Wednesday, April 27, 2011

Crowded trades always end - and badly

A couple of posts back I mentioned that commodities were, to my mind, as bubbly as NASDAQ in 2000... today, I have been joined by some rather famous company:


As I said before... This does not mean that commodities cannot go higher... but when ALL of the speculators (as opposed to commercial users) are on one side of a trade, when they all try to fit going out the exit door... they can run you over.

You heard it here first (and Grantham second). I will absolutely take positions on the short side, but only after my screen is red. When the sell off in commodities comes, and it is coming, it is going to wipe the floor with speculator and investor alike. Think of how much money the short's made in Oil after Oil peaked in 2008. Play this right and you can score - BIG.

You heard it here first.

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Commodities are expensive, and believe it or not some equities are cheap. But not most commodity equities, even if they have incredibly low P/E ratios. 

The U.S. financial system nearly extinguished itself 3 years ago. While reviving it has caused the US$ to crash, it has been revived and the US$ has already crashed. The reason to own some things has past. Meals will have to be served, healthcare will still need to be provided, people will still need a place to live (and that does not mean a McMansion). My bet is consumer companies (like McDonald's, Coke, P & G), Healthcare (think United Health and Pfizer), Utilities (electric is going to be very important after the age of Oil), and residential apartment properties (rather than farmland, that was the trade 5 years ago) will pick up from the commodity companies... and yes I do think we will devolve into a developing world level of living... but those countries have plenty of people who do very well for themselves... every environment has winners and losers, might as well be on the right side of that trade... in the long run we're all dead anyhow.

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There is a big difference between a homestead and investment farmland. Rentable Farmland has risen smartly over the past 5 years, homesteads have been crushed with housing. I absolutely, positively believe that a homestead should be the first investment in a family's portfolio (let's define a homestead: a house on at least 5, very usable acres complete with out-buildings for the purpose of gardens and small livestock). If you don't have a family, you don't need a homestead. The other primary investment? A small business. A SMART small business. One that requires skills, has been in demand forever (plumbers, dentists, masons, etc... come to mind. Dog grooming? Not so much). I know a bunch of people... and I don't know anybody that was able to rely on employment, rather than entering commerce, as a means of providing for themselves for the long term.  Well, that's not true... outside of public servants, that is.





6 comments:

Unknown said...

"if you don't have a family, you don't need a homestead."

Why not? Is there a better path you suggest for single folks life myself?

A Quaker in a Strange Land said...

Single? I'd live in downtown.

Donal Lang said...

You might want to add, a homestead NOT in a place that suffers extreme weather events.

Whatever your views about the reasons for global warming, we're having a lot of 'biggest for 100 years' type events recently.

Unknown said...

Downtown? But I thought cities are going to become increasingly unlivable?

A Quaker in a Strange Land said...

Glen:

Define "cities".

And by the way.... rent! Don't buy.

Anonymous said...

Concerning electric utilities, people will be converting en masse from oil heat to electric over the next winter or two. This will be very good for the electric utilities.

If you heat with oil, the break even points are listed below, considering 80% efficiency of your oil furnace:

Electric Oil
$ per kWh $ per gallon
$ 0.16 $5.12
$ 0.14 $4.56
$ 0.12 $3.91
$ 0.10 $3.25
$ 0.08 $2.61
$ 0.06 $1.95

These numbers are for electric space heat. Heat pumps have a lower break even than this.

Regards,

Coal Guy