After Real Estate: The Next Hot Fad is Commodities

[powayseller]

It appears to me that speculators have jumped to commodities as the next hot fad. USA Today writes that agricultural goods, energy, and metals, are rapidly rising.

In addition to investor demand, this boom is fueled by increasing demand from the roaring economies of China and India (gold for jewelry, materials to build infrastructure).

The Fed has to keep raising interest rates to keep down the risk of inflation that is caused by higher commodity prices. Federal Reserve policymakers cited “elevated prices of energy and other commodities” as risks for inflation in their post-meeting statement Tuesday (USA Today).

The liquidity moved from tech stocks to real estate to commodities.

If you get in, will you know when to get out?

[privatebanker]

Managed Futures/Commodities funds have been outperforming the market for the last few years. Be really careful with trying to play the futures/commodities markets on your own. It’s far different than buying/selling stocks. You can get really stung. Look for a money manager that specializes in this area. Managed Futures Funds may be a little on the expensive side but it’s a good specialty asset class that has very low correlation to other standard investments (stocks/bonds).

http://www.theprivatebanker.blogspot.com/

[powayseller]

I’m not one to jump on any bandwagon. I don’t own any commodities, and don’t have plans to buy any.

I was just posting this to make the point that the runup in gold is not because we are facing economic armageddon and gold is our only safety net, but because of demand from growing economies and speculators. But this will crash faster than housing. When gold goes down, it will be quick, like tech stocks, and gold bugs are going to lose it all.

[privatebanker]

I think you brought up a very good point with commodities rallying. The last time gold got really expensive, the economy was about to take a knee for a while. This just further confirms that everything is cyclical and those who do not recognize our current situation are going to be “spanked”. There’s a somewhat silent acknowledgement that when gold is rallying, there’s a major storm on the horizon.

http://www.theprivatebanker.blogspot.com/

[powayseller]

What’s your personal opinion regarding buying gold? Do you remember how the last cycle played out? I still don’t get all the gold bugs – they don’t consider that gold is the next fad. The rising price validates their long-held belief that gold is the only true store of value. They perceive that the markets have finally priced gold at its true value.

I think the gold bugs are just as foolish as the people who were buying tech stocks 6 years ago.

I observed that fad, with utter astonishment, just as I’m observing this RE fad. I’m getting too cocky though. It will serve me right if the goldbugs turn out to be right. Until then, I’ll feel like a scientist who observes his mice, knowing they are going to be eaten by a cat if they do nothing, and watching for signs they will finally decide to run for cover. Human psychology and the role it plays in investing is fascinating. So much for rational markets!

Do you remember what companies did well in the last recession?

[privatebanker]

Well I think buying gold stocks/indices should be considered only for a small portion of your over all portfolio. This is an interesting asset because it has no earnings and pays no dividends or interest. You just banking on it’s appreciation or depreciation.

Personally, I think international stocks/bonds have a lot of opportunity including emerging markets. I think they will do well and I have overweighted my holdings into this area.

http://www.theprivatebanker.blogspot.com/

[powayseller]

I agree. China imports almost as much as it exports. You wouldn’t know it from our trade deficit. I’m checking into a china fund. The US boom and its stock market prospects are questionable, but China has real growth coming. It makes sense to be part of that. Investing in China is not a fad, though. It’s just watching what’s going on around you. (Something we Americans are not as good at… we tend to not look beyond our living rooms or borders.)

[powayseller]

If the dollar loses value, the question is how much, and is it worth buying commodities.

As long as CDs are paying 5% interest, are you ahead of inflation?

If not, the euro should be much safer than the USD. The European Central Bank seems to have a better grip on reality.

[privatebanker]

If you would like to diversify out of US dollars and maybe take a look at gold, check out Everbank. They offer F/X denominated CDs and they also offer precious metals accounts.

http://www.everbank.com/main.asp?affid=eb

http://www.theprivatebanker.blogspot.com/

[Jim Brubaker]

I think that perspective is the issue here. Are commodity prices rising, or is the dollar becoming worth less?

You can’t print gold, silver or oil. Printing money is taxation by the government, call it what you will. Maybe we all have taken a 30% pay cut and just haven’t figured it out yet.

Remember back to 1960’s with gold at $32 per ounce, gasoline at 25 cents a gallon and cigarettes at 23 cents a pack. Go forward to 1968 and the Viet Nam war. I guess its different this time.

[cowboy]

I agree with Rich on this one. I read Hot Commodities by Jimmy as well. He is a guy that tells you how it is – no hidden agenda. One of my favorite guys to follow. Another interesting book is “The Oil Factor” by Leeb. Leeb is a firm believer there will be run-away inflation. He recommends buying stocks tied to Chindia (China and India), gold, oil, and other commodities. I am liking gold more and more for more than just one reason. Silver looks good as well. Other than that – short retail (consumer) and housing.

[Author]

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