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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (315)	6/22/2001 12:45:07 AM
From: craig crawford	Read Replies (1) \| Respond to of 1643

SPECIAL REPORT VALUE INVESTING: crownco.com (this looks a little old as well, possibly late 1998) WHY YOU SHOULD CONSIDER INVESTING IN COMMODITIES NOW When one listens to the media these days one is led to believe that there is only one investment game in town and always has been, the market in stocks. And if one has only been involved in investments for the last twenty years (and most investors today have been involved for less than ten), then stocks have certainly been the most consistently profitable for most investors. But a study of the history of the markets will quickly show that this has not always been so. In fact, there has actually been a fairly regular alternation between strength in stocks versus strength in commodities as the economic cycle has gone through its normal phases of expansion and contraction. Since 1980, commodities have been in a rather relentless contraction or bear market to the point where most large brokerage houses have either completely eliminated their commodity departments or relegated them to a small back room. And why not, when one quick look at the stock market chart will demonstrate that stocks have been the place to be. But with the changes taking place today in Asia, Russia and Latin America an important shift may be beginning to take place towards new trends and new opportunities. We believe that serious investors need to consider this possibility when searching for value and diversification WHERE TO SEARCH FOR VALUE When adjusted for the CPI, commodity prices are currently approaching the 1932 lows. Unadjusted, the CRB Index is approaching a 62% retracement of the bull market that ended in 1980 and placing commodities as a whole near twenty one year lows. This low was made amidst much mainstream media attention and therefor possible indicative of an important bottom. This major deflation in commodities is due in large part to the collapse in the Asian economy which is showing signs of spreading to Latin America and possibly Europe and lastly, North America. So many of the major commodity groups, including grains, meats and energies saw a huge expansion in production during the early 1990’s due to the expectation that the Asian Miracle would continue forever, an expansion that has dramatically reversed over the last year. With the bubble in Asia collapsing and with it the Asian currencies, demand has dried up, and commodity prices have collapsed as supply has become unmanageable. These low prices will eventually lead to the inevitable cut backs in production and the stimulation of demand that always occurs with low prices. Commodities periodically significantly out perform stocks. They did so relatively recently from 1929 to 1948 and from 1965 to 1980 (and at times I might add when earnings were actually rising). We believe we are at a juncture similar to 1929 and 1965 when stocks began losing value relative to commodities. The next year or so will probably be a basing period for commodities, with the bear market in commodities even now nearing its end and the bear market in stocks just getting started. As stocks continue to struggle over the next year, and the world and the US sink into recession and in some places depression, the Fed will probably be forced to stimulate the economy by either lowering interest rates into negative real territory or increasing the money supply, leading to the end of deflation and another round of inflation (inflation is already start to show itself in parts of Asia and Russia is monetizing their debt by turning on the printing presses). The Y2K problem could add fuel to the fire as could violence spreading through the Middle East, perhaps producing an environment more akin to the 1970’s with price shocks along with sluggish economies. Seeing the future is rarely easy, but such a scenario appears to becoming more and more likely. Following are some periods when commodities outperformed stocks. MAJOR MOVES IN COMMODITIES VERSUS STOCKS DATES COMMODITIES % CHANGE STOCKS % CHANGE 1806 TO 1813 +59% -32% 1835 TO 1842 -26% -76% 1852 TO 1857 +24% -61% 1899 TO 1918 +269% +37% 1929 TO 1948 +105% -54% 1965 TO 1980 +403% -4% IN SUMMARY The seeds for the next phase in the markets are always sown in the excesses of the previous phase and are rarely understood clearly at the turning points. The economy is now more global and more complex than anything that has been seen before and as such the economic models that have been used for understanding and forecasting domestic economies will probably fall short. So we are probably in for some surprises. But as of this writing some very important shifts are taking place. Stocks have topped. The Dollar has topped. Gold has bottomed (often a precursor for commodities bottoming). And the Commitment of Traders for commodities in general is foreshadowing an important bottom, with the Commercials holding their largest net long position in history. This bottom may take some time to unfold as the Commercials are typically early, being scale down buyers, but we view this situation as an important long term indicator which should not be ignored