Trade of the Next Decade: Sell Bonds and Buy Energy
Source: http://feedproxy.google.com/~r/ContrarianProfits/~3/hzLjBm6Zp60/17835Posted on Friday, June 12th, 2009 | In Market Commentary
“It’s not technically a new decade yet,” writes small-cap expert Dan Denning at WhiskeyandGunpowder.com. “But if the trade of the last decade was to sell stocks and buy gold, then maybe the best trade for the next ten years is to sell bonds and buy energy. Gas, coal, oil, conventional, unconventional, renewable, alternative. You have a whole portfolio of choices.”
This from Dan:
- It seems pretty obvious, that for the last ten years anyway, selling stocks and buying gold would have been a good trade/strategy. Stocks ended an 18-year bull market in 2000 and gold ended a 20-year bear market. One asset class was at a cyclical low. The other was at a cyclical high. In fact, you might even say that one was at a generational low and the other was at a generational high.
Gold is no longer as low as it once was. But it’s still not as high as we expect it to go before it starts to look foolish. Meanwhile, today’s government bond market looks an awful lot like the stock market circa 2000. You’re seeing a generational high in bonds. It’s another version of the “high-low” strategy.
This time around, though, we would add energy stocks to the mix, along with gold. Crude oil climbed to an eight-month high over $70 on Tuesday. Bloomberg says the weakness in the US dollar is, “bolstering the appeal of energy as an alternative investment.” Sell bonds, buy energy. Pretty simple.
There is probably some truth to the fact that oil’s latest move is driven by investment demand more than, say, demand growth in the real economy. But investors ARE looking for ways to profit from US dollar weakness. Oil is liquid and popular. In the long-run, it’s the smaller-than-expected oil supply growth that will drive the market.
TheDailyCrux.com editor Sean Goldsmith says one way to play commodities this year is buy going long natural gas. That’s because according to a recent Bloomberg survey natural gas prices will rise 38% this year…
- Natural gas’ 31% decline in 2009 makes it the year’s worst-performing commodity. And it’s the cheapest compared to oil since the Soviet Union collapsed in 1992 and Russian supply plummeted.
Gas is down 72% in 11 months as the recession destroyed demand and drillers failed to idle rigs fast enough to contain supply. Today, stockpiles are 22% higher than the five-year average. And oil costs 18 times more than gas.
Now, the drillers are finally slowing production… Just as the economy is showing signs of strength. The number of rigs dropped 56% in the past nine months – the most in two decades – to around 700. According to Bloomberg analyst surveys, natural gas prices will rise over 38% this year.
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