Three Ways to Play the Commodity Boom
01/22/2008 12:00 am EST
Curtis Hesler, editor of Professional Timing Service, says the Fed’s easing will keep commodities hot and he recommends some diverse funds that should profit from it.
The Fed fears deflation more than anything. Deflation is a consequence of not enough money. That makes cash valuable. I don’t see anything technical or fundamental to support the idea that the dollar is going to regain its former splendor or increase in value. Believe me, the Fed will see to it that there will be plenty of money. The separation between haves and have-nots in our society may well expand as a consequence, but the money will be there, and real asset (commodity) prices will rise.
The stock market is weakening, but commodities are remaining strong. The only stocks you should hold on a long-term basis are those advantaged by higher commodity prices. Gold, along with most of the commodity averages, [has been] hitting new highs. Commodities are going higher this year, and there are a couple of [ways you can get] a diversified position as well as some income.
Pimco Commodity Real Return Strategy Fund (PCRAX) mirrors the Dow Jones AIG Commodity Futures Index. It is attractive for those looking for broad participation in the commodity market with a yield built in (It paid about 5% last year.) If you don’t own this one yet, pick up a few shares, and then put an order in to buy more if it drops to $15.50. (It closed just below $17 Friday—Editor.)
Another diversified approach is Black Rock Global and Energy Resources Trust (NYSE: BGR). It paid a big year-end distribution of about $2.28 last month. I am raising the buy price to $29.00, which should give you a 5% dividend and good upside potential. (It closed slightly above $28 Friday—Editor.) If you own Blackrock, I would reinvest the distribution if you haven’t already.
Gabelli Global Gold, Natural Resources & Income Trust (AMEX: GGN) also gives you a diversified shot at rising commodity prices with a tilt toward precious metals. They have been paying 14 cents monthly; and if you purchase it at $26.00 or better, it will provide a 6.5% yield. (It closed below $28 Friday—Editor.) GGN swooned from $29.00 to $21.00 last summer, allowing plenty of opportunity to accumulate. I think buying at $26.00 is well within the realm of possibility.
There will be no deflation in the overall economy in 2008. With the exception of real estate, there will be a good deal of inflation. The economy will be soft. Nevertheless, prices for raw materials, energy, food, insurance, education and medicine will all be higher at this time next year. The banks will survive—quite well actually—but the big money will be in commodities and investments advantaged by higher commodity prices.
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