I recently re-read a great book, Hot Commodities: How Anyone Can Profitably Invest In The World’s Best Market by Jim Rogers. I first read this book a few years ago when it came out. Now it seems as timely as ever. For those of you who don’t know, Jim Rogers is one of the great investors of our time.
In 1970, he co-founded the Quantum Fund with famed investor George Soros. Over the next several years, the fund reportedly returned more than 4,200% to investors. In the same period, the S&P rose 47%.
Nothing bad.
Then, in January of 1999, Jim began a trip around the world, literally. Over the next several years, he drove through 116 countries covering more than 152,000 miles. Before embarking on this journey, he began investing in commodities.
I don’t know about you, but I look at the recent drop in commodity prices and I see an opportunity. I’d be willing to bet that Jim Rogers is thinking the same way.
It is important to understand that commodity prices are rising due to global demand. It is not speculation that is driving up prices. I pointed this out in my last article on oil. The number of private cars being driven in China is growing by leaps and bounds.
Increase in oil prices.
The number of cars on the road is growing by more than 10 million a year. And it’s not about slowing down anytime soon. Each of those cars needs gasoline to run. And the gas comes from oil. This is the reason why oil prices are increasing.
The same is happening with traditional agricultural staples. The China Institute of Nutrition and Food Hygiene says the following: “The classical Chinese diet includes grains and vegetables with few foods of animal origin.” They go on to say that recent economic growth is causing “a rapid evolution of the Chinese diet.”
Simply put, the more developed China becomes, the more meat they eat. Growing meat requires grains. Cereal prices are rising. This change in dietary habits makes the traditional Chinese diet increasingly resemble our own Western diet.
Processed foods, lots of protein, and obesity are reserved for China, just look.
However, China is not the only country experiencing this change. We are seeing similar changes in other major emerging markets such as India and Brazil. Millions upon millions of people around the world are working their way into the middle class. And they will consume more and more goods.
Increased demand leads to increased prices. And this demand is not limited to oil or agricultural products. We are seeing it everywhere. Precious metals, steel, concrete, copper, potash. . . The list goes on and on.
Commodity prices will continue to rise.
The best way to benefit from all this is to own merchandise. Unfortunately, traditional commodity trading can be complex and risky. High leverage and low margin requirements expose you to significant risk. You can lose more than you invest. never a good thing
Luckily for us, new investment vehicles appear every day.
Recently, UBS, the global investment bank, launched a series of ETNs, or exchange-traded notes. ETNs are a little different than the traditional ETFs you’ve heard me talk about so much. Essentially, ETNs are a note or promise from the issuer (in this case, UBS) to deliver the performance of an index. They do not actually own any of the merchandise they represent.
Other than that, they are similar to ETFs in the way they operate. You can buy them in a traditional stock trading account. There is no need to worry about margin, leverage or contract expiration.
The beauty of these ETNs is the direct exposure you get to a particular product. Let me give you an example. Let’s say you want to buy platinum. A few weeks ago you had two options. You could buy a diversified precious metals ETF that also owns gold and silver and a bunch of other stuff. Or, you had to buy platinum on the futures market.
But now it is different.
Now you can buy the E-Tracs UBS Long Platinum ETN (PTM) or the E-Tracs UBS Short Platinum ETN (PTD). These new values make platinum trading easier for everyone. Watch the news closely as I am sure several of these new ETNs are on the way.