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Andrew Abraham
Andrew Abraham

There is always a Bull Market

February 11, 2008

How can I make money in this environment? You ask. Not an easy question, especially when one needs to take into account the risks entailed. However history can assist us in some cases.

It is obvious we are in an inflationary period. All one has to do is go to the supermarket or grocery store to see that. A certain mindset needs to be put in place to take the despair out of the situation. During times like these, some of the greatest profits can be generated. One current theme is managed futures. This field is fraught with risk and volatility. But there are some CTAs and money managers that understand risk. I would suggest this route as opposed to simply buying a commodity ETF. The commodity ETF mimics the indices, and there is no guarantee that the indices will continue to go up or, more importantly, will avoid sharp down turns.

One needs to make oneself available for opportunities...

For the past six months or more, the world wheat market has been steadily pushing prices up, as supplies are at historic lows, and demand continues to grow. Several large producing nations had bad crops two years in a row, and new wealth in places such as China and India, combined with the weakness of the U.S. dollar, which makes American wheat a better buy worldwide, have all contributed to the unslaked demand.

The record prices in many commodities have attracted big-money investors, including hedge funds, especially in light of a stock market that is more down than up, and a real estate market in severe correction from record highs the past three years. Most elevators in northeast North Dakota and northwest Minnesota posted prices of $16.70 to $17.30 Friday, according to an Agweek survey; that's four times as high as a year ago and the highest figures ever seen. The food price inflation rate more than doubled last year, to a 17-year-high of 4.8 percent and some experts think it will almost double again this year.

Wouldn't it stand to reason there is some opportunity to profit? Make yourself available for opportunities and protect your capital.

Andrew Abraham

[email protected]



Rating: 2.3/5 (3 votes)


Buffetteer17 premium member - 9 years ago
Wow, I've not recently seen an article that I think is so wrong.

- "this environment...not easy...risks entailed" I would assert that this is one of the LEAST risky times in history to invest in stocks. The risks have been recognized and largely been priced in. While some selectivity would be helpful, today one can assemble a portfolio that will almost surely do well, by throwing darts at the stock quote page of a major newspaper.

"...obvious we are in an inflationary period" Not at all obvious to me. First long interest rates, generally a good predictor of inflation, are low. Second, the current commodity boom is probably a bubble and it will burst. Third, in this connected world, the supply of cheap labor has not yet been fully tapped. That supply is deflationary. Fourth, inflation is always and everywhere a function of the money supply. M2 has not been increasing at inordinately high rates in the USA recently.
Danielw - 9 years ago    Report SPAM

Actually, the commodity boom is far from being a bubble. And so is inflation.

Inventories of agriculture commodities are extremely low, with the best weather in the Midwest for many, many decades. If you take a gander at the inventories for base metals you'll see that we are at multi-year lows there too.

Prices are encouraging increased supply in some areas, like agriculture. Declines elsewhere, in zinc for example, have many current mines in an unprofitable condition--which, combined with the more difficult lending environment, make it harder for new supply to come forward.

Demand is extremely strong, and the need for spending on infrastructure across the world is not anywhere close to being near an end. In fact, it's near the very beginning, and a great deal needs to be done in the developed nations as well as those "emerging" ones. On the food side, the same can be said. There are a lot of mouths here in Asia that aren't happy with rice and vegetables any more.

With regards to labor, much of the cheap supply has been tapped already. China is nearing its Lewisian Turning Point which I pointed to on my blog, and this has huge implications. But all across the world, aging populations are increasingly making labor more scarce.

As for inflation being dependent completely on the money supply, we would have to state our definitions of it first. I would argue that rising prices are a result of the demand and supply of whatever it is being priced, along with the demand and supply of the currency in which it is priced. The first part of that is covered above. With regards to the amount of money being created, I'll just state that those running things in the US are anything but prudent, frugal stewards of the nation's wealth. Instead, they are actually eager to borrow and print in order to stop the deflation of assets that need to be, um, deflated...
Danielw - 9 years ago    Report SPAM
Btw, with regards to increased supply in the agriculture field, I meant to say that there's only so much that can be done over the near term given the limited acreage. Supply will increase in wheat, for example, at the expense of soybeans--and vice versa. The solution here almost has to be higher yields, on the basis of better use of fertilizer and seeds and machinery.

With regards to the inflationary impact of all this, rising food prices hit hardest--and when they come with high and rising fuel costs, inflation can't and I wager won't be able to be denied. Even with huge deflationary events at the same time occuring.

As spreads get back to normal, and wholesale food inflation works its way into the prices people pay at the grocery stores or in their restaurants, even the Central Bankers who are pretending not to see what was their number one concern 6 months ago, will have to think about it again.

All that said, I think it's best to focus on the companies. But I also like companies that are, for example, helping the world in some of its most crucial needs: food, water, electricity and so on.


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