Moving Cash from Fertilizer to Powershares DB Agriculture Fund

For the first time in a while, the crops futures actually fell... knowing Uncle Ben will be dropping more coin from his helicopter and creating more speculation - I expect many of those dollars will continue to head into commodities.

I still love the fertilizers, but in a market pullback they get hit pretty hard; we are now at the very tip top of a range - S&P 500 has resistance at 50 day moving average of 1390. So if we get a pullback, I expect the fertilizers to pull back, so I am just making a bit of a switch from one part of the food chain (pun intended) to another.

As I've stated in the past, I plan on using Powershares DB Agriculture Fund (DBA) as both my safety stock and literally my money market. The past few days remind me of another reason I like this ETF - it has no earnings report which short-sighted investors can use to knock 20-30% of its value away in an hour. Uncle Ben is making this play act even better than I anticipated and the world's hedge funds are taking his (our) money and running with it.

I've sold about $5K-$6K worth in all 3 of my fertilizer names: Potash (POT), Mosaic (MOS), and CF Industries (CF) as the charts are beginning to look toppy and frankly the run has been massive, I pushed most of that into more Powershares DB Agriculture Fund. So I keep my food inflation exposure consistent, just in a different way. I hate having this low of exposure to the fertilizer group, but I just want to be able to buy these names at lower prices.

I'm also adding further to my Ultrashort ETFs here. We've had a lot of "great" news thrown at the market of late, bond insurer bailouts, more Fed cuts assured, (not that there was any doubt on *this* end but the babies and toddlers in the market need explicit assurance every 3 days), and heck we can even stuff more mortgages down the throat of Fannie and Freddie (why those 2 stocks rally on such news is beyond me), but we'll see how much more resilient the market will be from here. We can constantly go down this path of "6 months everything will be fixed" but it just appears to be a big pile of denial to me.

Technically, picture = 1000 words. If we break through these levels, then I have to change my tune and turn Kool Aid Bull myself.  Remember, "Wall Street" economy is not "Main Street" economy, although I still think 2008 corporate profits for non foreign based business units will be seen to be a total fairy tale in retrospect, so as they go down, values should go down.

In my opinion, people have no clue about the tidal wave of inflation coming and just how awful this is going to be to a consumer lead economy. Profits are going to be punished for any company tied to the US consumer, no matter what the stock prices are doing today. It's simply denial. We are in full Kool Aid stage, which happens for a period every 3-5 weeks where bad news is great news. We are simply conditioned to believe the Fed does fix everything and I think sometime in the next 9-12 months people will finally come to the realization it cannot. But they won't believe it until they see it. Again, frankly, I expect Ben to not last more than this 1 term, and when we look back in 2010 he will be blamed for massive inflation. It is ironic in a way.

Disclosure: Long all names mentioned in fund; long Mosaic and Powershares DB Agriculture Fund in personal account

Comments

[Javaharv:]

I agree with you, as usual, about the economy. Where is the efficient market theory? As we know there is an argument for both sides of any market or there would not be a market, e.g. muni auction market.

How can this economic situation seem so clear to the likes of us, and have the market hold up so well - SO FAR! (speaking of Kool-Aid)

As a life long bull, I have never been so bearish, mostly because I can usually see the light at the end of the tunnel, but this time the ramifications of the credit problems and the inflation threat create a tunnel without a light, at this point.

2008 Mar 01 10:19 AM

[Bhakta:]

Good article. I agree fully. I also do not see light at the end of the tunnel for the US financial system. The pain has to come either now, or later, there is no way to not pay the piper. Politicians and central bankers want us to believe they can rescue us, but I believe they also know very well that this is a real disaster, and the tidal wave is only starting to move.

2008 Mar 01 11:23 AM

[whidbey:]

Fertilizers depend on Natural gas to an extent that you might not guess. While I agree with diversification in the sector, I am aware that food stuffs are likely to become more dear than most other consumables as Congress continues to play politics with energy v. food sources (corn?). The plays in the long run are in the food exporting economies, e.g., Australia. I think the USA is water and energy limited in its longer range capacity to feed itself. Not too hopeful.

2008 Mar 01 12:45 PM

[sliman:]

Good article. I have been in MOO but DBA is way ahead ytd. I am concerned I would be switching at the wrong time. Any thoughts?

2008 Mar 03 10:45 AM

[TraderMark:]

I've been focusing on the fertilizer part of MOO and DBA.

Crops are due for a pullback simply because a bunch of hedge funds are piling in, but I think any pullbacks are buying opportunity. I always try to scale in and out of positions so I think this will help people not catch the top. My main problem at this point was "everyone" wants into these commodities so it makes it a lot more tricky, once a story is known and everyone is in... I expect a lot of volatility but the long term macro issues remain unchanged.

2008 Mar 03 01:57 PM

[yourfilled:]

Hey, folks hold your horses...Wait until earnings time and then buy up those Puts. Now any profit you make, I would like to see at least 10% go to charity....feel free to email me too....yourfilled@yaho...

2008 Jun 18 09:15 AM