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For quite some time now, legendary investor Jim Rogers has implored able bodied people to become farmers. In accordance with his long term thesis of Greenspan/Bernanke inspired inflation, “Jimmy the Bow Tie” believes that commodity prices are going much higher in the long run. While he believes in investing in the underlying commodities as opposed to the industry related stocks, I believe that the securities of firms dealing in commodities are going to see a sharp run up as well, should his convictions become reality.
However, the inflationary run up that we saw in early 2008 turned out to be a head fake, setting us up for a deflationary crash. In particular, the stocks of the agricultural and soft commodity names that were flying high in the first two quarters of 2008 not only horrifically crashed along with the rest of the market, but have been notable underperformers ever since. In front of this most recent broad market correction, they were among the first sectors to roll over. It is only in the past few weeks that they have shown some signs of life.
Should the ag names get going again to the upside, I expect them to attract a lot of hot money and momentum. I agree with Marc Faber that the nature of the very easy monetary policies of our central bank, as well as those around the world, is likely to inspire sustained periods of volatility, where the markets alternate between reflecting sharp periods of deflationary versus inflationary expectations.
The purpose of this post is to alert you to the potential bearish to bullish reversals that I am seeing in the ag related names. Interestingly, while some are hitting multi year highs ($DE), others have been left for dead for many months now ($MON, $POT, $MOS), and are only now reminding investors that they are still in business.
See my notes on the charts below, as I extrapolate on the idea of bearish to bullish reversals. The first one is the monthly of $DBA, the soft commodity ETF, illustrating how much they have underperformed the broad market since mid 2008.
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this is one of my favorite pieces of work that you have penned! i played AGU friday, and i have been eyeing POT for several days!
ps,
love the JR/MF mentions. i have been reading those two for many moons!!!
Thanks, Duane.
DE and CAT produce machinery. They are going up because firms need to replace depreciated equipment which they haven’t done for three years now.
Phil–true, but I am not so sure that is the sole reason.
(as sssc pointed out) Check out AGU as well…
7 charts isn’t enough? 😉
LOL, I know, I’m so demanding. I have a special bias for AGU just because it also trades on the TSX (along with POT).
good stuff, sir.
this flies totally in the face of what i think about mos and pot from a fundies standpoint, but it is hard to ignore the fact that mos responded positively to horrible results.
’twill be interesting to see which one wins this week: charts or fundies. i will continue to hang my head if fundies do not win.
Thanks, robert. Interesting to see how sustainable these rallies are. Also curious to see how much deflation has been priced in already.
Do you have much of an opinion of MOS vs POT, in regards to Cargill’s majority ownership in the former?
I primarily use charts. I like MOS slightly better. I would invite you to read and communicate with robert–check out this latest article here http://www.ibankcoin.com/peanut_gallery/index.php/2010/07/23/mos-vs-pot/
Good post. Very interesting…
I do not believe that the Fed will allow continued deflation. Therefore, there is only inflation in our future.
Thanks, Wood.
Chess, what stop loss do you see fit for POWR? BX is making nice gains. Thanks.
hubbs:
7-8% trailing stop loss is standard for me.
Thank you that I made a profit in BK and out of it for now after reading your last post. Maybe I will get back in later.