Tag Archives: peak oil

Grains are starting to look good again.

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7

Almost all of the speculative froth has been blown off the agriculture sector in the past 6 months. The long-term picture for food still looks good, with the world population still growing like mad and Asia in a secular upswing (if cyclical trough). Grains are relatively cheap by historical standards (100 years, not 10!), and while much of this is due to technology, I suspect that this century’s productivity gains will pale in comparison to those of the 20th.

The DBA ETF is an easy way to play, with about equal parts corn, wheat, soy and sugar. I’m going to be scaling in on weakness:

Click for larger view. Source: Yahoo! Finance.

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Agriculture is a perfectly good inflation/currency failure hedge, and it benefits from positive fundamentals, unlike many other such plays.

In a depression, grains have a leg up on metals, since even though not much will be built in the next few years, people still need to eat. Furthermore, as governments get more and more reckless with their market interference, they are likely to screw up supply by enacting tariffs, price controls, wars and other nonsense that causes shortages.

Likewise, oil at lower prices will be a great buy. New demand or not, supplies are tight and getting tighter. Peak oil is real — this also has implications for agricultural prices.

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I’m no perma-bull here: I made a 10-bagger on DBA calls last fall-winter and got out before the top. This time I’m not trading, but buying to hold. As in gold, I will welcome lower prices in the next few months.

Mainstream contrarianism crushed

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Markets move in whatever way induces the maximum pain on the maximum number of participants. Those players who mock “mainstream” opinion, if experiencing more success than the crowd, are bound to get overconfident and to see their ranks swell at just the wrong time. Then they themselves are the mainstream, and true contrarians are to be found on the other side of their trades.

Here are ten pillars of what I consider the “mainstream contrarian” movement that just ate a big slice of humble pie:

#1 The dollar is toast, and will keep falling until hyperinflation sets in.

#2 Gold and silver’s rise cannot be stopped until the US trade and budget deficits are brought under control and the debt is reduced–that is, never.

#3 Global oil production has peaked, so oil will continue ever upwards. Oh, and we’ll bomb Iran any day now.

#4 China and India’s growth will continue unabated, and with it, their demand for commodities at any price.

#5 Financial stocks will fall without bounces. Long live SKF!

#6 CPI vastly understates inflation. Just look at M3 or shadowstats.

#7 We are experiencing a return to 1970s style stagflation.

#8 US Treasury bonds are toast.

#9 Deflation cannot happen in a fiat money regime. Bernanke told us he wouldn’t allow it.

#10 When the depression comes and the dollar becomes worthless, the sheeple will awake to the truth about their government and demand their republic back, with Ron Paul as their leader and gold as money.

 

Here’s a tip for frustrated contrarians: Join the deflationists. We’re a super-exclusive club of curmudgeons and equal opportunity shorts. We are gold bugs, but just made some righteous dough shorting gold. We know that oil has peaked, but we shorted it anyway! We know China will rule us all, but we shorted commodities. We know the US is bankrupt, but we aren’t afraid to go long the 30-year.

In a few years, we’ll be pretty popular, but then I think most of us will have moved on, maybe to the hyperinflation camp. If recent history is any guide, the ones who make the most noise (ahem, Peter Schiff) will find it hardest to make the necessary corrections and self-contradictions before the next big pivot.