Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Investing in Commodities: The Three Greenest Economic Shoots of All

Commodities / Gold & Silver 2009 Jun 08, 2009 - 12:17 PM GMT

By: Q1_Publishing


Best Financial Markets Analysis ArticleThis is how a recovery begins.

A few months ago it seemed like there was no end to the downward spiral. More than 20,000 people were losing their jobs every day. The stock market was steadily falling. Panicked consumers were cutting back aggressively. The government pushed through $787 billion in emergency stimulus spending under the guise of getting the economy going again.

Here we are a few months later and a few things appear to be turning around. Everyone is spotting those “green shoots” the Fed Chairman told us to look for a few months ago.

Consumer confidence has risen for three months in a row, albeit from exceptionally low levels. The stimulus spending is finally starting to reach the economy (although less than 6% has been spent so far). Home sales are picking up and lining the pockets of realtors, mortgage brokers, and banks while allowing a few people to get out from underneath their mortgages.

Most importantly though, the market rally continues to hold on to past gains and add more. Remember, the wealth effect created by the stock market is incredibly strong when 70% of adults own stocks directly or indirectly.

Now we’re seeing the first glimmers of it all starting to pay off in the real economy, specifically in employment. On Friday, the Bureau of Labor Statistics reported an estimated 345,000 jobs were lost in May as the unemployment rate marched up to 9.4%. Granted, the loss is still far from good, but it’s a welcome relief to the 500,000+ monthly losses reported almost every month since last November.

It’s like the old saying goes; you’ve got to start somewhere. And right now the economy is slowly getting restarted.

Investing In Commodities: Window of Opportunity

All of that is a big reason why I’m continuing to recommend to buy stocks. It’s not because I believe this is going to be a true economic recovery where in two years we’re right back to partying like the 90’s. I don’t think it’ll be even close. There are just too many hurdles in the long run.

The auto bailouts are the perfect example. I’m confident they will prove to be an absolute disaster. Mega-mergers merely hide problems. The mergers rarely fix any of them and, quite frankly, there’s no reason to expect this time to be any different.

Just think of how well the last time Chrysler merged. The creation of DaimlerChrysler was a decade of headaches which never helped anything.

And then there was the Ford buyout of Jaguar and Land Rover. There were early “successes” through immediate cost savings and synergies, but that ended up in failure too.

Although they’re always touted as “this time is different,” big mergers rarely work out. Whether it’s the combination of cultures, political jockeying in the boardrooms, or any other number of factors, they mostly all end up the same way. Mergers are not a solution. They’re merely a temporary, quick fix which just delays dealing with the real problem.

Of course, it’s not just the autos though. There’s still a big and growing problem with unemployment. Despite yesterday’s relatively good news, unemployment is still on the rise.

At the current reduced rate, the headline unemployment rate should be over 10% by the end of the summer. Then add to that the “real unemployment rate” with discouraged workers (people who just gave up looking for a job) and underemployed workers (those who are working part time or in a different field), and you’re looking at 15% or 16% of the country without jobs.

Basically, there’s no way to get back to the days of 3% or 4% annual GDP growth rate which facilitated very high-paying jobs and a risk-taking entrepreneurial culture with unemployment so high.

Then there’s the next wave of mortgages, the sharp spike in interest rates and the eventual impact on the housing market, Eastern Europe heading for a meltdown of Icelandic proportions, and on and on.

But here’s the thing. The market doesn’t look that far into the future. Wall Street is very short-sighted. Too many individual investors don’t look that far forward either. After all, two years (about 500 trading days) is a very long time for folks who check their stocks every day. That’s why I try to look both at the short-term for when to buy into something and the long-term for what to buy.

And right now, I’m as bullish as ever on these three sectors for the short term and the long-term.

The Ag (Re)Boom – This one is going to be big. If you recall the food riots of late 2007 and early 2008 and the speculative bubble in all things agriculture which followed, all I can say is, you haven’t seen anything yet.

Over the next few months everything is in place for a massive run in agriculture. As we discussed a few weeks ago, the perfect storm for agriculture stocks is quickly approaching due to:

1. Record low stockpiles: The cupboard is bare. Stockpiles of corn and soybeans are already at record lows. A truly great crop year last year helped partially offset a surge in demand, but stockpiles were largely sold off to take advantage of crop prices at multi-decade highs over the last couple of years. They were the “buffer” against shortages and high prices. Right now, that buffer is smaller than ever.

2. Apprehensive farmers: Almost everyone took a hit during last year’s credit crunch. Farmers may have fared better than most, but they were not immune. This year, they’ve had to hold back. They’re planting less and using less fertilizer. So even if the weather is perfect and everything comes together, we’re not looking at another year of record agriculture production to meet the new levels of demand.

3. A terrible harvest: Finally, farmers are way behind. A drought in South America has decimated Argentina’s crop production. In North America, conditions are terrible. Corn, soybean, and wheat plantings are dangerously behind schedule. So the crops which are planted aren’t going to produce nearly as much as they have in years past.

As usual, this boom will culminate in headline stories about food riots, soaring food prices, and another big run in agriculture stocks.

Hi-Ho Silver – Gold gets all the headlines, but at this point, it looks like silver is where you’ll make a lot more money in short and long term. As we looked at a few days ago, silver’s run has a long, long way to go. Silver is tremendously undervalued relative to gold.

Most importantly, silver’s dual-purpose as both a precious metal and an industrial metal puts it in perfect position to benefit from increasing inflation fears as well as the early start of an economic recovery.

It’s already started to happen. Last month silver prices climbed the fastest in 22 years. Despite the rise, we still haven’t reached anything close to the euphoric highs of a true bull market.

Consider this. A few days ago, a colleague of mine asked, “What do you like out there?”

I answered, “Silver.”

He thought for a second and told me this quick story about how to know when precious metals get too high. This was at the height of the precious metals bull market in the late 70’s/early 80’s.

When he was a teenager, his family saved up enough cash to buy three ounces of silver. As the eldest son, he was in charge of buying it. As the story goes, his Mom handed him some cash and he was off.

The thing is he didn’t walk down to the local coin store, throw the cash on the counter, and ask for three ounces of silver coins. That wasn’t an option back then. He had to wait in line for a few hours to buy silver – if there was any left by the time he got the front of the line! He likened it to waiting in line for concert tickets.

That’s a true bubble at its height. When you see a line-up of folks buying silver at lofty prices, you know a top is near. Just think of how long people would have waited in line to buy tech stocks a decade ago if you had to go to a store to buy them.

Although you may have to wait a few days to get physical silver today, we’re still a long ways away from that point.

A Junior Awakening - Finally, the one sector which looked completely dead when we looked at it back in December is junior resource stocks.

You may know the ones I’m talking about. Those penny stocks which own some abandoned gold mine in Zimbabwe that trade for about 11 cents each. Most of them trade on the TSX Venture Exchange.

Normally, these stocks are the easiest way to lose money. They’re incredibly volatile. They’re very thinly traded. They’re the last to move up in a bull market and first to nosedive in a bear market. Worst of all though, most of them end up pretty much back where they started from, at around five or 10 cents per share over the long run.

They can create massive fortunes overnight. Every few years there’s a massive discovery of a new gold or oil discovery which makes its founders multi-millionaires overnight.

But here’s the thing. Despite all those risks, these “junior stocks” can be exceptionally profitable at the right times. Right now is looking like one of those times.

I’ve always looked at it like this. The TSX Venture market is a market fueled by greed or hope.

Hope sets in when all the fundamentals are in place for commodities. Right now, with copper up 50% this year, gold knocking on the door of $1,000 an ounce, silver catching up to gold fast, and oil well above $60 a barrel, it seems like the commodity boom is rolling on.

The combination of an economic recovery and inflationary fears has made hard assets “cool” again. And junior resource stocks are the most leveraged way to make money on these rises.

Hopes, to say the least, are high.

Then there’s greed. Greed sets in when these penny stocks start doubling and tripling over night. That is starting to happen too.

In a market fueled by hope and greed, there is a lot of money to be made or lost. And right now, the trend is up, hope is strong, and greed is growing. Those of us looking in this speculative area can see how a lot of money can be made in junior resource stocks in the next few months.


Investing in Commodities: Brave Now, Fearful Later

Those are just three sectors shaping up for a big run this summer and probably into fall.

Frankly, there’s a lot to be excited about right now. The Fed’s aggressive money printing and handing over hundreds of billions of dollars to banks is showing its true simulative effects.

The next step of this “recovery” is just kicking into gear too. Earlier this week Vice President Biden promised to “ramp up” the stimulus spending. With another $400 billion or so of checks left to write, any ramping up here will help fuel this turnaround.

In the end, I think this is all a giant Band-Aid. The bleeding may stop for a while, but there is so much healing which needs to be done. No amount of government directives, handouts, or new policies will be able to do any of that.

The next decade will see a massive shift in the economic way of life. We’ll see a steady decline in the value of the dollar. Which will have a high short-term price, everything will get more expensive, but it will also go a long way to helping make U.S. made goods affordable again.

But Wall Street doesn’t look at things that way. And that’s why I believe the next few months will be an exceptionally profitable ride for those of us who do the toughest thing to do as an investor, take what the market gives us.

Right now, the market is giving us plenty of green shoots. As a result, I can’t help but be speculatively bullish on the greenest shoots of all.

Also, we can't forget the market overshoots every time. It overshoots to the low side and overshoots to the upside. Right now, all signs point a window of opportunity in select spots. Regrettably, it may be one of the last truly big opportunities to the upside in long time. Take advantage of it while you can.

Good investing,

Andrew Mickey
Chief Investment Strategist, Q1 Publishing

P.S. That’s not the case for agriculture though. The way things are shaping up, there could be a tremendous short-term opportunity in agriculture on top of the exceptional long-term prospects. More to come in the weekend edition of the Prosperity Dispatch.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2009 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Q1 Publishing Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules