Michael Decter, president and CEO, LDIC shares his top picks.
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Friday, February 4, 2011
Top Food Inflation ETF to Buy Higher food prices should translate to higher prices for DBA
PowerShares DB Agriculture Fund (NYSE: DBA) – This exchange traded fund (ETF) seeks to track the price and performance of the Deutsche Bank Liquid Commodity Index.
On Dec. 28, at $30, the Trade of the Day said: “Food shortages and higher prices for commodities like wheat, corn, soybeans and sugar are being forecast by economists worldwide. And the recent move by China to raise interest rates is evidence that the country’s central planners are concerned about possible inflation in food prices that could cripple their economy.
“As for agriculture ETF DBA, note the impressive pickup in volume on the chart, as well as the golden cross and the recent breakout from a double-top following a bounce from its 50-day moving average.”
Rising food costs, or food inflation, are at the forefront of investors’ minds as storms in the United States and Australia helped drive up grain and livestock prices. And sugar futures jumped to their highest levels in more than three decades.
I’m raising the near-term target for DBA from $36 to $40. Long-term investors may want to hold this ETF as a cornerstone investment with a price objective north of $50.
Copper reaches $10,000 a Ton
Copper fell from a record after the dollar climbed, reducing the appeal of industrial metals as a hedge against inflation, and Chinese demand remained subdued.
The greenback rose as much as 0.9 percent against a six- currency basket, which would be the most in a month, as the mounting conflict in Egypt boosted demand for a haven. Tin, nickel, lead and zinc dropped. Markets in China, the world’s biggest metals consumer, are closed for the weeklong Lunar New Year holiday until Feb. 9.
“The sharp move of the dollar is the major driver in base metals,” said Daniel Major, an analyst at RBS Global Banking & Markets in London.
Copper for three-month delivery fell $15, or 0.2 percent, to $9,930 a ton ($4.50 a pound) at 6:10 p.m. on the London Metal Exchange. Earlier, the metal climbed to $10,000, the highest ever. (more)
Jim Rogers: Commodities to Surge as Unrest Spreads Read more: Jim Rogers: Commodities to Surge as Unrest Spreads
More social unrest in Egypt and elsewhere is on the way, which is bullish for commodities, says investor guru Jim Rogers.
Currencies, meanwhile, will stay in turmoil, which should also bring out the commodities bulls, Rogers tells CNBC.
"I don't own very many equities," says Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s.
"I don't know what's going to happen but I expect more currencies turmoil, more social unrest, more governments collapsing so I invest more in currencies and commodities than stock," he said.
Food shortages meanwhile will make agricultural commodities rise even more.
"You don't just snap your fingers and have palm oil, all this takes time."
Popular uprisings have toppled governments in Tunisia and Egypt in part due to high food prices. (more)
Currencies, meanwhile, will stay in turmoil, which should also bring out the commodities bulls, Rogers tells CNBC.
"I don't own very many equities," says Rogers, who co-founded the Quantum Fund with billionaire George Soros in the 1970s.
"I don't know what's going to happen but I expect more currencies turmoil, more social unrest, more governments collapsing so I invest more in currencies and commodities than stock," he said.
Food shortages meanwhile will make agricultural commodities rise even more.
"You don't just snap your fingers and have palm oil, all this takes time."
Popular uprisings have toppled governments in Tunisia and Egypt in part due to high food prices. (more)
Take a look at how many ounces of silver have been needed to buy a median-priced home in the US:
For most people, there are some surefire luxuries that signify wealth, a few pearls of conspicuous consumption that say "you've made it!" For me, it's always been a second home. My grandparents owned a vacation home in Arizona and then Florida when I was a kid, and it was an annual highlight to travel there every year.
But something happened on the way to my generation's iteration of the American dream. Of all the people I know that have second homes, only one acquired it through his own hard work and success. The rest inherited them.
With high unemployment, shaky business conditions, desperate governments, weak real estate demand, and a suspect stock market, owning a vacation home is not even on the radar these days for most Americans. Paying their existing mortgage is the primary concern, something millions of homeowners still aren't able to do. So, how is it that I can suggest a way to buy a vacation home in this market?
Because there are two trends in motion that I believe will continue working in our favor. And it likely won't take long for them to reach a culmination point, allowing those of us with such a goal to see it realized.
First, real estate. For those of you who have a glass-half-full prognosis for the near future of real estate, I'd like to challenge an assumption you may be making; namely, that real estate prices rise in an inflationary environment. While the massive amount of quantitative easing and buying of mortgage-backed securities will likely put a floor under prices, it's the black swan of rising interest rates that could derail any significant recovery. Once rates start climbing, home-buying will become more unaffordable, keeping demand low, especially when the starting point is a million-plus hangover of vacant houses. And, if mortgage rates return to the 12-14% levels we saw in the last big inflationary period, the early '80s (they peaked at 18% in 1982), real estate prices aren't going anywhere but down in real terms. They may rise in nominal dollars, but after accounting for inflation, they'll still lose ground. Your half-full glass might not get filled for a long time.
Second, hard assets. The amount of money being created from nothing and thrown at our problems right now is unprecedented in history, so inflation is a when question, not an if. This process can and will result in a devalued dollar, and a direct beneficiary of that is rising precious metal prices.
In real terms, real estate will go down, precious metals will go up.
It's interesting to look at this trend with gold, but it's absolutely fascinating when you plug in the numbers for silver. Not only may silver outperform gold before this is all over, but silver is more "affordable" to the masses.
Take a look at how many ounces of silver have been needed to buy a median-priced home in the US:
In 1970, it took 14,067 ounces of silver to buy a median-priced US home ($23,000). By January 1980, it had dropped all the way to 1,603 ounces, based on silver's average price that month of $38.80. The ratio bottomed at 1,258 at silver's record high of $49.45 (London PM Fix) on January 21.
The ratio peaked in 1990 at 22,616 due to silver's average price that year of only $4.06, and was still at 18,365 in July 2006, the pinnacle of the real estate boom. However, look what happened to the ratio in the four years and three months since: it's dropped 66.1%, to 6,213.
You may think the ratio won't fall further since it's already declined 69.2% in the last ten years. To counter, I would point out that it collapsed 88.6% during the 1970s - and that was amid a 170% rise in home values! Only economists on government-laced Kool-Aid could fathom home prices rising that much over the next decade.
All this adds up to one thing: the number of ounces to buy a median-priced home at some point in the near future will likely fall below 2,000. And given the unrelenting abuse to fiat currencies, it's very possible it could hit a measly 1,000 ounces. Now that's affordable!
The fine print, of course, is that you actually sell when the silver price is high, and that you pay the tax on the gain from another source. But I would argue that even a modest budget could come up with a few extra ounces to offset the tax bill.
Think silver is too volatile to use as a savings vehicle? The price fluctuates, no doubt, but ask yourself this: if you were to put ten grand into a savings account and another ten into silver, which asset would have more purchasing power five years from now? Even with the savings account earning interest, you'd be able to purchase much more with the stash of silver when you went to spend the proceeds.
Peter Schiff wrote in the Wall Street Journal last month that home prices would have to fall another 20% just to revert to the mean. Doug Casey is insistent real estate hasn't bottomed because we're on the cusp of a depression. They both think the silver price won't be stopping when it hits $50. If they and other voices in the wilderness are right about these trends, that million-dollar property you spotted on Nag's Head a few years back could be had for less than 2,000 ounces of silver.
Vacation home, here I come!
Thursday, February 3, 2011
Where Are the Bargains in This Market? MCD, CAG, PG
The market continues to forge higher, and the Dow finally made a decisive close over the psychologically important 12,000 mark this week. The mini-panic Friday, which was caused by the unrest in Egypt and elsewhere in the Middle East, seems to be a distant memory. But is that all we’re going to see of a “correction”?It’s possible, but it’s hard to believe that a seven-month, 27% run in the S&P 500 would give back less than 2%, and then only for a single day!
More likely, the market will follow an erratic, see-saw pattern over the next few weeks, lunging higher for a day or two at a time, then quickly selling off. I still think the hedgers among us will get a decent chance to make some money playing the short side. My preferred hedging vehicle is the ProShares UltraShort QQQ Fund (NYSE: QID), below $10.45 with a stop 10% below your entry point.
Is anything worth buying at these rarified levels? Obviously, you’ve got to be extra careful. Ben Bernanke’s ZIRP (zero interest-rate policy) has distorted — that is, inflated — the prices of hundreds of stocks, making it hard to find true bargain stocks.
However, a few blue chips continue to offer good potential for double-digit returns over the next 12 months. I would single out McDonald’s (NYSE: MCD) at $77 or less, ConAgra (NYSE: CAG) at $23 or less, and Procter & Gamble (NYSE: PG) at $63 or less. Buy them in that order.
A Cheap Emerging Market
Overseas, India stands out as one of the world’s best values. The Bombay market has dropped 14% since Nov. 5. During the same period, the S&P gained nearly 7%. Of course, India has its share of economic problems. Inflation is flaring up, food prices in particular, forcing the central bank to raise interest rates six times in 2010 and again last week.
At only 13 times trailing earnings, though, the Indian market now sells at a significant discount to our own — and I don’t have to tell you which country is likely to grow faster over the next five, 10, 20 years. In my judgment, this is a rare opportunity to build a stake in India on the cheap. Buy the PowerShares India Portfolio (NYSE: PIN) at $24.50 or less.
McAlvany Weekly Commentary
The Next Decade: An Interview with George Friedman
A look at This Weeks Show: - Does America have the will to be an Empire?
- Tactical traps vs. long term strategic thinking
- The balance of power in Europe, the Middle East, & Asia
About the Guest: George Friedman, Ph.D., is an internationally recognized expert in security and intelligence issues relating to national security, information warfare and computer security. He is founder, chairman and Chief Intelligence Officer of STRATFOR, (Strategic Forecasting Inc.) a private intelligence company that provides customized intelligence services for its clients. Click Here
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