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Our domestic economy continues to average
below-trend growth rates in GDP, and there is little evidence this phenomenon
will end anytime soon. In fact, the housing recession should persist well
into 2008, as the historically negative fundamentals for this market are
without precedent.
Concurrently, we see that global central banks are
flooding the economy with fiat money at break-neck speed. The Fed alone has
injected more than $300 billion into the system since the credit crunch began
in early August while the ECB has injected $500 billion (352 billion euro). The resulting economic environment of negligible
growth, coupled with inflation, is rightly called stagflation.
One of the best ways to invest in the aforementioned
situation is to own agricultural commodities and the stocks of those
companies who produce them. The reason is simple. In an environment of slow
growth and inflation, we need to place our money in consumer
non-discretionary investments that are also hedged against a falling
currency. Because agricultural
commodities are an essential part of human existence and we are limited in
our capacity to increase supplies, it makes them a very interesting segment
of today's market.
Another reason to invest in these companies is that
they are not as overcrowded a trade as the traditional hedges of inflation,
such as gold and oil. Oil has eclipsed its record level and now trades at
more than $80 a barrel. Although gold has yet to achieve record prices, it
stands within striking distance--just 13% off its all-time high. However,
while corn and soybeans are up 55% and 66% Y.O.Y., respectively, and wheat
breaks records, there is still little enthusiasm for these markets compared
to the yellow metal and black gold.
Current trends in the precious metals market and the
falling USD illustrate why my stagflationary view
of the economy may be correct. But owning agriculture during a stagflation
cycle is only one of three reasons to invest in this asset class. In my next
commentary, I'll explain why the use of agricultural commodities, such as
bio-fuels and the burgeoning middle class across the globe, should continue
to propel these markets much higher.
Michael Pento
Senior Market Strategist
Delta Global Advisors, Inc.
Delta
Global Advisors : 19051 Goldenwest, #106-116 Huntington Beach, CA
92648 Phone:
800-485-1220 Fax: 800-485-1225
A 15-year industry veteran whose
career began as a trader on the floor of the New York Stock Exchange, Michael Pento recently served as a Vice President of Investments
for GunnAllen Financial. Previously, he managed individual
portfolios as a Vice President for First Montauk
Securities, where he focused on options management and advanced
yield-enhancing strategies to increase portfolio returns. He is also a published economic
theorist in the Austrian school of economic theory.
Information
contained herein is obtained from sources believed to be reliable, but its accuracy
cannot be guaranteed. It is not intended to constitute individual investment
advice and is not designed to meet your personal financial situation. The
opinions expressed herein are those of the author
and are subject to change without notice. The information herein may become
outdated and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
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