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Positioning for the Coming Commodities Bust
SLO players, including myself, have been loaded with great performing commodity stocks and ETFs that have buoyed us in the turbulent markets. Just take a minute to gaze at the portfolios of some of the top 50, and you'll see many with agriculture holdings (MON, MOS, POT, ADM), many with miners (PCU, BHP, AAUK, FCX, NEM, GC), and of course, coal and steel. Commodities have been king, and I am slowly jumping off of the bandwagon and shifting money the other way.
Today I cut my positions in MON, POT, SYT, MOO, and BG. The first three have done well in the short term, and BG popped today. My decision is based more upon my long view of macro-economics than the technicals of each. Ahknaten made a great case of POT being overvalued in his last blog entitled, "POT may be legal in B.C. but . . ." and Vad Yazvinski speaks more about the agriculture plays in his April 3rd entry, so I won't retrace their steps. Commodities, just like everything else in investing, have their ups and downs. The past 2 years have been amazing for agriculture, and miners, but the party won't last forever. To believe that both will continue the march upward into perpetuity, powering through a US recession is going against tough odds. What are some of the reasons cited for the continued climb?
1. Demand from China. Not a day goes by without hearing about the China boom that is driving up the cost of everything. As long as China continues to grow, some believe commodities will remain resilient even in a US slowdown.
2. Everyone eats, therefore, agriculture will continue booming. Furthermore, as more of the world develops and diets improve, better food will be demanded by more people pushing agriculture even higher.
Find out other factors in this impending bust and how Jonathan Coyle plans on trading them here.
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