Well we are approaching the final trading days for 2010 on Wall Street. As this year comes to an end I wanted to go over the move we have seen in commodity prices since last July:
Sugar +106%
Cotton +75%
Corn +72%
Silver +67%
Wheat +65%
Coffee +49%
Copper +48%
Rice +45%
Soybeans +43%
Oil +33%
Gasoline +20%
Gold +18%
These price increases have taken place in the last 6 months. Now the pundits on CNBC and other financial publications claim that these rising prices prove the economy is in the begining stages of an incredible rebound. I hate to be johnny rain cloud here but the economy isn't going anywhere. Lets take a look at some statistics on how the economy is doing.
Since December of 2009 we have added on average 79,000 jobs per month. The population growth in the United States on average is 175,000 per month. We are not even creating enough jobs for people entering into the work force. Baby boomers who were planning on retiring have now come to the conclusion that they are going to need to continue working since their 401k's have taken large hits and their homes they were planning on selling have decreased 20-50% depending on the location. This means younger adults entering the workforce will not be able to slide into jobs that are being vacated by recent retiree's.
Unemployment is still near 10% using government statistics, but probably closer to 20% if you take the underemployed and discouraged workers into account.
While it is true that companies are reaping big profits, these profits are mostly coming from the growth of emerging markets in Asia. Many U.S. companies are hiring, but the jobs are being created over-seas where there is less regulation, less unionization, less taxes, and more growth. This is one of the reasons the stock market continues to do well despite a struggling U.S. economy.
Consumer spending is up here in the United States, but most of this spending is from wealthy Americans who have invested in the financial markets. They have made big returns this year, especially if they have been using leverage which can maximize your return by a couple hundred percent. The Federal Reserve's policy of Quantitative Easing has made it pretty much a sure thing to make money in the stock market. The wealthy are the people who benefit most from this since they have the capital to be able to invest in companies and commodities that will benefit most from stimulative monetary policy. I can personally attest to this, using leverage in the futures market I was able to produce a 150% return this year. The problem is most people aren't educated in the field of finance in order to take advantage of monetary policy coming out of the Federal Reserve. The top 10% wealthiest Americans own 98.5% of all stock in the country. The other 90% have stagnant or non-existent wages, rising costs for fuel and food, continued falling home prices, and rising debt levels.
In 1970, jobs in the goods producing sector accounted for 31% of all jobs, today they account for only 13.8% of all jobs. In 1970 we were also a net exporter (we shipped more goods to other countries than we brought in), now our economy is a consumption based, debt fueled economy. This is a classic late stage trait of declining empires.
Using Federal Reserve monetary policy, the wealthy continue to position themselves to do well in the financial markets even if the U.S. economy is struggling. Many people, especially on the left believe that rich people are to blame and should pay a higher percent in taxes. I don't blame the rich at all for taking advantage of monetary policy and increasing their net worth using the financial markets. I did the same thing. The blame should not be on the rich, it should be on government using manipulative policies causing prices of assets to rise only because of an increase in the money supply. The only thing higher taxes will do is push more jobs overseas and increase the demand for CPA's to help more people find ways to shelter their incomes from taxes.
In my opinion, the increase in the prices of the commodities I mentioned above are not because the economy is now firing on all cylinders, it is because of the printing of money by the Federal Reserve. The last time the Federal Reserve had a stimulative monetary policy was in 2001, most of the printed money went into the housing market. Today, the Federal Reserve has an even more stimulative policy. But this time, I see the money flowing into the commodities market instead of the housing market. Once bubbles burst (such as the housing market), they take a long time to come back. The tech bubble of 2000 as measured by the NASDAQ, still isn't anywhere near the level it was when it burst. So in my opinion, investors are not going to speculate in the real estate market for at least the next decade. As evidenced by the last 6 months, commodities look like the place to invest.
You don't have to be a rich person in order to participate in the upside in commodities. You can open up an individual brokerage account at a discount broker like Scottrade, Schwab, etrade, or Ameritrade. The cost to buy any amount of shares of either a stock or Exchange Traded Fund is under $10. It literally doesn't cost anything to invest, it only costs you a considerable amount of money if you need advice. Their advice typically also has a lot of conflicts of interest. Being a stock broker, I can attest that brokers will try and steer you into funds that make them the most commission. Here are a few examples of some picks I like that will give you exposure to commodities, but before buying these you should consult your financial advisor to see if you have the risk tolerance and time horizon to ride out the volatility.
For exposure to the agriculture sector which I believe will do well with continued inflation and stimulative monetary policy: MOO (this is the ticker symbol, go to finance.yahoo.com and type this symbol in to see a quote.
For exposure to Gold you can use the ticker symbol GLD. This fund holds physical gold and tracks the price of gold. If you want to take additional risk then you could use UGL. This is the double long gold fund. So if gold goes up 1% you will make 2%. This fund uses leverage (borrowed money to increase returns), so make sure you understand the risk before investing in UGL.
For exposure to Silver you can use the ticker symbol SLV. This fund also holds physical silver and trades like a stock. If you want to take more risk you can use the symbol AGQ. This is the double long silver fund, which means you will double the percentage gain silver makes, but also double your loss. So again, make sure you understand the risks before investing in AGQ.
For exposure to oil I like the Canadian Energy trusts. Their are a few that trade here in the U.S. I like these over U.S. oil companies since I believe that energy companies here in the U.S. will most likely have excess profit taxes placed on them once gasoline passes $4.00 / gallon which I believe will happen by summer of next year. These Canadian energy trusts will be converting to corporations in Jan 2011, but I still believe they will continue to do well with where oil prices are at.
Those are just a few ideas that I think are good plays for the next 5 years. You can buy all of these funds by opening up a brokerage account at any of the brokerage houses I mentioned above. Most of them you can open an account with as little as $500. Its time for the rich to not be the only ones who benefit from the financial markets being manipulated higher. Take the information I have given you here as a starting point for additional research. A few books I would recommend to get you started are Peter Schiff's, "Crash Proof 2.0", Jim Cramer's, "Real Money, Sane Investing in an Insane World." After reading these books I am confident you will understand the financial markets and the economy enough to get started.
Since I am a licensed securities representative it is important you read the disclosure below:
Strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested. Investments or strategies mentioned on this website may not be suitable for you. This material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned on this website. Before acting on information on this website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.
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