The big daddy of underground investors, Jim Rogers, says the best way to play this downturn is to focus on commodities and agriculture ETFs (hat tip The Daily Crux). The primary logic behind this play is simple to understand.
The global population is peaking and is consuming more food than it’s producing. This will make food scarcer and cause it to rise in price.
But there are more subtle reasons for investing in commodities right now. Rogers says that although stocks may touch crazy valuations in the near term, they may be in worthless currencies – a vista Notes readers will be familiar with. This from a recent interview with Rogers in the Economic Times:
Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed… so, it’s going into stocks and real assets such as commodities. It’s a mistake what they are doing. It’s giving short-term pleasure, but there’s long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.
The American bond market is already beginning to go down dramatically as people realize that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.
The fiscal deluge is lifting stocks. But they’re getting frothy. And Rogers reckons the current upward trend won’t last.
It’s going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don’t know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what’s happening out there in the world.
In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.
They are doing many of the same mistakes now. What’s different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.
There are a number of ways to play this scenario with hard assets. But to keep things simple, you may want to focus on the following three market-beating commodities ETFs (hat tip ETF Trends).
1) The iShares S&P GSCI Commodity-Indexed ETF (NYSE:GSG), up 8.1% for the year
2) Notes’ old favorite, the PowerShares DB Agricultural Fund (NYSE:DBA), up 7.5% for the year
3) The Market Vectors-RVE Hard Asset Producers ETF (NYSE:HAP), up 25.9% for the year