Famed investor and best-selling author Jim Rogers was interviewed by Yahoo!’s Tech Ticker back in October 2009, and he’s still bullish on commodities, but not so much on gold.
Here’s the 30-second takeaway from the video:
Individual investors should focus on commodity ETFs, unless they have a deep understanding and interest in commodities futures trading.
Forget gold, and invest in other material instead like lead, zinc, copper and silver.
Agriculture is the next big crisis, with the Food and Agriculture Organization warning countries that the world is one disaster away from a major food shortage in much of the world.
“I think I’ll make money in other commodities that are more useful.”
Rogers owns gold, but he not very bullish on it. I think his argument against gold is a good one. He basically thinks that it has some intrinsic value, but only from a subjective point of view. It simply isn’t as practical a metal as lead, zinc or silver. And because gold “is mystical to many people”, it’s garnered the lions share of attention, but that also means there’s less upside potential than there is in more over looked, less attractive metals.
“most agricultural products are still depressed on a historic basis.”
Speaking of useful commodities, Rogers is quite bullish on agricultural commodities. Rogers sees a vast lack of supply, and calls it a looming catastrophe. He thinks that the world is in for a period ahead when some parts of the globe won’t be able to get food at any price.
“The story is not over, not for a while. I don’t see any reason it’s going to be over for a few years because no one is bringing new supply on stream.”
Is Jim Rogers right?
Who knows? But he was right when he called a global commodities rally in 1999. And he presents sensible arguments to support his views on various commodities, which is more than I can say for many of the gold pushers that have been crawling out of the woodwork in the past 3-5 years.
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A commodity index is an index that tracks a collection of commodities in order to measure their performance.
Commodity indexes are often traded on exchanges, such as the Chicago Board of Trade (CBOT). By being traded on an open exchange, investors gain access to commodities without having to deal in the futures market.
The value of a commodity index changes daily and is based on the value of the underlying commodities.
There are many commodity indexes on the market, all varying by the types and weightings of commodities being tracked. The Reuters/Jefferies CRB Index, for example, is comprised of 19 different kinds of commodities which range from wheat to aluminum.
As with stock and bond indexes, some commodity indexes weight all their holding equally , while others have a fixed weighting approach.
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Morningstar has a great article on what was hot in 2009, and why.
For starters, what was hot:
4 general categories proved to spear head the market out of panic mode:
Emerging markets
Small cap stocks
Commodities
Technology
The hottest single category for the year of all Morningstar categories and asset classes was Latin America stock funds – up 112% for the year. Diversified emerging markets rose 72%, while Pacific/Asia ex-Japan funds were up 69%.
Morningstar attributes these numbers to two factors:
A general sense of relief when investors realized the panic of Q4 2008 – Q1 2009 was overblown and the global financial system wasn’t headed over the abyss. This led investors to dive back into more “adventurous” investments that they had previously fled.
China’s economy showed signs of being more resilient than other economies, leading investors to return to embracing the trend of Chinese growth potential.
One could also argue, though the Morningstar article doesn’t, that the interest in commodities was due to an overall trend of uncertainty about the future caused in large part by un restrained government spending and historic federal deficits. Many people are hedging toward protecting for a possible currency crisis or at the very least, rapid rise in inflation.
Small cap and Tech stocks were hot because those kinds of stocks typically lead an economic recovery, so investors were looking to catch any stock market recovery in the early stages.
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According to a recent working paper by the International Monetary Fund:
“Given the policy tools employed through the crisis so far, particularly massive injections of liquidity and quantitative easing, the risks of this outcome remain significant. This implies that inflation hedging should remain an important component of long-run investment policy.”
To that end, here are 13 ETFs …
TIPS (Treasury Inflation Protected Securities)
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TIPS have lost value recently because the major fear is still deflation, but by the time everyone is talking about inflation as a serious threat, their price will have shot up.
Gold and Precious Medals.
Commodities are a classic inflation hedge, and now you can use ETFs to simplify your diversification.
Here are some of the more popular ETFs in this category:
SPDR Gold Trust (GLD) (stores underlying gold in a vault)
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Any information I share on After Hours Investing does not constitute financial advice. I am not a registered investment advisor or broker-dealer nor do I purport to tell or suggest which securities readers or customers should buy or sell for themselves. I am an amateur investor who is sharing what I learn as I learn it.
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