Two powerful investing themes (Part 1)
If you are looking to invest, that is, trade but on a longer time horizon, you need look no farther than China and commodities, specifically, agricultural commodities. But before you read this first of two articles, PLEASE REGISTER YOURSELF so we can keep track of how many are browsing. No spam, I promise.
Let’s break this down and start with commodities. The old wives tale heard is that commodities are risky. Everyone has an uncle or grandpa that lost their “shirt” in commodities. This is simply mis-stating the picture in today’s financial world. Commodities “futures” are always risky, especially when you play on leverage. But there are many ways to invest in commodities without taking on any of the risk associated with “futures”.
A “future” is simply a promise to either deliver (sell) or buy the underlying asset at some “future date”. For instance “December Crude” refers to the price someone is willing to deliver a barrel of crude oil in December. It is a promise or contract, and usually, you put very little money down to control a large underlying quantity of the asset. Much like a house, you might put 10% down so that you control $10 worth of the asset, say oil, with only $1. With this leverage comes margin risk and if the underlying asset goes down, the brokerage will sell you out and you will lose everything. You remember “Frozen Concentrated Orange Juice” and the “margin call” the Dukes got in Trading Places? after Eddie cleaned em out? Well that DOES actually happen in futures trading.
It used to be, as recent as 15 years ago, that the only way to invest in commodities was through the futures market. The modern miracle of global markets and ETFs has made individual futures contracts obsolete. They allow you to take an interest in an commodity by buying and selling a regular stock which is liquid and traded on a major exchange and requires no margin. The Gold ETF (GLD) allows you a buy representative gold, one-tenth of ounce, without having to store it, take delivery or buy futures. With some minor variations it tracks the price of gold, and GLD trades just like any stock would. You can buy it on E*Trade or wherever.
Of all the commodities, the simplest and most overlooked one is agriculture and its “fuel” which is water. I believe it also has the most powerful demographic and natural forces behind it. The world’s population is steadily increasing even in one-child China and especially in Latin America and India. There was a big drought in the summer in India this year and it was estimated that they will have start importing a heck of a lot of rice. The emerging world, as it becomes industrialized will face the dual problem of diminishing farm labor, diminishing water resources and diminishing farm land as well as increasing appetities for higher quality proteins, like beef and chicken, which require more feed grains. SUPPLY AND DEMAND.
This equation will only get worse. The US lost an estimated 25 MILLION acres of farmland from 2008 to 2009. Many countries have water shortages and aging, abused and decrepit water infrastructures (especially the US and the west). These shortages have a negative impact on food production which will only get worse, even if you don’t subscribe to the global warming thesis.
No one ever thinks about agriculture, yet food and water are the most indispensable and fundamental of human necessities and IMO makes them the most stable of all possible investments, especially in the volatile climate of the last decade. Agriculture plays, which I will deatil in part 2, include ETFs, stocks of water infrastructure companies, water service utilities, water meters and pipe makers, fertilizer companies, feed and seed companies, food growers and producers, and farm machinery and equipment makers.
Though I LOVE gold and silver and iPods 
they’re all pretty hard on your digestive system. In Part 2, I will describe a couple of companies that I like, particularly agricultural companies in the next dominant world superpower, China, which trade on good old Wall Street exchanges! There are also ETFs which specialize in food and water, which are safe, stable bets in an increasingly messed up financial system.
