Three years ago when I visited North America, it was the television commercials for flipping and re-mortgaging houses that caught my eye as a worrying sign. This year, watching TV at night in Vancouver, it is the advertising for commodity exchange traded funds that catch my attention.
Commodity ETFs are an attractive way to hold financial exposure to anything from oil to gold and agriculture. They are relatively cheap as a financial vehicle and very liquid. But you are still making a bet on the direction of these markets, and that is all that really matters.
So what does it mean when an investment appears in a TV advert? Well, it is not something you will see until an investment is pretty much agreed on by the consensus. TV ads are expensive and take time to make. Therefore, they tend to be top-of-the-market indicators.
Another similar media indicator are books about an investment class. My own book ‘Opportunity Dubai’ was the same. It takes a long time to write and even longer to get published, and so books often appear just as the fundamentals they describe are changing.
Yesterday I bought The Goldwatcher, an excellent new book by John Katz and Frank Holmes with a forward by Dr Marc Faber. Perhaps this is also a negative indicator, although I asked Dr Faber that last night and he said gold has a maximum downside of $850 an ounce in any correction.
Perhaps it is the rest of the commodities complex ex-gold that should be the main concern. It is surely illogical that in the worst recession since the Second World War – with trade and industrial output slumping faster than in 1930 – that commodity prices should stay up.
Agora Financial senior editor Chris Mayer made a powerful case for agriculture as an investment theme at the Decade of Reckoning conference here in Vancouver. Population growth and a desire to eat well are strong drivers, and the longer trend is clear. Companies like Potash Corporation and Lindsy are Mayer’s top picks to play this trend.
But in the short term you have to wonder if the rally in agricultural prices is not overdone and maybe even more obviously the industrial metals and materials complex. If this is really such a terrible recession why should commodity prices hold up?
There ought to be a short-term correction at the very least as recession is striking at the heart of demand for commodities. If global manufacturing is in crisis then commodities should be cheap not expensive, and if so then the TV commercials for commodity ETFs are indeed a warning to heed.