It is often in the midst of economic despair that wealth is both made and lost. While history often focuses only on the financial loss that transpires during recessions, it is also important to point out that these types of market environments have also provided individuals with the opportunity to make money.

Consider, for instance, some of the biggest companies we have today. Microsoft (MSFT) was started during the recession of 1975, Hewlett-Packard (HPQ) was born during the Great Depression, Disney (DIS) was founded during 1923, and GE (GE) started during the panic of 1873. The founders of these companies were all able to thrive during times of economic turmoil.

Sometimes being fundamentally correct can be monetarily wrong.

This was the title of an article that I wrote in July of 2005. My argument was that even though the fundamentals might be correct in the long-term, investors can lose tons of money if they stubbornly hold on to their views.  I thought it would be interesting and educational to repost some of the comments that I made in the article, especially in light of the current market environment. Remember, this is July of 2005:

Managing wealth during a bull market is easy. More often than not, it’s simply a matter of investing your assets in investments (stock, bonds, and/or real-estate) that will likely benefit from a strong economic environment.  Over the last decade, this strategy has proven successful as the stock and real estate markets roared to record highs.

In recent months, however, it has become abundantly clear that the economy has come to a slowdown. Consequently, many investors are finding out that managing money during a bear market is not so easy.  In this article, I will discuss how managed futures can help investors navigate through this upcoming economic storm.

A couple of weeks ago, I wrote an article entitled "China, Jim Rogers, and Commodities" in which I stated the following:

It is important to note that there are two components to the Chinese commodity demand. The first component is the demand for commodities as a result of industrialization and foreign investments. The second component is a result of consumer demand.

I recently returned from China with some pertinent observations about the commodity markets, Jim Rogers, and the economy. A couple of weeks ago, I mentioned in my commodities newsletter that if anyone had doubts about the long-term direction of the commodity markets, they should simply hop on a plane and fly to China.  The logic behind this is quite simple. Since China has been responsible for the majority of the increased commodity demand over the last decade, keeping a pulse on their commodity consumption trends can give you a pretty clear picture of where things are moving in the longer term. Here are some observations on various topics:

Chinese Commodity Demand

With all the discussion about housing, a declining US dollar, and the inevitable recession, I feel that many people may be overlooking a potentially more devastating economic factor- rising food costs. Before I continue with why I believe this is the case, I want to mention an article that I wrote several months ago titled Food Inflation: What's The Story. The article provides an introductory view on food inflation. I must also point out that food prices are even higher now than when the article was first published in September.

One of the reasons why I decided to write this article is because I recently experienced a situation at the local food market in California. I was visiting my parents and we decided to go to the store to pick up some food for a barbecue. Having recently moved to Chicago from southern California, a backyard barbecue in warm weather sounded much better than a steak at a fancy steak house!

I have never seen so many people jump on the "$100+" oil bandwagon as I have over the last several months. And yes, as a contrarian, this makes me a tad bit uncomfortable.

Barclays Bank is now officially throwing their hat in the $100+ oil camp. From Reuters:

For several years now, commodities have garnered attention because of their prolific appreciation. The price of oil has climbed by over $80/barrel during this first stage of this bull market, gold prices have more than tripled in price, and soybeans, corn, wheat and coal have suddenly become part of the investor's vocabulary. At the same time, however, it seems that while investors are now more familiar with commodities (in the general sense), they are still apprehensive about finally taking the steps to add commodities to their investment portfolios. The reasons vary, but it has a lot to do with the fact that most investors focus on the fact that prices are too high (gold at $800/ounce, for instance). As a result, the average investor feels more comfortable waiting for the next bull market in commodities, rather than being the fool that buys in at the "top".

Interestingly enough, not only is it not too late to invest in the commodity bull market, but it is also perhaps one of the best times to start investing. In this article, I will not list the fundamentals for why I believe we are still in the first half of this commodity bull market. I have written about this topic on various occasions, and I write about it in detail in my new book, Commodities for Every Portfolio: How You Can Profit from the Long-Term Commodity Boom. I recommend buying this as a Christmas gift for yourself or your skeptic friend! Instead, I will make the case for why I believe this is probably the best time (since the start of this bull market in 2001) to actually allocate a portion of your portfolio to the commodity markets.

Many of you have read my commentary over the last several years, and have understood that I am a firm believer in this gold bull market. At one point time, tThe Wall Street Journal called me a "bull of a gold bug" simply because I believed that gold was going to break $600/ounce in 2006. I argued on countless occasions against other CNBC pundits why I believed that gold prices were still cheap and that we had at least another 5-7 years left in this gold run.

But, as bullish as I am, I find it hard to believe that gold prices will move up in a straight line. I also find it hard to believe that the US dollar will collapse within a short-period of time. As such, every once in awhile I caution that gold prices have moved up too fast and are due for a pullback. Take a look at the following charts of gold and the US dollar. Gold is clearly in an overbought situation and the US dollar is in an oversold position.

One of the interesting aspects of this recent move up in the gold market is that gold prices have had a relatively orderly move up to new highs. After the knee-jerk sell-off in gold (where gold mindlessly tracked the equities market) gold has moved higher by trading in ranges…and breaking those ranges…and moving swiftly higher due to buy stops being triggered. Another way of looking at this is that gold prices have moved higher in a “stairway” type approach. Take a look, for example, at the gold chart.

In a nutshell, this clearly describes what has occurred throughout this decade. Consumers have continued spending in the midst of declining savings. Housing prices have escalated even as incomes and job growth have failed to appreciate. Manufacturing has left the country, inflation has soared, and our budget and trade deficits have increased at an unbelievable rate. Yet in the midst of all of this the “goldilocks” phrase has been tossed around, consumers have lived outside of their means, and individuals have had a false sense of economic security.

As you can see from the following chart, gold has pretty much tracked the S&P in terms of its movement. When the market rallies, gold rallies. When the market sells off, gold sells off. Even the bullish fundamental news that has come out this week (higher than expected inflation) has failed to push the price of gold above its range bound trading (640-660). So the question becomes…is this a new trend? Or simply a short-term reaction to what has happened in the market over the last couple of weeks. In other words, will gold continue to track the market or will it finally decouple and trade by its own merits?