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Thursday, October 23, 2014
My friend, the time has FINALLY come...
It is time to buy commodities.
For years, I've urged you to invest in the stock market and the housing market. (I hope you took my advice... Stocks and housing have soared!)
But one asset class has been completely left out of the fun... commodities.
In the summer of 2008, big investors loved commodities... The Dow Jones-AIG Commodity Index peaked at a value around 240. And Harvard University, a big investor, allocated 8% of its endowment to "public commodities."
Now commodities are hated by big investors... Earlier this year, the Dow Jones-AIG Commodity Index hit 122 – down nearly 50% from its 2008 highs.
And big investors have bailed completely. Harvard announced it will be allocating 0% to "public commodities" in 2015.
The story gets even crazier...
You see, the Dow Jones-AIG Commodity Index was at 128 in 1997. That means commodities in general are now trading at prices last seen 17 years ago.
And going back 80 years, you can see that commodity prices are trading near all-time lows:
As the chart shows, over the long run, the trend in commodity prices is down. However, there are moments – like in the 1970s and 2000s – where commodity prices can have extended bull markets.
So what's going on? Why are commodities crashing right now?
To answer that, let's look at what causes commodity prices to go up...
Commodity prices soar when three things are happening:
Importantly, NONE of these things are in place right now.
Grains (wheat and corn) for example, are having a bumper-crop year. So instead of a shortage, there's way too much wheat and corn.
The world economy is not booming, either... In Europe, the talk is about slipping back into a recession. So there's not a strong demand for commodities at the moment.
And the dollar has been soaring, not falling. The fear of deflation is now more prevalent than the fear of inflation.
This is why commodity prices have crashed – nothing that causes commodity prices to go up is in place right now. The picture for commodities, at the moment, appears terrible.
But moments like this are where the greatest opportunities are born...
One of the greatest investing lessons I've ever learned is: The biggest gains come when things go from "bad" to "less bad." You've heard me talk about this idea before. I call it "The Secret to 1,000% Returns."
I don't mean that this idea always generates 1,000% returns... What I mean is, if you want the opportunity for huge, triple-digit-plus returns, you have to be willing to buy just before the dawn.
Right now, we are in the darkness... but we are starting to see light on the horizon. All the big investors have finally thrown in the towel. And several uptrends are now in place in commodities.
Is it possible that I'm seeing things that aren't there yet? Yes. The uptrends today are very young and not well defined. But I think they're there.
In short, we may be at a historic extreme in commodities right now. Commodities are cheap. They're hated. And we are just now seeing a glimmer of an uptrend.
We have everything we look for in an investment... It's finally time to buy commodities. Do it with a tight stop-loss... But do it.
P.S. Inside the latest issue of my True Wealth newsletter, I share my two favorite ways to take advantage of the next major shift in the commodities markets... including a new way to buy gold with 100%-plus upside and single-digit downside. To access this research and more, just sign up here.
Find more of Steve's latest recommendations here:
A NEAR-PERFECT Investing Portfolio
"Today, I'll share with you an incredibly simple portfolio. One that has been nearly infallible for four decades..."
Quit Your Complainin' – Instead, Take Advantage of This
"The way I see it, this moment – right now – is the absolute perfect moment to be in as an investor."
GREEN ENERGY IS IN THE RED
We're checking in on clean energy stocks today... and find they are still "perfectly hedged."
Regular readers know we're extremely skeptical of clean energy stocks. Most of these firms have such bad business models that we say they are "perfectly hedged." They are able to lose money in both good times and bad. Their stocks are able to decline in both bull and bear markets. For example, the darling of the sector, solar energy, has a problem called "night."
The chart below displays what we're talking about. It plots the performance of the popular PowerShares Clean Energy Fund (black line) versus the benchmark S&P 500 index (blue line) over the past four years.
As you can see, the broad market has climbed (about 60%), while clean energy has declined (about 40%). Bull market? Bear market? Clean energy is perfectly hedged. It can lose money in either environment.