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Rubber Another hot natural resource investment!

Stock-Markets / Articles Apr 19, 2007 - 10:15 AM GMT

By: Money_and_Markets


Larry Edelson writes: Gold is soaring … the price of oil is on fire … virtually every natural resource under the sun is rallying again, just like I told you they would .

And the portfolios in my Real Wealth Report are on fire, too. Year-to-date, our open positions are up more than 10% — in less than four months! I'm about to recommend taking profits on some positions, and then I'm going to issue some new trades.

More on that and the recent action in gold and oil in a few minutes. First, I want to tell you about another commodity that is exploding higher, but that few investors are profiting from. I'm talking about natural rubber .

Money Practically Growing On Rubber Trees …

A huge array of products require natural rubber: Auto and truck tires, automobile parts, footwear, cables and wires, latex products, pharmaceutical goods, textiles, and dozens more.

Natural rubber is produced primarily in three countries — Thailand, Indonesia and Malaysia. Together, they account for about 94% of global production. India is another big producer, but it is also the fourth largest consumer of natural rubber.

China, of course, is the world's largest consumer of natural rubber. Imports have jumped 8.7% so far this year, because of rising demand from makers of tires and shoes.

And that hunger should accelerate! Demand from China is expected to soar 35% to 6.83 million tons by 2010, according to the China Rubber Industry Association.

The chief reason: China's automobile sector. It produced more than 433 million tires in 2006, 36% more than a year earlier.

Between India and China, there's enough demand to consume the entire globe's indigenous production of natural rubber. And that's with demand in those countries just starting to erupt.

Case in point: The per-capita consumption of rubber in India is only 800 grams — versus 12 to 14 kilograms in Japan, the U.S., and Europe.

If India's consumption of natural rubber were to increase to just one-fourth the level of those other countries, rubber prices could easily quadruple. And that doesn't include China or the rest of Asia, where rubber demand is also exploding higher.

At the same time, the world's supply of natural rubber is tight as a drum. In fact, a severe shortage is expected for at least the next five years. That's because output of natural rubber from major producers is plunging.

For example, violence in southern Thailand is disrupting supply from that country. In February, at least 3,000 tonnes of rubber was destroyed in a warehouse fire in the southern part of Thailand. The fire may have been lit by insurgents as part of an escalation of violence in the three provinces that border Malaysia.

In addition, rubber production in Indonesia, the second-largest grower, may slip 100,000 tons this year because of poor weather from La Nina.

Natural rubber inventories at warehouses in Shanghai are almost sold out. And there's no end in sight to this demand/supply crunch.

No wonder rubber prices have more than doubled to 27-year highs since 2002. Go back a year earlier and the gain in rubber prices is even more astonishing — up five-fold. In my opinion, they are headed even higher, much higher.

A Way to Play Rising Rubber Prices …

Ironically, the best way to profit from this situation is not to run out and buy shares in a rubber company. They are few and far between, and those that are good investments are traded mostly in China, Thailand, or Malaysia.

So instead, you should consider buying an exchange-traded fund focused on Malaysia, such as the iShares MSCI Malaysia index fund (AMEX: EWM). As one of the largest producers of natural rubber, Malaysia is a great way to play rising rubber prices. Plus, with a diversified ETF, you'll also get exposure to the country's entire emerging economy, which is taking off to the upside. [Editor's note: For more of Larry's thoughts on Malaysia, see " Investing in Malaysia! "]

Now, I'm not saying this is a short-term trade … you'd be better off holding for at least six months. And if things move against you at any time by more than 10%, you should stop yourself out of the position to protect your capital. However, I think Malaysia's booming rubber business, along with its emerging economic strength, is a great combination.

Meanwhile …

Many Other Natural Resource Investments Continue Soaring!

If you want to see just how well commodities-related investments are doing, take a look at how well the positions in my Real Wealth Report are doing (all numbers as of market close on 4/17/07):

  • The Core Gold Portfolio's three positions are all in winning territory with gains of up to 76%!
  • The Core Natural Resource Portfolio has 14 positions, and all are winners. Gains range from 1.5% to as high as 77.8%!
  • The Resource Speculator Portfolio has eight positions, with five up and three down. Open positions are showing gains of up to 60.6%!

Not bad at all. And much more is coming. I firmly believe gold, oil and many other natural resources will explode much higher in the weeks and months ahead, for all the reasons and forces I've been telling you about.

I'm especially talking about the sinking value of the U.S. dollar, which is near record lows against all major currencies. If the U.S. dollar keeps plunging, you could see $1,000-an-ounce gold and $100-a-barrel oil in the bat of an eye.

So hold all positions, and be sure to see the April edition of the Real Wealth Report , which will be published this Friday, April 20. It's going to have four new recommendations in it!

Best wishes,

Larry Edelson

P.S. If you're not a subscriber yet, now is a great time to subscribe to Real Wealth Report . There are loads of profit opportunities on the way! For a mere $99 you can get on board. You'll get 12 hard-hitting monthly issues, plus all flash alerts, recommendations, and 24/7 website access. Subscribe now!

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