tech company that is not currently overvalued and should do well in the New Year, Hutchinson says.

Traditional inflation-sensitive investments such as currencies and commodities are also good plays for 2008, investment gurus as Fitz-Gerald and “adventure-capitalist” Jim Rogers both say.

The PowerShares Agriculture Fund (DBA), operated by German giant Deutsche Bank AG (DB), is intended to reflect the performance of four commodities in the agriculture sector: Soybeans (31.13%), wheat (28.87%), corn (23.43%) and sugar (16.58%). These include some of the key agricultural commodity plays that Rogers advocates.

Another is Van Eck’s recently launched Market Vectors Agribusiness Exchange-Traded Fund (MOO). Like the PowerShares Fund, this reflects the agriculture industry but in a different way. Instead, the ETF’s holdings reflect returns seen from agriculture chemicals (34%), agriproduct operations (33.5%), agriculture equipment (24.3%), livestock operations (5.6%) and ethanol/biodiesel (2.3%).

For investors who have the constitution of a Contrarian investor – as well as some patience and a long time horizon – it may be well worth a look at some of the beaten-down financial-sector stocks that state-run sovereign wealth funds are buying into in a wholesale manner. Although many U.S. investors are preaching caution – if not total avoidance – when it comes to companies involved with the American financial-services sector, these government-run investment pools clearly view such stalwarts as Citigroup Inc. (C), UBS AG (UBS), Merrill Lynch & Co. Inc. (MER), and Morgan Stanley (MS), as bargain-basement investment opportunities.

But don’t despair. Because a trend that has long been talked about – economic decoupling – is finally starting to manifest itself as other world economies, particularly the so-called “BRIC” markets of Brazil, Russia, China and India, have continued to grow even as the U.S. economy has slowed. That means profit opportunities abound for U.S. investors, despite myriad messes on the home front that include a collapsed housing market, a mortgage crisis that turned into a five-alarm credit conflagration, and a plunging greenback that seems to have left its parachute on the airplane that it jumped from.

Some of the profit pathways to play:

• Investors can eschew the U.S. market completely, and pursue profits abroad.
• They can latch onto the U.S.-based members of the “Global Titans” club, companies with their headquarters in America that derive a hefty chunk of their profits from overseas markets.
• Or investors can ferret out U.S. investments that are either immune to some of this country’s current economic afflictions, or that are problem-plagued now, but a good bet for a turnaround later.

A Year to Forget?

Like a Dickens’ novel, 2007 was a definite “Best of Times/Worst of Times” combination for the U.S. economy. Volatility and crisis were the watchwords for much of the year. After key stock indices reached record highs in the middle of the year, the explosive emergence of the subprime mortgage debacle and related credit crunch pushed share prices into a nosedive that steepened as the year progressed.

With a 0.6% increase in gross domestic product (GDP) for the fourth quarter of 2007 and a first quarter that’s supposed to be flat at best, it’s clear that we’re not out of the woods, yet. Many fear that 2008 will find the United States in a recession. Other investors believe we have already experienced the first elements of a recessionary contraction.

“If I had to be bold, I’d say we began a recession in December,” Bill Gross, manager of the PIMCO Total Return Fund (PTTAX), told the Financial Times in a recent interview.

The Homeowner Blues

As 2007 progressed, many Americans experienced a growing despair as they watched their largest asset – the family home – experience a significant value decline. The United States is experiencing its worst housing recession in more than 15 years. And that domicile downturn is far from over. Consumers are being forced to watch as the housing slump siphons off the equity they’ve built up, even as it shaves the market value of their homes. Consumers with marginal credit who’d signed up for adjustable-rate loans have seen their mortgage rates “reset,” and then had to watch as their monthly mortgage payment ballooned to the point that they could no longer afford those payments.

For many, unfortunately, refinancing hasn’t been an option. The vanishing homeowners’ equity made such deals unfavorable to lenders. And with the burgeoning credit crisis that quickly became global in nature, banks and mortgage firms have slashed the available amount of refinancing loans that homeowners needed to escape their soaring mortgage payments.

Soon, the banks that had made the questionable calls on subprime loans were in trouble, too. With the housing market cooling, the homeowners who couldn’t refinance also discovered that they couldn’t sell. Homeowner defaults – loans that are 30 days or more past due – soared and started a firestorm that has swept through the global financial-services sector, singing such stalwarts as Citigroup Inc. (C), Fannie Mae (FNM), UBS AG (UBS), and others.

“It will take most of the year to work out of the housing slowdown. Currently, the inventory of unsold homes is at an eight to nine-month level. We have to get this down to a more normal level of four to five months. In order to get to this level, housing starts will remain low,” Dr. Robert Sweet, an economist at MTB Investment Advisors, the investment-advisory subsidiary of M&T Bank Corp. (MTB), said in an interview with Money Morning.

And we might be getting closer to the bottom. In fact, existing home sales rose in February, the first such increase in the past seven months. But it’s probably too soon to get excited about a full housing recovery.

“It looks like this may be a temporary pause,” Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Mass., told Bloomberg News after the existing homes sales report was released. “The price declines have helped, and people are still getting financing, though not on the good terms they could before.”

“We’re still a long way from a recovery in housing,” Gault said.

The Fed to the Rescue?

U.S. Federal Reserve policymakers cut the benchmark interest rate by less-than-expected three-quarters of a percentage point at their last meeting, a move that was designed to energize a badly flagging economy without causing inflation to spike or exacerbating the greenback’s decline.

When central bank policymakers reduced the key Federal Funds rate from 3% to 2.25% on March 18, it was the sixth time in seven months the closely watched benchmark had been reduced. Many analysts had been expecting a reduction of a percentage point – or even more – as such recent events as the near-collapse and subsequent Fed-led bailout of U.S. investment bank The Bear Stearns Cos. Inc. (BSC) stoked fears that the U.S. financial system was ready to seize up.

The policymaking Federal Open Market Committee (FOMC) has now cut the Fed Funds rate six times and slashed the Discount Rate for direct loans to banks eight times since August, when the subprime mortgage market collapsed and created a global credit crisis.

While the FOMC made it clear that inflation has grown as a concern, it still says that economic worries remain the biggest problem and emphasized that it was ready to act again if need be.

“Today’s policy action, combined with those taken earlier, including measures to bolster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity,” the FOMC said in its March 18th statement. “However, downside risks to growth remain. The committee will act in a timely manner as need to promote sustainable economic growth and price stability.”

On the second day of a three-day summit hosted by the U.N.’s Food and Agriculture Organization in Rome, leaders from 40 nations and representatives from 183 countries met to address the growing world food shortage.

“We must focus on the underlying causes: years of neglect of the agricultural sector and the lack of investment in increasing productivity,” U.N. President Ban Ki-Moon told reporters, Bloomberg News reported. “The price of oil has contributed significantly in the price rise of food. There is no doubt about that it affected the cost of transportation.”

The summit has been contentious, as leading biofuel producers such as the United States and Brazil have tried to deflect criticism that ethanol derived from corn and sugar is also driving up food prices, The Wall Street Journal reported.

“We don’t have clear evidence on the trade-off between agriculture products and biofuels,” Ban said, but there is an “urgent need to establish an international consensus and agreed policy guidelines.”

Meanwhile, less-developed countries that have set limits on exports such as rice, in order to feed their own populations, were fighting off calls for more free trade.

“We shall renew our efforts to further improve the environment and establish a fair and equitable order for international agricultural trade and protect the initiatives of farmers for production in developing countries,” Sun Zhengcai, China’s agricultural minister told state-run news agency Xinhua.

Ban laid the blame squarely on the rising cost of grains, which have increased dramatically over the past two years. The U.N. estimates that if countries do not act to stem growing global hunger, more than 800 million people could soon not have enough to eat.

The Global Ag Boom

When asked about the causes for the massive run-up in food prices, “experts” listed many of the same catalysts that have been discussed at the U.N. summit:

• Rising fuel costs.
• The use of certain foods – such as corn – for the creation of biofuels that are being developed to combat global warming.
• Rising populations.
• Growing demand from emerging economies – particularly China and India.
• Floods and droughts that are being blamed on ongoing climate changes.

But two causes aren’t on that list and they should be. The first is subprime mortgage crisis, which caused the U.S. Federal Reserve to go on one of the most aggressive rate-slashing campaigns in its history. The second is a greenback that’s been made weaker with each cut of the Federal Funds rate. Both are part and parcel of inflation.

Unfortunately for all the starving folks abroad, these rate reductions are highly inflationary. They continue to force the greenback ever lower, while at the same time boosting the price of dollar-denominated commodities such as oil.

The answer is a growing global interest in agriculture, both planting more crops and devising heartier, disease-resistant crops through the use of biotechnology.

Long-term, that global “Ag Boom” is the answer to the current food crisis. It’s also how you can offset the rising costs on the consumer side of your personal ledger by ramping up profits from this very same trend on the investment side of your own ledger.

To invest in the commodities boom, look at these two exchange-traded funds (ETFs):

• Van Eck recently launched its Market Vectors Agribusiness ETF (MOO), a fund that really reflects the breadth of the agriculture sector, apportioning its holdings across such sectors as chemicals (34%), agri-product operations (33%), equipment (24%), livestock operations (6%), and ethanol/bio-diesel (2%).

• The Deutsche Bank AG (DB) managed Power Shares Agricultural Fund (DBA) is intended to reflect the performance of commodities in the agricultural sector – soybeans (31%), wheat (28%), corn (23%), and sugar (16%).

Or if you believe that biofuels – and other forms of alternative energy sources – will be an inevitable part of the global future, consider the following “green” ETF: The PowerShares WilderHill Clean Energy (PBW), one of the better-quality funds that focus on “clean” technology as determined by the WilderHill Clean Energy Index.

Source: U.N. Calls for Increased Cooperation to Fight Growing Global Food Crisis

Don’t you believe it.

I’ll grant you, the alliterative moniker for the crisis cooked up by WFP Executive Director Josette Sheeran was clever – if not downright brilliant: It was picked up by dozens of global news services and was actually featured prominently in quite a few headlines. It’s also one of the most accurate descriptions of a growing global crisis that I’ve ever seen.

You see, the “silent tsunami” is real. And as the damage escalates, the silence will devolve into a grating global cacophony of pain, poverty and protests. The folks at the U.N., the World Bank, and in global capital cities from Beijing to Washington all have vowed to fight back. In Great Britain, the government this week hosted a world summit at its offices on Downing Street.
But there’s a problem. And it’s a pretty big one: You see, even the folks who are planning to battle back against the “silent tsunami” aren’t fully armed in that they don’t really understand all its causes.

Nor do the victims understand the very real steps that they can take to protect themselves – let alone how to offset at least some of the damage by profiting on the very real global trends that have whipped up this worldwide food firestorm.

Let me explain …

Fanning the Flames of a Global Food Crisis

By “silent tsunami,” Sheeran is referring to soaring worldwide food prices – the first truly global food crisis since World War II. The WFP says the crisis already threatens 20 million children in the world’s most-poverty-stricken regions, and has ignited demonstrations and protests in Africa, across Asia, and throughout the Caribbean. This unrest even led to deaths in Haiti and in Cameroon, where civil servant Samuel Ebwelle told a journalist from The Associated Press that the thought of continued escalations in the price of food scares him deeply.

“We are getting to the worst period of our life,” said Ebwelle, 51. “We’ve had to reduce the number of meals we take a day from three to two. Breakfast no longer exists on our menu.”
World Bank President Robert B. Zoellick claims that as many as 100 million people could be forced deeper into poverty. And U.N. Secretary-General Ban Ki-moon says the soaring price of food is undermining a goal of slashing worldwide poverty in half by 2015.

So just how bad is this “tsunami?”

According to the World Bank, worldwide food prices have risen a scorching 83% over the past three years. The price of rice – a staple of daily diets all across Asia – has actually doubled in the last five weeks. [Here in the United States, the Sam’s Club warehouse stores unit of Wal-Mart Stories Inc. (WMT) actually began limiting rice purchases yesterday (Wednesday)].
Research such as the World Bank stats certainly give the crisis a somewhat daunting feel, but it’s when an American consumer takes a look at actual grocery store prices that the impact finally starts to hit home. Consider these prices from a U.S. Bureau of Labor Statistics study:

• A dozen large Grade A eggs that two years ago cost $1.33 now costs a U.S. shopper $2.17 – 63% more.
• A pound of whole wheat bread has jumped 42% during that same period, moving from $1.32 to $1.88.
• A gallon of whole milk has jumped 20%, moving from $3.22 to nearly $3.90.
• And a pound of white flour, a key ingredient in so many things, has soared 39%, from 33 cents to 46 cents.

Add in the impact of rising fuel and energy prices – regular gasoline that consumers use to drive to their jobs or run family errands is up 18% in the past year, while the diesel fuel that powers the trucks and trains that deliver goods from producers to market has soared 44%.

The bottom line is this: In the U.S. market, inflationary forces have struck hard at staple goods – the essentials like groceries, gasoline and healthcare – causing them to soar, while having very little impact on luxury goods that many American consumers are avoiding right now anyway.

Because food and energy costs are backed out of – not included in – the so-called “core” rate of inflation, domestic pricing pressures still look fairly benign, with inflation running at a tad bit more than 4%.

But clearly the “real” inflation rate is much higher. And U.S. consumers and investors know it, because they’re worried – if not afraid.

According to a USA Today/Gallup Poll released yesterday (Wednesday), 73% of the American consumers surveyed cited soaring food costs in the form of rising grocery bills as a concern, while nearly half said that food inflation has caused a “hardship” for their households.

That’s here in the United States. Let’s now take a look overseas, where the rising prices aren’t merely a “hardship” – they’re a disaster.

Causes, Effects, Solutions

The U.N.’s World Food Programme says the soaring food prices will leave a $755 million shortfall in its $2.9 billion budget, forcing cuts in vital programs.
“This is the new face of hunger – the millions of people who were not in the urgent hunger category six months ago, but now are,” Sheeran said. “The response calls for large-scale, high-level action by the global community, focused on emergency and longer-term solutions.”

But here’s the crux of that problem: Before you can fix a problem, you have to understand its root causes. And it’s clear to us that very few folks really see the big picture.
When asked about the causes for the massive run-up in food prices, “experts” listed many of the same catalysts:

• Rising fuel costs.
• The use of certain foods – such as corn – for the creation of biofuels that are being developed to combat global warming and to take up the slack for the increase in conventional fuel prices.
• Rising populations.
• Growing demand from emerging economies – especially China and India.
• Floods and droughts that are being blamed on ongoing climate changes.

Unfortunately, they forgot two causes – and they’re not small: The first is the implosion of the U.S. subprime mortgage bubble, and the second is a greenback that’s so weak that it’s threatening to disappear altogether. Both are part and parcel of inflation.

By creating all the cheap money that created, first, the U.S. Internet stocks bubble and, second, the U.S. housing bubble, the U.S. Federal Reserve essentially created the subprime mortgage bubble. When that burst, as all bubbles must, it created a global financial crisis that forced all the world’s key central banks to create additional liquidity in an attempt to basically bail out the world’s developed economies [and lest we try and blame the United States for all of this, let’s not forget that Great Britain has a humdinger of a housing bubble that’s deflating, but hasn’t quite fully collapsed].