Trade of the Decade II

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Guest essay: Daily Reckoning Group Research Project: Trade of the Decade, Part II By Joel Bowman

We asked. You answered.

We asked you, the Daily Reckoning readers, to submit your ideas for the “Trade of the Decade.” You responded with a flood of excellent responses. We regret that we cannot publish them all.

Yesterday, we presented some of your submissions. Today, we present a few more. So without further ado, here’s goes:

Reader B. Bundsen kicks off today’s selection with a call to “Buy stupidity; sell responsibility.”

We like the thinking behind this one. It was probably considered “stupid” to buy gold circa 2000, right?

“I think the short (US) stocks/long gold trade is still a winner,” chimes another reader, A. Urhina. “If I were pressed for an alternative I would probably go for short UK gilts (a variation on Bill’s short for the decade) and long well-balanced emerging market economies (are there any?)”

A reader by the name of Anil opted for a wetter buy side recommendation.

“Buy: Water Sector. PHO is one bet, but there are several others,” he writes.

“Sell: Oil. Everyone expects oil to be more expensive, so my bet is that we come up with alternatives which reduces the demand for light sweet crude.”

Next, an anonymous reader suggests, “[the] best bull trade of the decade will be medical records software companies. First they will sell the software, mandated into the market for a while, then they will collect for licenses and updates.

“[The] best short position of the decade will be bonds – generally, municipal bonds; specifically, general obligations for California, Illinois, New Jersey, and large cities like New York, Philly, and LA.”

C. Cummings, another reader, offered this pair trade:

“Buy: Agriculture, and the more global the agriculture equity, the better. There are plenty of ways to play this, this most straightforward being DBA. Or 50% DBA and 50% MOO (my preference).

“Sell: the US Dollar; this is probably going to be the trade of the century and not just the decade. Lots of ways to play this one too, the easiest being UDN, or long-dated puts on the dollar for more leverage. I prefer this approach versus shorting the government bills/notes/bonds because it is simpler and probably less subject to manipulation.”

Government manipulation, Mr. Cummings? Well we never…!

“Go long emerging markets,” was reader D. Dartt’s vote, “especially Brazil and India. Be careful not to load up too much on Russia and China. Short the Euro.”

On a slightly different line of thinking, a reader named Danny suggests this simple long/short:

“Buy small mammals, sell dinosaurs.

“More concretely,” Danny explains, “Buy biotechnology (BTK) and sell utilities (DJU). Buy biotech because it will continue to grow very fast and eventually biotech will encompass nanotech and make a number of industrial sectors obsolete. Sell utilities because there will be a growing trend towards self-sufficiency, and more people will get off the grid for things like electricity and water. Affordable technology will make that possible. So big utilities will be the newspaper sector of the current decade.”

Reader A. Slinkard suggests:

“Short: Biofuels and US Treasuries. Both are dead ends. Buy: Natural gas and iron ore. Both have tremendous potential in the next decade.”

A reader by the name of C. Gaylord offers an opinion sure to raise the ire of the goldbugs:

“Let’s get EVERYONE riled up!” he writes. “SELL GOLD!! Gold has had a good run the last decade. It’s time for a change although gold will probably still go up over 4 times. Buy the three metals needed most that are just getting started in industry. Molybdenum, Lithium and Titanium. Moly – makes steel stronger. Lithium – for all the new Hybird batteries. Titanium – will be needed to make the strength of steel stronger so they can use less, thereby reducing the cost and weight of the new Hybird cars and airplanes.

“Buy base metals that are underpriced: lead, copper, iron. There is one simpler trade,” concludes Mr. Gaylord. “SELL paper money. It will all be useless.”

Another reader, John, suggests we “buy the makers of rose-tinted spectacles” and “short everything else.”

And from Italy, Mr. Monticello reckons we ought to “Short 50% Euro and 50% Yen. Go long 25% each in bonds: Brazilian real, Turkish lira, Australian dollar, Norwegian kroner.”

“Unless I have no brain,” writes another reader, D. Mol, “this is a no- brainer: Buy precious metals. Sell or short all bonds.”

Then there’s this one, from Agora Financial Reserve member, M. Readling:

“You are probably looking for something more specific, but a couple of years ago I told a less-than-perceptive friend that he should be long anything that can be packed up and shipped to China (like wheat), and short anything that couldn’t (like his house). I don’t know if he bought any wheat, or not, but he is still in that house. Judging from what he said the other day, maybe not much longer.”

J. Scharp told us to “buy wheat and short Los Angeles real estate.”

J. Pratt reckons we ought to go “Short 30-year US Bonds (real surprise, eh?) and long equally corn, soybeans and wheat.”

F. Merciadri agrees: “Short Cities, Long Rural Areas.”

“In simple terms,” adds another reader, Bruce, “sell cash, buy seeds! The cash in our hand – or more correctly the Federal Reserve notes – has been on a wave of popularity while completely devoid of any true value. On the other side of the trade is an asset class that has been trivialized by cheap imports and farm subsidies that have made it an asset we take for granted.

“Food is a major expense for most of the world,” reasons Bruce, “and will most likely regain that position here as the correction continues. Farmland, seeds, livestock and gardening tools seem a sure place to put your cash. So long as the sun and rain continue, (things that the Government can’t tax or mess with), the planting of food crops is a fairly sure way of multiplying your value. With a few dollars spent now, the following years could be spent eating from your investment. Not only will you eat for a long time on the returns, but you will undoubtedly eat better, and the exercise and good food will make you healthier. This in a time of rationed health care will be even more beneficial.”

With another trade straight from the ground beneath us, R. Sharp chimes in:

“I like rare earth elements – mining and processing. This is currently a hot item because rare earths are essential in manufacturing high- performance magnets needed for electric cars and wind turbines, as well as for optical materials in advanced TV screens. China, which for many years has had a near monopoly on rare earth mining and production, is now limiting exports, a situation that is likely to get worse before it gets better.

“Because of China’s monopoly in mining and production,” continues Mr. Sharp, “I’d look at mining ventures outside China, particularly by American, Australian and Canadian companies. One never knows about the future, but I like the risk/reward ratio here.”

D. Wogstad agrees:

“A market segment of interest that I believe holds great promise this decade is ‘rare earth metals.’ These are metals used to produce high- powered permanent magnets which in turn are used in motors and generators. With increased emphasis on alternative energy (specifically wind power) and non-polluting automobiles, there will be significant demand for wind turbine generators and electric motors to propel automobiles.

“Unfortunately for the United States, this market is being cornered by the Chinese. But for the savvy investor, cornered markets mean skewed pricing and extraordinary profits.

“On the sell side,” continues reader Wogstad, “anything in the ‘semi- luxury goods’ category won’t fare too well. The continuing demise of the middle class in the United States will curtail the sales many goods formerly aspired to by the middle class; jewelry, furs, boats, etc. I think this decade will be characterized by the middle class living within their now diminished means.”

And finally today, a reader S. Carter sent in the following thoughtful comments:

“Sell: Electric Utilities at peaks (well, don’t wait for peaks, just SELL!)

“Premise: Essentially, fixed dividends based on a highly regulated model produce the equivalent downside of a long-term T-Bill with additional exposures. As rising commodity pricing, rapidly increasing health care/benefits expenses related to its workforce and generally expanding operating costs to keep an aging infrastructure functional. Add also the need to install extremely expensive mercury, NOx and SOx emissions controls on conventional generating stations, and the eventual cost of CO2 mitigation, and the average utility ratepayer is looking at forking out a lot of dough in the form of rate increases (+100%) with no visible improvement in service. Electricity is a commodity, and brand loyalty is a tough thing to achieve.

“Now the tougher question: What to buy? Commodities, particularly oil and agriculture.

“Premise: Peak global oil production coupled with massive increases in demand from India, China and other emerging economies point to severe shortages and higher prices to serve as the rationing mechanism. Supply and demand will be in balance when the cost of the last (i.e. most expensive deep salt or oil shale reservoir) barrel of oil produced plus a ‘reasonable’ return is recovered in the price, and the last buyer is willing to pay that price. Price elasticity is surprising with this commodity, and a double or triple from the current low ‘$80’s/bbl seems likely over the next 10 years. Add in the long-term fall of the value of the dollar, and you could see even greater upward pressure on oil pricing.

“Global inventories of agricultural products are at the lowest levels in decades (listen to Jim Rogers), and tillable land is hard to come by outside of Brazil. Buy ETFs focused on corn, wheat, soybeans and rice (load up now – in fact, store some in your basement: Not the ETF shares, but the ag commodities themselves! That’s not just talking your book; it’s putting your money where your mouth is…)”

Your Fellow Readers
for The Daily Reckoning Australia

Joel Bowman
Joel Bowman is managing editor of The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.
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7 Comments on "Trade of the Decade II"

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SV
Guest

Great couple of articles. Pity it is US-focused.
Can I chime in with oz-specific:

Sell: Big banks and miners. Why: they are close to their previous peaks, not much further to go, risks are higher than ever.

Buy: Software exporters. Why: cheap (no one wants them now), big market (Asia) on our doorstep, competitive moat, will benefit when A$ goes down.

Ross
Guest

Keep an eye on LYC – Lynas

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYbxhwkBPRWs

And look no further than KBT built Camp Bondsteel and rare metals as tracked by Sanders Research to make sense of Clinton’s Bosnia-Kosovo aggression and dirty actor performances of war criminals Galbraith and Holbrooke.

Don
Guest

Off topic a little bit but I have thinking about the Internet Filter being proposed by Conroy. I have a feeling that amongst sites to be banned with be the international (and maybe national) casino sites, I have a feeling that the state governments are worried by trends like this:

http://news.ninemsn.com.au/national/1040325/online-gambling-to-double-by-2012

Don
Guest

Google is my friend:

“While Conroy has long insisted his filtering project would target porn and other so-called “dangerous” websites, a leaked blacklist revealed that over 1000 websites were set to be filtered including one for a dentist’s office and another for a popular online gambling website that operates legally from the country.”

What are the odds (heh) that more than one online gambling site will make the list? Cue horror stories about poor people losing all their life savings in an afternoon of drunken gambling etc etc etc…… much better to do that at the Crown Casino mate! :(

SV
Guest

Don, don’t worry too much about the filter. The day after it goes up, there will be dozens of filter bypass providers, like there are in China. all you’d have to do is search for “internet service provider” or “firewall bypass” or similar. Several technologies are available – good business opportunity for some people.

Don
Guest

Not worried at all SV, just wondering about some of the motivations for it. I agree it will not be hard to get around but I just have a feeling this is one of the sneaky reasons for it.

technofreak
Guest

Don, SV…the internet filter is all about controlling democracy. What you see, like the old days ;)

wpDiscuz
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