Sunday, March 02, 2008

Are Commodities Recession Proof?

Gold, oil, most of the other precious metals, and the agricultural commodities continue to make new highs. Is this a bubble? I wish I knew the answer to that. I continue to remain bullish on commodities. There are two main scenarios for why commodities will trade higher regardless of how the U.S. economy proceeds.

Scenario #1
U.S. Economy enters a recession. The Fed continues to cut rates, further eroding the value of the US dollar. This means it takes fewer Euro's, Yen, and just about every other major currency to purchase more commodities that are denominated in dollars. This will lead to an increase in demand for commodities.

U.S. Economy has "bottomed," interest rates remain constant or move higher, and the U.S. GDP picks up. An increase in GDP will further increase demand for commodities. The dollar should strengthen, but demand will remain robust due to economic growth.

Stocks to Own
  • Natural Gas: Chesapeake Energy (CHK)
  • Contract Drilling: Diamond Offshore Drilling (DO)
  • Crude Oil: Petrobras (PBR)
  • Fertilizer: Mosaic (MOS) & Terra Industries (TRA)
  • Metals: Vale (RIO) & Rio Tinto Alcan (RTP)
  • Uranium: Cameco (CCJ)
  • Solar: Sunpower (SPWR) & MEMC (WFR)
Pure Commodity ETF's
  • Powershares DB Agriculture Fund ETF (DBA)
  • iShares Silver Trust (SLV)
  • streetTRACKS Gold (GLD)
  • US Oil Fund (USO)
  • US Natural Gas Fund (UNG)
Note: I have positions in CHK, MOS, TRA, & RIO


Blogger Editor said...

I believe at least the precious metals will continue to surge because of the inflationary policy of the US. I recommend this article:

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3/03/2008 3:37 PM  
Blogger wcooper said...

while we may be entering a period of inflation, i fear that the recent run up in commodities has gotten ahead of the fundamentals and that there is more downside than upside. Chasing last year's hot investements is usually a formula for loss and i sense that much of the "smart money" that did well with gold, oil and other commodities is moving onto the next sector.

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3/04/2008 2:50 PM  
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6/12/2008 2:44 AM  
Blogger danny said...

everything is tied to the US dollar. Despite the recent run up in commodities, i believe that there will be more upside to it than otherwise. If money escapes from capital markets, the global economy would crash. Financial engineers would have to work something out to stash the supply of the USD from circulating. They were able to partially do this in the credit market, but it created an imbalance somewhere along the way. this is exactly what is plaguing the financial markets, but it can be considered as growth pains in our step towards financial globalization.

6/18/2008 4:21 AM  
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10/14/2008 5:15 AM  
Blogger Ronald Rutherford said...

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11/06/2008 1:42 PM  
Blogger +Baker said...

Good post! To that I may add, The future of the U.S economy:



1/20/2009 10:36 AM  
Blogger Hass said...

Commodities may not be recession proof but Forex is being called the Recession Proof Business of 21st Century.

3/13/2009 8:03 AM  
Blogger low cost auto insurance said...

I like buying actual precious metals, not just options. It's a good hedge against the worst situation.

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7/25/2009 1:30 PM  
Blogger Saheli said...

The federal government has spent huge amounts to stimulate the American economy. The theory is that massive government spending programs will put people back to work and increase consumer spending which is a major driver of economic activity in the United States.


9/30/2009 1:10 AM  
Blogger airwolf said...

Smart Move: Foreign Currency Investments

I got a few questions about what foreign currencies are good investments right now. Because there is so much interest in this matter, I thought it'd be great to discuss it here.

Now, the most important thing to remember is that investing in a foreign currency must never be considered in isolation. Consider its impact on your entire portfolio. For example, let’s say you have $20,000 in U.S. investments and you read an article that is very positive on Brazil so you go and invest $5000 in Brazil. You now have 20% of your overall investments only in Brazil which is a lot, even if you do have most of your investments in domestic currency. Ask yourself if you want to be so exposed to a single country.

A currency will do well versus the dollar for two reasons:
(1) The American economy is not doing well, so the dollar weakens. This is true at the moment.
(2) The foreign economy is doing well, so the foreign currency strengthens.

All non-dollar currencies share the first reason to some extent, so focus on the second reason. Look for currencies of countries that have low government debt, growing economies, younger population, stable politics, well-run or reforming legal systems and robust capital markets. China, Korea and India exhibit these signs. Countries that produce commodities like oil, copper etc. are also attractive as the world comes out of recession. Australia, Canada and Brazil are examples.

Again, all investing decisions must be made after considering the entirety of your financial situation.

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10/24/2009 2:37 PM  
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Commodity markets basically deals in the trade of commodities like gold, cotton, crude oil etc. Many items both perishable non-perishable, finished goods, raw materials and semi finished goods are been traded in this market at the international level.

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