2009 Will Be Great for Commodities

01/14/2009 10:18 am EST

Focus: FUNDS

Curtis Hesler

Editor, Professional Timing Service

The Curtis Hesler, editor of Professional Timing Service and a long-time bull on commodities, says low prices and declining production will set off a new boom. commodity sector overall—especially raw materials led by precious metals and energy—is going to have a great year in 2009.

My work with the Dow Jones AIG Commodity Index has produced a positive signal, and the weekly MACD (Moving Average Convergence/Divergence) has turned positive on the index as well.

If this is hard to square with the idea of a weak economy in the US, consider that the credit crash of 2008 has virtually dried up exploration and development work in all raw materials, including crude oil and precious metals.

Production at many large, older mines is peaking, and this is particularly evident in the older oil fields such as Mexico’s Cantarell field. The drop in commodity prices has also worked to put projects on the back burner, and in some cases, it is making energy supplies like tar sands uneconomical.

Incidentally, Mexico’s Cantarell field is the second largest oil field ever found. (Saudi Arabia’s Ghawar field is the largest.) The Mexican oil company Pemex announced at this time last year that they were expecting a 15% depletion rate for 2008, but it looks like the actual depletion rate will be twice that—33%. Cantarell accounts for 60% of Mexico’s total production, and they are our third largest supplier after the Saudis and Canada.

Depletion is not something that heals and gets better; it accelerates, even with added investment and expensive augmentation methods. The US is going to get another oil shock, and it will go beyond high prices. We should be bracing for shortages and making plans for more expensive and scarcer resources. As for Mexico, the impact will cause increasing political and social unrest which, with our growing Hispanic population, cannot help but spill over the border.

Meanwhile, cheap gasoline and deep dealer discounts are moving some new cars—most of which are SUVs and larger pickup trucks. I, for one, feel less reluctant to drive more with gasoline at $1.43/gallon.

Crude has overshot on the low end, as have many other commodities that are now selling for less than the cost of production. Production will not continue at a loss, and you can rarely go wrong investing at prices below production costs.

The ING Risk Managed Natural Resource Fund (NYSE: IRR) is moving to the up side very well in this rally, but it should meet some overhead resistance soon. If it pulls back to $12.20, it looks like a good buy with a stop at $11.33. (It closed above $13 Tuesday—Editor.) The indicated yield at that price should be just shy of 14%.

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