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2011 Commodities Trading Forecast

2011 Commodities Trading Forecast

This is my favorite asset class for the next decade, as investors increasingly catch on to the secular move out of paper assets into hard ones. Don’t buy anything that can be manufactured with a printing press. Focus instead on assets that are in short supply, are enjoying an exponential growth in demand, and take five years to bring new supply online. The Malthusian argument on population growth also applies to commodities; hyperbolic demand inevitably overwhelms linear supply growth.

Of course, we’re already eight years into what is probably a 20 year secular bull market for commodities and these things are no longer as cheap as they once were. You’ll never buy copper again at 85 cents a pound, versus today’s $4.45. Many commodities, like cotton and rare earths saw triple digit returns in 2010, so don’t expect a repeat this year. You are going to have to allow these things to breathe. Ultimately this is a demographic play that cashes in on rising standards of living in the biggest and highest growth emerging markets. You can start with the traditional base commodities of copper and iron ore.

The derivative equity plays here are Freeport McMoRan (FCX) and Companhia Vale do Rio Doce (VALE). Add the energies of oil (DIG), coal (KOL), uranium (NLR), and the equities Transocean (RIG), Joy Global (JOY), and Cameco (CCJ). Oil has in fact become the new global de facto currency (along with gold), and probably $30 of the current $90 price reflects monetary demand, on top of $60 worth of actual demand from consumers. That will help it grind to $100 sometime in early 2010, and we could spike as high as $120.

Don’t forget alternative energy, which will see stocks dragged up by the impending spike in energy prices. My favorite here is First Solar (FSLR). Skip natural gas (UNG), because the discovery of a new 100 year supply from fracting and horizontal drilling in shale formations is going to overhang this subsector for a long time.

The food commodities are also a great long term Malthusian play, with corn (CORN), wheat, and soybeans (JJG) coming off the back of great returns in 2010. These can be played through the futures or the ETF’s (MOO) and (DBA), and the stocks Mosaic (MOS), Monsanto (MON), Potash (POT), and Agrium (AGU). The grain ETF (JJG) is another handy play. Through an unconventional commodity play, the impending shortage of water will make the energy crisis look like a cake walk. You can participate in this most liquid of asset with the ETF’s (PHO) and (FIW).

By. Mad Hedge Fund Trader




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Leave a comment
  • Anonymous on January 07 2011 said:
    Alot of people think we are doomed, but there are still great ways to make money. Even while the economy is collapsing around us.I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.His oil calls are insane, and I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.I am worried about my financial future. Is anyone else nervous out there?

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