FSU Editorial: "Commodities Are for Crafy Not Crazy Investors" by Dudley Baker 06/20/2007: "First, contrary to all the real experts, I can't predict the future of the economy and financial markets with any degree of certainty. I especially can't time anything that would make sense on which to base trading decisions. Equally I can't compete with the smart guys, the institutions with all their specialized people, formulas, software and money to do everything top drawer. Nor can I beat them to the trigger or the exits. So attempts to time the market, alter my portfolio balance between sectors, investment vehicles and geographic regions is pretty much hopeless for me. I therefore do not trade, rather I attempt to invest.
When I take a position it pretty much stays in place with a little pruning now and then, here and there. What I look for is capital preservation before growth. I look for risk minimization rather than making the big score. I come to my conclusions mainly by informing myself of economic and political fundamentals. Hence technical charts used by traders tend to be of marginal value to me, but are nonetheless a serious curiosity.
What I do know are some very large and unassailable global economic realities...such as peak oil and permanently high energy prices, the power of environmentalists and the man made CO2 boogeyman on public policy and politicians, the time horizons of public policy decision makers being the length of time to the next election, that inflation begins with money supply and credit that is in excess of real economic growth, that the conflict between pluralist and secularist cultures with Islamic fundamentalism is only beginning and will present huge problems for the foreseeable future, that Asia in particular is increasingly driving the fundamentals of the global economy with huge internal demand for infrastructure and internal consumer growth, that the demand driven by that growth has placed the resource/commodities sector in a long term secular growth mode which has more than several years yet to run, that both agricultural commodities and most minerals fit into this category, that subsidizing of corn based ethanol is an agribusiness and political wet dream, a huge technological bummer, does nothing for energy self sufficiency, doesn't add any net energy to world supply and will cause the price of animal feed and human food to dramatically escalate in price. I also add governmental budgetary and trade deficits, debt and huge magnitudes of unfunded liabilities coupled with highly leveraged private sector debt, much of which is unregulated and not even understood....... Enough of this, but I can add many more and discuss the implications of each at a later date.
What I conclude is that our infamous Goldilocks economy of the past and present cannot last forever when we have "givens" of the kind noted above.
Therefore I protect my equity with precious metals in their various forms and grow it with key commodities such as those with tight supply/demand fundamentals. Energy and in particular oil, uranium and natural gas head the list. Certain base metals critical to the production of infrastructure which use copious quantities of steel and ancillary products top my list of growth potential. While I haven't taken a position, I think certain agricultural commodities must also be on one's "must have" list.
Summary? Carefully select key commodities and investment products and companies from locations with stable politics and currency growth that reflects economic growth - read Canada and Australia. Sit tight and watch the inevitable. What is that? Clearly currencies growing at 3+ X the rate of their economies create conditions for future price inflation and perhaps hyperinflation given the growing concerns over declining values of the currencies of those countries. I look to the future where serious crises will be currency and interest rate driven emanating from reckless financial policies and practices. In the meantime I carry on with life convinced of the merits of my analysis and not at all worried about the short term rhythms of the S&P, DOW, NASDAQ or bonds. To me their machinations are nothing more than background noise which deflects one from the key issues.
I am currently fully invested, confident in my analyses as outlined above, and sitting back enjoying life to the fullest...good wine, good friends and good times - as my choice of commodities continue to escalate in value. Yes, as someone once said 'I am crazy like a fox' and laughing all the way to the bank!"
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