Are Commodities a Buy Again?
Wednesday, March 18, 2009 | Teeka TiwariRating:
It’s laughably predictable how the media starts calling the bottom at the first sign of a rally. I guess if they keep calling the bottom, at some point they will get it right.
While this rally could have some legs to it, remember that double-digit bear market rallies can sure look and feel like bull markets. Who knows, maybe the media has it right this time and the world is about to embark on a new leg of fabulous economic growth.
Can someone just explain to me where the growth is going to come from?
The US dollar continues to trade well, but don’t let that strength fool you. I’m not just talking about the greenback, either. The world’s governments are printing money and spending money at an alarming rate. I can’t see how the world's paper money purchasing power does not precipitously erode over the next several years.
I can’t find a single currency that I want to make a long-term commitment to. As countries continue to devalue their currencies (by printing more of it to pay for “fiscal stimulus”) and we look down the investment road, I ask you, how do we avoid nasty, currency driven “Weimar Republic” type inflation?
How do we avoid massive interest rate hikes in the future to combat that inflation? I’m open to hearing your views on this.
Every policy decision I read about seems to steer us more and more surely down this road to ruin. Here’s a reality check: FDR’s great work programs did not, let me repeat that, did not end the Great Depression, World War II has that claim to fame.
In the past I’ve argued for government intervention, but it's clear we are not receiving nor will we receive the appropriate government intervention the economy needs.
We can lament it or we can profit from it.
I don’t know when exactly the tipping point is for ravaging inflation, but like a thunder storm that you can smell in the air, I know it's coming. During these periods, people lose faith in their paper money. All of a sudden people realize that you can’t eat a currency note and it's only worth what someone else is willing to exchange for it.
Physical commodities will probably be the safest long-term place to park one's wealth over the next several years. Gold, Oil and Agricultural Commodities should prove to be the very best inflation hedges available.
The equity markets can only be viewed as a short term trading vehicle for the next several years, unless you have a 10-year or longer time frame.
Equities are going to be in range bound hell for years. I created my automated trading system, Sector Hunter, in part to put investors in a position to take advantage of the volatile trading nature now inherent in today’s equity markets.
For long term storage of large chunks of cash, I have to go with owning physical commodities. Until the advent of ETFs this was no easy undertaking. You used to have to own the actual futures contract, and you had to keep rolling them every few months as they neared expiration.
With ETFs we have a simple tool for getting exposure to just about any commodity we want. Want to go long gold? Check out GLD - each share represents 1/10 of 1 oz of gold. Want to buy some oil, nickel or silver? Take a look at USO, JJN and SLV respectively.
Be sure to check out the agricultural commodities as well. After all, we all have to eat. DBA is the symbol of an ETF that will give you exposure to corn, soybeans, sugar and wheat. In an uncertain world, owning real tangible stuff will become more of a driving factor in people’s investment decision-making process.
Sure, commodities have been on the muddy end of things for quite some time, but I think it’s a mistake to assume that commodities are finished.
While everyone is looking at this as the next great buying opportunity for stocks, I think what we are really seeing is an historic buying opportunity in commodities.
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Teeka Tiwari
Chief Investment Officer
ETF Master Trader
