The 1990s were an ideal period to have timber as an investment:

• Housing was doing well, and growth was beginning to take off in major cities.
• The world was still pre-digital, and business still relied heavily on shuffling paper.
• Electronic news was still a novelty; magazines and newspapers were still going strong.

What a difference a decade makes…

• Housing is in the dumper, with no clear sign of a resurgence on the horizon.
• Business has embraced the smartphone and has gone digital, shunning paper.
• The world is increasingly getting its news in electronic form, as evidenced by the number of newspapers that are no more.

This shift away from stuff that comes from trees has resulted in an almost complete lack of demand for wood or wood pulp. As a result, prices for paper and lumber have hit multi-year lows. Lacking any catalyst for change, it’s the perfect setup for an extremely overvalued scenario in the timber industry.

Timber REITs… Look Out Below

Whereas timberland prices hovered in the $1,500 to $2,000 per acre range in the mid 1990s, a more realistic valuation today is less than half that. And therein lies the problem: Many of the timber REITs haven’t devalued their land.

If it sounds a little like the looming overvalued commercial real estate mess we’re in right now (a story we broke long before anyone else did), it’s no accident. The biggest problem? REITs are managed by human beings.

Just like they’ve been doing in the commercial real estate market, timber REIT managers have adopted a “wait it out” strategy, in the hope that timber values – and by extension the land it’s growing on – will suddenly reverse. Don’t bet on it.

Unfortunately for the REITs and their shareholders, hoping and praying for a resurgence in the housing market isn’t going to work.

It’s going to get even worse: Timber prices could drop another 50% in the next few years, as an anemic housing market – the only possible timber demand catalyst – isn’t looking at a recovery for as long as five years.

Most timber REITS, however, haven’t taken a big hit to their balance sheets. Not yet anyway. But that’s all about to change.

As a result of the aforementioned head-in-the-sand mentality, Plum Creek Timber (NYSE: PCL), Potlatch (NYSE: PCH) and Weyerhaeuser (NYSE: WY) are all on the verge of imploding. Weyerhaeuser isn’t a REIT, but it suffers from the same issues.

At a minimum, all are going to have to significantly cut their dividends, which aren’t based on anything remotely resembling ongoing operations. Nearly all of their 2009 income – and I use that term loosely – will come from land sales.

That’s a problem, too, and not just because of depressed prices for timber. Much of the hopes of the REIT management are that they will be able to sell land to real estate developers to generate cash. Huh?

You’ve got to be kidding: With the current depressed state of the housing market, developers aren’t exactly chomping at the bit to buy more land. After all, many of them are still writing down the value of land they already own.

Timber REITs Taking A Big Hit Before The Dust Settles

While it’s clear that timber REITs are going to take a big hit to their balance sheets before all the dust settles, there are others that will likely be the biggest losers of all.

You see, over the past few decades, university endowments, pension funds and Timber Investment Management Organizations (TIMOs as they’re referred to) plowed an estimated $40 billion into timberland.

TIMOs are privately run organizations that hold and manage timber on behalf of institutional investors. Here’s the big problem: The funds that the TIMOs manage have predetermined liquidation dates, and many are coming due in the next several years.

When that happens, timber industry land prices could fall even further.

One notable exception to the REITs woes is Rayonier (NYSE: RYN). It has a much more diversified stable of holdings; namely its performance fibers division, which are used by customers around the world to make certain kinds of plastics, LCD screens, pharmaceuticals, food products and more.

The bottom line is that investors who own any of the timber REITs – with the exception of Rayonier – may want to consider lightening their position or eliminating it all together. Investors could also consider establishing a short position in Plum Creek, Potlatch, or Weyerhaeuser, the three stocks most likely to fall the hardest over the next 12 to 18 months.

Good investing,

David Fessler

Source: Overvalued Timber REITs: Why Timber Investing Isn’t What It Used To Be

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.

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 just want the best for their families.  Russians are striving for a better quality of life just like anyone else.  I knew right away that the country offers investor’s high profit potential.

I assure you that Russia is still a super power and their society is quite advanced.  The energy sector in Russia is still a powerful force in the world.  Plus, Russia is one of the biggest producers of palladium, platinum, diamonds, nickel and gold.  Russia is a natural resource power house and should do great as commodity prices skyrocket.

When I got back to America I watched the Russian markets for some time and waited for the right moment to tell you to invest.

Then on 04/09/09 in this column, I wrote:

“the Russian market is way oversold and now is a good time to be a contrarian investor and invest when no one else will.”

I told you to buy the Market Vectors Russia ETF (RSX).  This Exchange Traded Fund holds a basket of Russian stocks and seeks to mirror the Russian stock market as measured by the DAX Global Russia+ Index.

I hope you took the advice.  If so, you’re sitting on a 39% gain in just 53 days.  And that’s not the only profitable advice you’ve received for free in these pages…

In fact, just this year I sent you lots of big winners including:

7% SPDR Gold Shares (GLD)
21% iShares Silver Trust (SLV)
85% Freeport-McMoRan Copper & Gold Inc. (FCX)
45% Plum Creek Timber (PCL)
13% PowerShares DB Agriculture ETF (DBA)
26% iShares MSCI Brazil Index (EWZ)
39% Market Vectors Russia ETF (RSX)
29% PowerShares India ETF (PIN)
18% iShares FTSE/Xinhua China 25 Index ETF (FXI)
13% The Coca-Cola Company (KO)
11% Market Vectors Agribusiness ETF (MOO)

If you missed this opportunity to get into any of the above positions, it’s not too late.  Each one of these picks has the potential to run much higher.

I’m sure you are happy we deliver these great ideas for FREE in this Investor’s Daily Edge daily newsletter.  Our staff here at Investor’s Daily Edge strives to give you information that can help you accumulate wealth and enhance your financial well-being.

Now I have an important favor to ask of you.  I need you to tell your friends and family to sign up for our free daily newsletter.  Simply just tell them to go to http://www.investorsdailyedge.com/ and sign up.  Or forward this email to everyone in your address book.

We currently have over 300,000 elite members like you getting Investor’s Daily Edge on a daily basis.  Our goal is to get to one million subscribers.

Tell your friends and family that can benefit from independent and profitable financial insight.

Thank You,

Ted Peroulakis

Source: The Russia Pick I Recommended to You Is Up 39 in 53 Days

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

As you might expect, the U.S housing slump is reducing demand for finished lumber. Meanwhile, timber, pulpwood, and paper prices are rising worldwide – but curiously, profit margins are eroding.

What’s up with that?

The global commodity boom has created a supply/demand price imbalance between the four distinct industry sectors that rely on timber as a raw material. In fact, that imbalance is a huge mismatch. And savvy investors may be able to wring substantial returns from the winner.

You see, timber companies have shrewdly maintained monopoly-like control of raw materials to hold the line on prices, despite the economic downturn. They are doling out enough – and only enough – supply to maintain sufficient revenue streams to pay the bills. Meanwhile, their downstream relatives are suffering.

In a sense, timber owners are weathering the storm. And when the storm is over, their profits should explode.

It’s a complicated scenario being driven by a number of economic factors including the declining U.S. dollar, classic market demand/supply ratios, emerging markets growth, and even export quotas and tariffs.

Investors who tune in may catch lightning in a bottle. The end game could send timber company profits – and your portfolio – soaring in the next 12 months to two years.

Let’s take a look.

Housing Slump Wreaks Havoc on Lumber Mills

As lumber prices have swooned to a five-year low, wood has been piling up at lumber mills. Sawmills throughout the United States and Canada have been reeling since the second quarter of 2007, when lumber prices collapsed to below the cost of production.

Here’s what’s happening now:

* In the United States, single-family-housing starts dropped 1.7% in April to a seasonally adjusted annual rate of 692,000 units, the lowest monthly production rate since January 1991, and a jaw-dropping 42% below 2007.
* U.S lumber consumption is expected to drop, from 64 billion board feet to 43 billion board feet from 2006 to 2008. A drop of 21 billion board feet in the span of three years is simply staggering, equal to the total production of the Top 20 softwood lumber producers in the U.S. market for all of 2007.
* North American lumber at the Chicago Mercantile Exchange has fallen as low as $209 per thousand board feet, down a whopping 56% from its peak of $473 in 2004 – at the apex of the housing boom.
* Lumber companies in the Billion Board Foot Club, a measurement of the largest lumber companies in the world, was reduced from 22 to 15 in 2007. Six of the victims to be cut were in North America.

Particularly hard-hit are the big lumber mills in Canada, which ship much of their production to the United States. The key factor was the unprecedented run-up in the Canadian dollar. With sales denominated in U.S. dollars and costs accrued in Canadian dollars, a wide range of Canadian producers were running in the red and simply ran out of money.

In addition, Canada mills must pay a 15% duty to ship lumber into the United States. That puts the price at those mills at about $175 per thousand board feet, said Gerry Van Leeuwen, vice president at International Wood Markets Group, a Vancouver-based lumber consulting firm. “There is just no way anyone is making any money,” he added.

In the past, sawmills only needed to wait for interest rates to decline before ramping up production. Now, however, they will have to wait until the housing glut is over before lumber demand gets back to normal.

And that’s not likely until mid-2009 at the earliest. Our advice is not to bet the farm on lumber companies right now.
Global Growth Buoys Pulpwood and Paper Mills

Meanwhile, pulpwood and paper has been in a strong bull market for almost two years. Demand for paper and pulp remains strong – from overseas markets, in particular. And that demand doesn’t appear likely to ebb anytime, soon.’

Overall, world paper demand is moving ahead, buoyed by accelerating growth in Asia. The surge in paper demand in Asia is driving a huge appetite for both virgin pulp and recycled fiber. In 2006, alone, China’s imports of wood pulp jumped 150% to 7.5 million tons.

Increased exports have also helped pulpwood prices. The weak U.S. dollar makes it cheap enough for pulp and paper companies to purchase products in the United States and ship them overseas.

On top of that, demand from European utility companies for wood pellets should keep pulpwood prices elevated. Believe it or not, European utilities have turned to wood chips to produce power in order to lower their greenhouse gas emissions in accordance with the Kyoto protocol.

So you would think paper and pulpwood mills would be humming along, bringing in record profits.

Don’t make that bet.

The Big Squeeze

There is a huge fly in the ointment for pulpwood-and-paper mills.

Paper mills, of course, rely on pulpwood as raw material. Pulp mills, in turn, operate on small logs and wood chips – a byproduct of lumber production. And, as you might expect, the weak market has lumber mills cutting back on production. This is forcing pulpwood mills to rely on buying more logs or raw timber, says Daniel Stuber, of Forest2Market.com,. The lack of available chips has produced a big demand for small, lower quality logs.

The fact is, pulp mills are using twice as many logs as they normally would to satisfy production levels. And they’re getting hit right in the wallet.

“One of the bright spots for timberland owners is the demand from the pulp-and-paper industry,” Stuber said. “Land owners have been withholding stands with larger trees until saw-timber prices rebound, but they have been able to generate revenue through thinning practices and harvesting younger stands.”