It’s only eight weeks till Christmas, and time to start making your investment plans for 2010. Why? Because market rotation starts earlier and earlier as investors try to get one step ahead of each other.
The good news is I believe 2010 should be easier to trade than 2009. And that’s because this year’s big trend — a declining dollar — looks like it will stay firmly in place.
The even better news is I have three picks for you to play this trend — and a special invitation to attend an exclusive online event, an event that promises to help boost your trading profits in the year ahead.
Why the Dollar Drubbing Will Continue …
Some facts …
- The budget deficit hit $1.42 trillion in 2009. It looks to go higher in 2010, and we could see budget deficits of well over a trillion dollars for years to come.
- The U.S. government is moving closer to its $12.1 trillion debt ceiling. It is now at $11.9 trillion, or more than $38,000 per person. That means if you have a family of four, your portion is slightly more than $155,000 of pure debt.
- There is only one way to get rid of unsustainable levels of U.S. debt — inflation. And the prevailing U.S. policy is clear — we are going to inflate our way out of this (that is, devalue the dollar).
And here’s exhibit A — a chart of the dollar …
Source: Stockcharts.com
The Treasury Department is running the printing presses at full blast, and the Fed has purchased more than $1.3 TRILLION in Treasury and Agency securities. When a government purchases its own debt, it’s not just pig-bitin’ crazy, it also devalues the currency.
So why do I think this trend will continue? Because the government is in no hurry to support the greenback by raising interest rates. One Fed governor after another has trotted out to say that the Fed won’t raise interest rates for many months to come. That just reinforces the trend in the chart above.
I believe the government has a grand plan to let the dollar depreciate, hoping this will boost American exports (and jobs). The problem is that foreign central banks are wising up. Bloomberg recently reported that central banks are switching out of dollars and into euros and yen. The U.S. dollar makes up only 37% of new central bank foreign reserves, down from an average 63% since 1999.
If this trend away from the dollar increases, the slippery slide of the dollar could become a plunge — and give the dollar a haircut of between one-third and one-half very quickly.
But let’s say the worst doesn’t happen — let’s say the government manages a gradual decline in the greenback? That’s going to be GREAT news for select commodities that are already doing well. Commodities like …
Pick #1 — Crude Oil, the Lifeblood of Civilization
Our civilization runs on oil — if the oil stopped flowing tomorrow morning, our society would shatter tomorrow night. Global demand for oil is rising, led by Chinese economy that is surging with growth of 9% a year. Growth requires fuel, and China’s oil imports rose 12.6% in September compared to the same month a year ago. What’s more, China’s car sales are shifting into higher gear — up 78% in September from a year earlier.
And then there’s supply. While it seems like there is plenty of crude on the market now, there is a ticking time bomb south of our border. One of America’s biggest suppliers of imported oil is Mexico, and Mexico’s oil production is falling off a cliff — dropping to 500,000 barrels a day recently from over 2 million barrels a day in 2005. Plus, Mexico uses more and more of its own oil.
If this worsening trend continues, we could see net oil exports from Mexico simply vanish within 24 months or less. And that might be enough to send crude spiking to $200 a barrel!
Potential price spikes aside, there are plenty of bullish forces for oil. The fact is that the only oil we find nowadays is deep under the ocean or in the far corners of the earth, owned by people who hate us. The fact is, Nigeria, another big supplier of U.S. oil, is on the brink of civil war (again!). The fact is, much of the world’s energy infrastructure is old and rusting and will require several trillion dollars to replace it — if it can be replaced at all. The fact is, you can do a lot worse than invest in oil.
Now for the really bullish news. More and more traders, investors, and sovereign wealth funds are using oil as an alternative currency to the dollar — they’re taking they’re depreciating dollars and using them to buy oil, which is going up in price. Do you think that’s a bullish trend? Heck, yeah!
How to Trade It
One easy way to do it is to buy the United States Oil Fund (USO), an ETF that invests in futures contracts in an attempt to track the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. It doesn’t track oil perfectly, but it gets the general direction.
Pick #2 — Agriculture, the Bull Market of a Hungry World
Agriculture lagged the broad commodity rally this year, and didn’t heat up until recently. But next year could be a game changer, one that lights a fire under corn, wheat, soybeans and more.
To be sure, grain prices have been rallying hard lately. So is the big bull run for grains over? No, it’s actually just getting started.
- According to the UN’s Food and Agriculture Organization (FAO), the number of chronically hungry people in the world — that is people suffering from perpetual and severe hunger — has risen to an unbelievable 1 billion! In addition, as many as 2 billion more people live in perpetual food insecurity — missing some meals and often not knowing where their next meal will come from. In the U.S., the richest nation on Earth, about 36 million people suffer from food insecurity.
- The U.S. is already the world’s biggest food exporter — heck, we could be the Saudi Arabia of grain. But even we aren’t immune to bad weather or bad luck. High hopes for bumper crops were flattened by bad weather recently. And not just here — bad weather is hurting crops in China, Australia — around the world.
- And there’s little margin for error. While two years of bumper harvests have boosted global stockpiles, as measured by months’ worth of inventory, they still are lower than at any time since World War II.
- China, with 1.3 billion mouths to feed, is really caught in a squeeze. Its farmland is disappearing due to drought, over-pumping and urbanization. It has to feed 7.3 times as many people per arable acre as the U.S. And as the Chinese get wealthier, they want to eat more like big, fat Americans.
Now for the really bullish news. A slumping dollar boosted the appeal of U.S. grain exports for buyers using other currencies. This in turn should boost grain prices.
How to Trade It
The iPath Dow-Jones AIG-Grains ETN (JJG) tracks soybeans, wheat and corn. Be careful, however — there’s not a lot of volume in this one so entries and exits can be tricky. Don’t chase, but definitely consider getting in it.
Pick #3 — The Alternative Currencies: Gold and Silver
A good trader always questions every trade he puts on. I’ve laid out a case for the dollar going lower here, but what if the dollar goes higher?
What could cause that? Well, if there’s a massive global investor panic like we suffered last year. In that case, we could see investors dump stocks and other investments and flee into cash. That sent the U.S. dollar higher during the panic of 2008.
But now for the interesting news — cash isn’t what it used to be. As a result, a lot of countries around the world are getting sick of our dollars, and shying away from them if not downright dumping them. Oh, sure, the dollar could go higher in the next panic. But something else might go even higher — gold and silver.
Gold and silver are the original alternative currencies. They’re hard asset currencies — you can’t create them on a printing press. And in a time of paper currency corruption and debasement, they should continue to shine!
How high could gold go? Well, recent highs are still sharply below the inflation-adjusted high. Just look at this chart …
Metals consultancy GFMS put the inflation-adjusted high for gold at $2,079 an ounce. So yes, I’d say gold could go much higher. Silver too!
Gold is being both on the supply side, where mines can’t keep up despite high prices, and on the demand side. Investors are already piling into gold and silver. Heck, central banks are piling into gold as well, turning from sellers into net buyers. Going forward, according to industry analysts at GFMS, the second half of the year should see even more purchases.
Source: GFMS
It sure seems that China, Russia and others are buying gold on every dip. This is probably part of a plan for a long-term shift away from the dollar. But it also puts a floor under the price of gold … and means the easiest path for the yellow metal should be higher.
And going forward, the signatories to Europe’s Central Bank Gold Agreement (CBGA) have decided to sell even LESS gold, not more. The banks inked a new five-year agreement, lowering the annual limit on gold they could sell to 400 metric tonnes reducing the banks’ sales quotas by 100 tonnes a year. GFMS expects central bank sales to be “the lowest annual total in over two decades.”
Bottom line: I expect gold to go higher anyway next year as the U.S. dollar trends lower. And if we enter phase II of the financial panic, gold could blast through the roof. Physical gold is a great thing to own, and you can also add it to your portfolio.
How to Trade It
If the facts I’ve laid out for you sound as bullish to you as they do to me, consider buying the Market Vectors Gold Mines ETF (GDX). You can buy ETFs that track gold itself — the SPDR Gold Shares (GLD) is an example — but the miners in the GDX are leveraged to the price of gold. So, as gold goes high, they should go even higher.
Do your own due diligence in anything you buy, and make sure it’s right for your investing style.
Dollar Doom and Gold Boom Is Coming — But
You Can Help Protect Yourself AND Profit!
I’ve laid out the basics of some trades you can use to ride big trends and reap potentially big profits next year — but I’ve barely scratched the surface.
That’s why I’m inviting you to join me and two special guests for an exclusive online seminar.
In this urgent and important online briefing, we’ll give you the straight poop on some tough questions …
- How to make the most of the commodity bull market?
- What currencies will go up as the U.S. dollar goes down?
- What other sectors will outperform?
- What investments should you avoid with a 10-foot pole?
PLUS … my special guests and I will have three more red-hot picks for you. And we’ll go beyond ETFs to explore OTHER ways you can play this big bull market … gold boom, dollar doom and more!
This event is happening LIVE on November 6 at 12 noon ET (9 AM Pacific)
And you won’t want to miss it — not if you want the profit plays from the biggest trends of 2010 … AND ways to protect your portfolio from the financial shockwaves that are headed our way.
To sign up, CLICK THIS LINK. And to submit questions for us to answer during the special briefing, click this link to drop me a note in the comments. If we have time, we’ll answer your question on the call.
The Big Trends of 2010 — the Next Leg Up In
The Commodity Bull Market — Won’t Wait!
The dollar recently touched record lows against the euro … gold is bumping up against record highs … the price of crude keeps is zig-zagging higher. But the big trends of 2010 are much bigger. They are international in scope. And they offer you enormous investment potential.
If you don’t get aboard this profit train now, you’ll wish you had! Sign up. Get ready! Call in! And open your eyes to a world of investment possibilities.
Yours for trading profits,
Sean
