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Frequent Contributor

3 forces that could fuel the commodity fire!

Money-flow both in and out of commodities continues to be highly monitored. An interesting thought starting to circulate inside the trade is the fact we may be setting ourselves up for a NEW wave of money coming back into the commodity sector. Especially if traders get temporarily spooked out of equities. Below are three major forces that, if the winds blow in the right direction, could once again fuel the commodity fire:

 

Corn 2013.jpg

 

  • China - Most all economic numbers and data are pointing to a much softer landing than most anticipated. In fact China looks poised to start growing once again. The question is, as they shift to more "consumer based spending" will they be able to push demand as hard as they once did? If they can get over the hump, China could once again be a major force. In fact, one of todays Bloomberg headlines read "Goldman Sees China’s Commodity Demand Rebounding to December." 

  • Japan - Abeonomics is in full-swing. Japan has very few options but to let their currency drift lower and lower in an effort to create inflation and spending. Keep in mind, for the past 20 years "deflation" has had a stranglehold on Japan. In an effort to change this it could spark a much greater demand for commodities.

  • Lame Duck President - As you can see, he is waiting on the rest of Washington to make the decision on Syria. Most political insiders believe we will see less and less decision making as his 8-year term pushes into its final leg. Often times this lack of global US leadership is characterized by a stagnate or disappointing US stock performance, improved growth in other parts of the world, and money flowing into commodities.

Courtesy of the Van Trump Report

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10 Replies
Veteran Advisor

Re: 3 forces that could fuel the commodity fire!

I agree about the stock market. I doubt that Obama has the remaining political capital to get much of any stimulus passed, and absent the new influx of freshly printed dollars, equities and commodites should have downward pressures.

 

My question would be where to position the money if one takes it out of equities.

 

Grains I don't worry about too much...if input prices and land costs adjust to a downward spiral, x amount of bushels is still going to buy an acre of prime farmland and if you sell x at a lower $, you have less going to taxation so the aquisiton works better , net of taxes.

 

Just make sure to price your inputs for next year based on $4 corn, and not $7 corn.

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Veteran Advisor

Re: 3 forces that could fuel the commodity fire!

After the sale of the farm, I've been working with the same dilemma, Red.  There is no safe haven right now.  We did manage to get a really good rate (if you call 1.35% good) on a 13 month CD special that our main bank had this week.  I don't think they thought that someone with as much cash as I had would do their offer, as we had to get it approved by the President of the bank.  But it beat 0.4% in the money market we had it in.  And it gives us a year to delay where we want this money long term.  We put a third of our money in that, leaving $600,000.00 liquid for taxes next spring, and am working on putting the remainder in equities, a couple of public energy partnerships, and a few Municipal Bonds thrown in there for good measure.  I just felt it was best to diversify over a range of areas, hopefully if one loses the other makes up for it.  We'll see how it all works out.  And of course, I still have my futures trading slush fund, which should've been a lot bigger tonight, but that's all of have to say about that...

 

Jen

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Senior Advisor

Re: 3 forces that could fuel the commodity fire!

With all that money, do you care if I call you Aunt Jenny?

Sincerely, your favorite nephew
Shaggy
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Advisor

Re: 3 forces that could fuel the commodity fire!

Step back cousin Shaggy, I'm going to call her Mom.

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Senior Contributor

Re: 3 forces that could fuel the commodity fire!-- buy cocoa, becaue barobama bungles.

“””  the fact we may be setting ourselves up for a NEW wave of money coming back into the commodity sector. Especially if traders get temporarily spooked out of equities.  “””    Nothing personal, but this view appears to be completely out of the sky  speculation with no factual content.  Anytime various sectors can  find preference or dislike. In fact no money can leave the equity markets, just less preferred. If I sell you 1000 IBM at 160, I get 16ok and you pay it. No new money has left or entered. Ownership changed at a 160  price.   New money can enter the commodity sector or as easily new money can short the sector or existing money in the sector can leave.

 

Stocks, over time, corralled capital advancing via science and technology combine to produce more and the stakeholders benefit. Look at the perma stk bears here, 500 SnP pts ago, it had to top. The Snp went from 700 to 1680 in 5 years. If it went to 1300, OWNERS would be gad to own more. Vs returns, down 20% is minor.

Those who own equities long term and now, know this. Non owners dream up Stocks might go down, they might or@i

 

“”China soft landing”” , means what? Nof much, Japan’s economy is trying to revive, how does that make the Japanese eat more corn fed chicken? A non factor.

 

Last “ lack of global US leadership is characterized by a stagnate or disappointing US stock performance, improved growth in other parts of the world, and money flowing into commodities.””””””   Sorry but complete poppycock. There is no basis and no legacy correlation to such a statement, it I false.

 

BO waffles and is erring daily re Syria,      does not effect   cocoa OJ nor   oats!, No one buys coffee futures because bammaBarack makees big mistakes. What  a chocolate party if BO really blows it.

 

Is this from some nut goldbug webmaster?

 

Regards,

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Senior Contributor

Re: 3 forces that could fuel the commodity fire!

Energy Partnerships have very high entry costs and sound great but get stuffed with weak/poor energy assets.

A high % go to near zero.

 

Buy an actual energy equity instead. CHN XOM P  somethung quality.

 

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Veteran Advisor

Re: 3 forces that could fuel the commodity fire!

Arti, thanks for the advice, I'll take a peek at it.

 

Jen

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Veteran Advisor

Re: 3 forces that could fuel the commodity fire!

Specifically, one of the Limited Partherships is with Kinder Morgan Energy (KMP).  I liked what I saw when I researched this partnership.  I think it was a good choice.  Eventually, they will get the keystone project underway.  I thought that it looked good.

 

Jen

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Veteran Advisor

Re: 3 forces that could fuel the commodity fire!

I agree with artifice about the limited energy partnerships.

Buy a fund that invests in energy companies instead. Or just invest in an index fund. High cost limited partnerships make the promoters wealthy.

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