Inflation Investments are the Future?
Filed under: Commodities Bull Market, Financing, Investing, Stock Market History, Stock Market Predictions, Stock Picks
A very good article on Inflation Investments points out that hyperinflation is quite possible in the very near future. With Ben Bernanke printing as much money as possible, it is almost inevitable. If we do see inflation in the coming years, the place to be is in commodity investments. As many of you know, this site has been strongly invested in commodities for quite some time and we think the commodities bull market is only half way complete. That means we could see another NINE years of heavy commodity gains.
Commodities Bull Market – Crude Oil and Oil Companies Uptrending?
As many of you already know, the price of crude oil was in a freefall from $140 a barrel to $35 a barrel from July 2008 to December 2008. For any of you that were long crude oil during this drop, I am sure it was very hard to stomach the pain of watching your money dwindle. For those of you who owned oil companies, the pain was even worse as some of these companies lost over 70% of their value in a few short months. Luckily, you are likely to see some of those gains come back in the near future.
The price of crude oil has increased from $35 to $55 since the beginning of 2009 and we have not hit the summer driving season yet. There is no doubt that the crude oil market was harshly oversold during the complete liquidation of assets that took place in 2008. Commodities were not fundamentally impaired in any way and should not have seen such steep declines. Luckily for us, this gives us an amazing buying opportunity.
The recent drop also changes the current psychology of driving. When gas fell under $2 a gallon, many Americans stopped worrying about the price of gas and began to drive much more. With gas being so cheap, it no longer made a huge dent in their wallet. Well, as we fast forward to increasing fuel prices, there will be less fuel on the market as the entire world has been binging on the lower fuel prices. Even though the economy has been horrible, there is no way to travel without using crude oil unless it is by foot or bike. I think we all know that most industrialized nations are not going to travel by foot or bike.
This is great news for the long term outlook of crude oil. I have been a bull on crude oil since 2005 and will remain a bull for the next decade as it is very difficult to explore and find crude oil. Now that the profits of oil exploration companies are being pinched, it will make even harder to discover and pump oil. This means that less and less supply will reach the market so the prices must go up at some point. I would currently suggest investing in the DBE rather than oil companies traded on the stock exchange.
Commodities Bull Market – March 22nd – Gold Bounces off 50 Day Moving Average
As many of you know, I have been a commodities bull for the last four years. After researching long valuation waves and the decade long trends that financial markets tend to trade, how could you not be a commodities bull? Looking at recent history, we know that commodities double bottomed in 1999 and 2001 which started a strong uptrend. The commodities bull that began in 2001 is likely to continue for at least several more years if history repeats itself. Most commodities bull markets average 15 years in length. This means we will see the commodities bull run until 2016.
On a more recent note, we have witnessed the price of gold skyrocket after Ben Bernanke and the Federal Reserve Bank injected $1.05 trillion into long term treasuries and mortgage backed securities. The reason gold skyrocketed is due to the fact that the US Dollar is likely to decline in value with over $1 trillion more being dollars being printed and injected into the economy. Gold rocketed from $880 to $960 in a matter of hours after the announcement by the Federal Reserve Bank. This does not come as a surprise as the 50 day moving average for gold is currently $912. Gold spent about half a day under this level before the strong bounce to $960.
This is great news for gold bulls as the 50 day moving average will now continue to hold as support in the current uptrend. It is an uptrend that started in mid November at $700 and has carved its way upward to $960. A 37% gain in four months is something to cherish in the current investing environment. Making the current gold uptrend even more exciting is the fact that we have yet to break into new highs. Once we top $1050 and gold hits all time highs, we should see quite a run up on mere excitement from retail investors.
One thing that always worries me about bull markets is when EVERYONE thinks it is a smart investment. Luckily, we do not have this at all in commodities. What is amazing is the fact that there are so many commodities bears right now. With the value of the dollar declining and a great chance of hyperinflation, how can so many analysts remain bearish? I will not fight this battle as I am quite excited about their bearishness. We will continue to see gold and other commodities grind higher and the analysts will find reasons that the bull should end or is already over.
I will continue to invest in gold as I feel the gold and commodities bull is only half way through its run. Even more exciting to me is the fact that the parabolic run up in prices at the end of a bull market is when the greatest gains are made. From 1979 to 1980, 14 years into the previous commodities bull, gold rocketed from 200 to 850 in ONE YEAR. I honestly hope this does not happen in the current bull as this will show the grand finale to our commodities uptrend. Hopefully we will continue to move higher with consolidation. When we see a move of over 300% in one year, I will get out and put my money back into equities.
Luckily, that is not the case yet, so lets continue to enjoy the uptrends that gold and all commodities are in. Silver is an interesting investment right now as it tends to make much more drastic moves than gold, but goes in the same general direction. Will we see silver shoot up to over $20 an ounce in the near future? Let’s see what the next week holds.
Each Sunday I will provide my knowledge on the commodities bull market. Right now, commodities continue to look like a great investment. Until we see those parabolic moves upward, I would be an investor in this arena. Make sure to bookmark the link below to read the column every Sunday.
When Will the Commodities Bull Market End? 2019?
One of the most common questions in the investment arena is when will the commodities bull market end? Some analysts and market mavens feel that the commodities bull ended with the complete liquidation of assets that began in July of 2008. Since then, the coutinuous commodities index (CCI) is down 43%. While many believe this is a true sign that the commodities bull market is over, nothing could be further from the truth.
Since bottoming at 182 in late 2001, the CCI is up 89.5% even after the steep decline we have seen in the last year. If you would have invested money in the S&P 500 at that time at 1150, you would have a decline of 33% compared to your 89.5% gain in commodities. If this isn’t enough to prove to you that commodities are a better investment, lets look at the long valuation waves of the stock market and commodities index.
Long valuation waves are psychological predictor of markets. The idea is that over a 12 to 18 year period, the psychology of investing greatly changes. During the doldroms of a market bottom, very few people want to invest and everyone makes the comment “you will never make money investing in that.” This is the best time to buy as this is often the time when bottoms are carved out. As a bull market begins, smart investors start to put money into that investment vehicle for many years. As the bull ages, more investors are willing to put money into the strong bull market. Near the end of the bull market, after almost two decades, everyone feels they can make millions off investing. You probably remember the dot com bubble very well when everyone was investing in the next great dot com.
When this is the case, it is a great time to start investing in the opposing investment vehicle. In 2001, that investment would have been in commodities. Prior to that, in 1982, that investment would have been in the stock market. Overall the trends tend to last 12-18 YEARS as psychology must play a huge role before the bull market is over.
As many of you know, commodities tend to trade in the opposite direction of stocks. When commodities go up, stocks go down and vice versa. This holds true over a long term trend. In the mid 2000s, both commodities and stocks were in an uptrend, but over a multi year trend, these two investment vehicles very rarely trade in the same direction. In 1980, gold peaked around 850 and the stock market bottomed soon after in 1982.
From 1982 to 2001, the stock market saw the strongest bull run it has ever seen. The overall stock market was up over 1400% during that period while commodites declined over 42%. At the end of this stock market run, commodities bottomed in 1999 and started an uptrend in, you guessed it, 2001. If the long valuation wave theory holds true, we will not see an end to this bull market in commodities until, at the earliest, 2013 and it could be as late as 2019.
This commodities bull market may be a little bit different as this is the first time in history there was total liquidation of assets. With the mortgage crisis, every investment vehicle was liquided. Many hedge funds and investment banks had to come up with assets to stay afloat and they sold everything causing the prices to be imbalanced. Commodities continue to see a supply/demand imbalance and we will see that in the prices in the near future.
We are already seeing gold over $1000 an ounce and it is highly likely that other commodities will follow golds lead. If you have money to invest, commodities is the place to invest it right now as it has SEVERAL more years of a bull market run. Ticker symbols DBC, DBA, DBB, DBP and DBE are all great choices and should see a strong return on investment over the next five years. We will go into more depth about these etf’s in the near future.