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Don’t Buy Anything That Can Be Made With a Printing Press
This is my favorite asset class for the next decade, as investors increasingly catch on to the secular move out of paper assets into hard ones. Don’t buy anything that can be manufactured with a printing press.
Focus instead on assets that are in short supply, are enjoying an exponential growth in demand, and take five years to bring new supply online. The Malthusian argument on population growth also applies to commodities; hyperbolic demand inevitably overwhelms linear supply growth. Consumers want to buy stuff tomorrow, but many commodities take five year to bring new production online, plus the 18 months we lost to the credit crisis.
Of course, we’re already eight years into what is probably a 20 year secular bull market for commodities and these things are no longer as cheap as they once were. There is no doubt the hot money is here in size, so bring on the volatility. You are going to have to allow these things to breathe.
Ultimately this is a demographic play that cashes in on rising standards of living in the biggest and highest growth emerging markets. Some one billion people are expected to join the middle class over the next decade, and all of them are going to want to buy “things” made out of natural resources.
You can start with the traditional base commodities of copper and iron ore. The derivative equity plays here are Freeport McMoRan (FCX) and Companhia Vale do Rio Doce (VALE).
Add the energies of oil, coal, uranium, and the equities Transocean (RIG), Joy Global (JOY), and Cameco (CCJ). Crude (USO) has in fact become the new global de facto currency (along with gold), and probably $30 of the current $78 price reflects monetary demand, on top of $48 worth of actual demand from consumers. That will help it spike over $100 sometime in 2010.
Don’t forget alternative energy, which will see stocks dragged up by the impending spike in energy prices. My favorite here is First Solar (FSLR). Skip natural gas (UNG), because the discovery of a new 100 year supply from fracting and horizontal drilling in shale formations is going to overhang this subsector for a long time.
The food commodities are probably among the cheapest resources around, with corn, wheat, and soybeans coming off the back of bumper crops in 2009 that absolutely killed prices. But growing emerging market appetites for more and better food will send demand soaring, just as the benefits of the “green revolution” peter out. These can be played through the futures or the ETF’s (MOO) and (DBA), and the stocks Mosaic (MOS), Monsanto (MON), Potash (POT), and Agrium (AGU).
Through an unconventional commodity play, the impending shortage of water will make the energy crisis look like a cake walk. Who will need new fresh water supplies the most? China. You can participate in this most liquid of assets with the ETF’s (PHO) and (FIW).
For more iconoclastic, out of consensus analysis, visit www.madhedgefundtrader.com, where conventional wisdom is drawn and quartered daily. You can also hear me in person weekly by listening to Hedge Fund Radio by clicking here at http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html
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Bugger
Its my son I worry about.
BTW so many of you have completely missed the boat on one point. Technological displacement will keep a lid on inflation. You may not be able to escape commodity prices but you can always solve a lot of your people problems with increasingly easy to afford and user friendly automation and out sourcing.
No people no problem ( just watch VALE and how they deal with Inco employees ).
I wonder though ... if food, water and fuel demand increases and supplies decrease then it seems to me that at first you have inflation and then as people become poor and the economy worsens you have a perfect deflationary spiral. Add to that those that will want to use their cash to hoard supplies and nobody will buy the stocks and ETFs.
At best this is short term because if it plays out we go over the cliff and it won't matter.
Perfect post. Oil priced in as money, excellent! Water will once again be the life blood of the earth (as if it were not already). Get ready for "talk and debate" on even CNN's bla bla "news channel". The water talk is one to two years out. Chief Seattle for Fed Chairman!
IMO, MFT is on target with his suggestions. Jimmy Rogers is probably already well committed to a list like this.
I am old enough to be as aware of the 30's as people today are of the 90's and observed that productive farm land was (assuming no local drought or flooding) king in spite of low comodity prices. A very comfortable living was had by able bodied people. Work was accepted as a necessity. Even the local plantation owner had his son's in the fields.
During the war, rubber, gasolene, raw sugar, non essential manufactured goods, were in short supply but recycling was the rule before the word was invented. Nobody that was near productive farm land went hungry.
Money is a derivative.
+10 for this article and my scale only goes to 10.
I would like to shout out to the peeps that witnessed the 1st depression. As we enter, "The greatest depression" please share your stories with everybody. The kids today need to hear about tough times to prepare themselves mentally. We are now leaving base camp, and if anyone is going to leave the flooding valley, they will have to have their bag packed right.
IMO, MFT is on target with his suggestions. Jimmy Rogers is probably already well committed to a list like this.
I am old enough to be as aware of the 30's as people today are of the 90's and observed that productive farm land was (assuming no local drought or flooding) king in spite of low comodity prices. A very comfortable living was had by able bodied people. Work was accepted as a necessity. Even the local plantation owner had his son's in the fields.
During the war, rubber, gasolene, raw sugar, non essential manufactured goods, were in short supply but recycling was the rule before the word was invented. Nobody that was near productive farm land went hungry.
Money is a derivative.
+10 for this article and my scale only goes to 10.
Man get your *Fracts* straight on (UNG).
Both it and (PHO) are sure to bubble up!
If somebody can start an agricultural ETF and call it "Moo", I am starting a waste to energy ETF and I'm calling it "POOP"
+ +1
"Don’t Buy Anything That Can Be Made With a Printing Press"
You mean, like...a printing press??
IMO- for starters I'd take Monsanto off this list for moral reasons. They are enemies of earth's soil, her seeds, and sustainability.
google is your friend.
The future needs to be more about what is real and honest.
The biggest Demon that visited over the last 10 years (and more) is dishonesty, that's the foundation of our current crisis. Dishonesty at the government, corporate and personal levels.
Our contracts are suspect from here on out.
This is our downfall. The bankruptcy is spiritual at its core.
I'm just as guilty as the next person, but there's a start sprouting from the compost...
Jon
Grow up.
Also, wasnt this the move of the last decade?
Commodities down 4.5% in last 2 weeks. Down 40% from 2008 peak. Looks like a subprime asset.
"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
--- Alan Greenspan, 'Gold and Economic Freedom' (1966)
In other words, now is the time for all good men to partake in a bank run and buy gold/silver/copper....
If there truly were a 100-year supply of any kind of energy in this world, I think it would be FRONT PAGE NEWS...more likely, natural gas will become the go-to replacement for declining oil...
My cold fusion experiments are coming along well and I expect to announce production goals as soon as I can get Congress to grant me an exclusive license. I scrapped my solar energy plans when I couldn't get title to the sun.
Hmm... I'm all for reading.
I even buy books on my Kindle, which is an even more powerful printing press. I send them $20 and in 30 sec, they send me a small electronic file. Good deal!