Profiting from Physical Assets in a Resource-Constrained World – Rules and Picks (Part 2 of 2)

(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)

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This piece is a follow-up post to “Preparing for Profits in a Resource-Constrained World” (Part 1) in which I discussed the implications of Jeremy Grantham’s fundamental thesis of a new world where resources are constrained and commodity prices trend upward rather than downward as they have for the past 100 years…

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Here is my playbook for both the short-term (bearish positions) and the longer-term (bullish positions). {snip}

Meta-rules

1. Never short any stock or ETF that is of interest for the longer-term…{snip}
2. Accumulate investments directly related to “stuff in the ground”, that is, companies that own physical assets.
3. Make any short-term, bearish bets on stocks on companies whose well-being depend on the health of asset-owning companies, like mining equipment or rapid growth in China.
4. Besides fertilizer, DBA may serve as a good proxy for all agricultural plays…{snip}…

Short-term

1. All rallies get sold/faded…{snip}
2. Keep any (optional) downside hedges simple and limited:
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Medium-term

1. Weather is so unpredictable that it provides the least actionable part of the strategy..{snip}…

Longer-term

1. Always have something in a core basket of commodity plays given the long-term bullish context.
2. Concentrate expertise and invest in what you know best…{snip}

With these meta-rules in mind, I constructed a commodities wish list based on Grantham’s table of commodity prices and trends…{snip}… and other commodity-based and energy plays that did not get mentioned by Grantham… {snip}

Special notes

• {snip}…Economies heavily reliant on commodities are worth investing in through currencies and/or ETFs…{snip}

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: short CAT, CCJ (hedged with calls), and SSO; long SDS, ANR, PAAS, SLV, GG, GLD, JJG, FSLR, JKS, JASO, LDK, SOLR, SOL, DBO, MCP, GWMGF.PK, UURAF.PK, HREEF.PK, FXA, PBR, SJT