(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
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Two months ago or so, a friend directed my attention to Jeremy Grantham’s GMO Quarterly Newsletter for April, 2011 titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever.” I was so struck by Grantham’s statistical analysis of long-term commodity prices, I had to read the newsletter twice and scan it several more times to fully absorb the lessons and implications.
Grantham’s main thesis is that population growth and resource limits have combined to push commodity prices to a tipping point: prices will increase over the long-term. Since at least the last 100 years, commodity prices have persistently declined in real terms. In the short-term, a hiccup in the growth story from China and better weather will cause one more large correction in commodity prices. This correction will deliver the last significant buying opportunity before the new uptrend in commodity prices resumes.
Grantham’s main conclusion:
“In general, owners or controllers of all limited resources, certainly including water, will benefit. But everyone else will be worse off, and a constrained-resource world will increase in affluence per capita more slowly than it would have otherwise, and more slowly than in the past.”
I have a strong preference for ownership over consumption, so I constructed a list of implications to what I think are Grantham’s key supporting points. I also constructed a list of trading and investing rules for turning these implications into opportunities that I will publish in a part two.
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For now, here is my current line-up that is relevant to the above discussion:
Long: DBO, GG, GLD, SLV, PAAS, PBR, SOL, FSLR, JKS, LDK, JASO, JO, JJG, MCP, HREEF.PK, UURAF.PK, GWMGF.PK, HEV, ECTY, ASYS, ANR, AONE
Short: CAT, CCJ, S&P 500 (via SSO puts and SDS)
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: see above