Benefits of a Special Cycle in CommoditiesInteresting posting from S. Broderick, I thought.
Right now, you’re in the early innings of Phase II of the commodities supercycle — a period of accelerated growth, accelerated price rises and grand slam profit opportunities.
Let me explain: Generally, commodities go through a standard cycle of (a) growing scarcity, (b) rising prices, (c) oversupply, and then (d) falling prices.
But once every fifty years or so, commodity prices explode out of the normal pattern, driven first by real demand, then by investment demand and finally by speculative demand.
In the last 150 years, that’s only happened three times. And now it looks like it’s happening again.
From what I can tell, the past few years were just Phase I of this commodities supercycle. And now, it looks like we’re starting Phase II, when many of the big homeruns will be hit.
The biggest slugger of them all: Canada — the country where cub-sized companies are finding giant-sized deposits of gold, uranium, coal, oil and more, greatly outperforming their Yankee competitors.
Indeed, Canadian small-caps have been running rings around the S&P 500.
Over the past three years, the S&P 500 is up 33%.
Meanwhile, the Toronto Exchange’s Venture Composite Index rocketed 116%, triple-outperforming the S&P — and more!
What’s driving this superlative outperformance? In addition to the extra leverage small caps naturally give you in a rising market, the Canadian small caps are also powered by the commodity boom.
Commodities account for 35% of Canada’s exports and an even larger share of the best-performing stocks in this index, a key factor helping it to zoom higher at over three times the pace of the S&P 500.
Canada’s strategic positioning to serve customers in the U.S., Asia and Europe ... top-notch transportation system ... deepwater ports ... modern technology … all work in its favor.
Canada’s relatively firm currency, stable government, and modern banking system also make a huge difference — both as an environment for running first-class business operations and as a magnet for prime-time investment capital.
The biggest source: The United States.
The Right Timing For A Successful Investment Strategy
We have moved this investment discussion online and are today going to look at our favourite question ”Where is the market going?” from a different angle:
How much freedom has the FED still left to steer the market?Let’s start with some US markets facts, courtesy of Weiss Research Inc.:
• US Interest Rates have been going up.
• The yield on 30-year Treasury bonds, less than 4.2% in July. Now it’s close to 4.8% and moving higher.
This Treasury-bond yield has an almost immediate and direct impact on mortgages, housing, autos and the rest of the economy.
• No wonder the 30-year fixed mortgage rate has jumped to 6.15% lately, a 14-month high.
On the whole borrowing costs are going up for almost everyone in the US.
Some people, may think rates move up and down based on the FED’s say-so but history has proven this theory wrong many times.
There are several reasons why the FED is especially powerless now to control interest rates today:
1. The discrepancy between the high degree of future inflation and low level of interest rates is probably far greater today than at any time in modern history.
2. It is not merely inflation that prompts lenders to charge more interest. Lenders charge more if your credit rating goes down. They charge more if there’s a bigger number of people suddenly asking for loans. And they’ll charge more if the banks are running low on available cash to loan out.
Right now there are more people and institutions holding bigger debts than at any time in history. This means they need to continually borrow more money to pay off the debts coming due every day.
Just in interest bearing debt, and just among U.S. borrowers, the total debt pyramid is now more than $38.1 trillion. These debts don’t include debts owned by foreigners and debts that don’t require interest payments.
The biggest and possibly shakiest – debtors right now are the millions of Americans who have taken out first and second mortgages on their homes. The total of mortgage debt is now $11.1 trillion or 2.5 times more than all U.S. Treasury debts.
This enormous amount of mortgage debt is especially dangerous today because so much of it is based on
- adjustable rates,
- bloated home values,
- low or zero down payments, and
- even undocumented, ‘believe-what-they-say’ income.
Also driving rates higher will be those US and foreign investors holding the trillions in U.S. Treasury notes and bonds. When rates go up, it sets off a chain reaction of events that might be beyond anyone’s control, including the FED.
In 40 years of tracking bonds and interest rates, there has never been a convergence of fundamental forces quite like this one: The worst trade deficit in history. The worst jump in the CPI in 25 years. The biggest accumulation of foreign debt ever.
Here are three strategies that are said to protect one’s investments in today’s circumstances:
1. Keeping almost all one’s cash short term.
2. Putting some money in a mutual fund designed to rise with long-term Treasury bond yields.
3. Options that can go up sharply when interest rates go up moderately (risk takers only here).
What do you think? Agree, not? Let us know, send your comment!
