Tuesday, November 11, 2008


For those of you that are new to our site, the post directly below this one contains our interview with Legendary investor Jim Rogers. I posted the interview because I have been reviewing what he said and how I can profit from it. Having listened to Jim for years on television shows such as the Fox Business block, I know that he develops his thesis and is patient. He was pounding the table to short Fannie Mae a couple of years before the stock really started to rapidly decline.

I listened to the interview again and he is very clear that the government bailouts will cause inflation. He is also clear that over the long term more demand for oil will be coming online than will supply. I questioned him about some of the speculation that oil would return to $70 and while he didn't seem to think that it would happen, he didn't rule it out and looked at it as an opportunity if it did materialize. So what do I do with my money here? I have bought natural gas (which hammered me today) and am looking to pick my spot with oil. I think it may get a little cheaper, but I will be buying some soon even if it doesn't. I was discussing the short term "deflation" that we are seeing with a fellow trader. We both agreed that this is a short-term phenomenon---but just what is short-term? A quarter? A year? 18 months? Regardless of the exact timing we believe that we must rely on what we know and we know that the bailouts/rate cuts and much more are going to contribute to inflation over the long term.

For the short run, we don't have a lot of geopolitical risk, nor do we have a big currency risk, so I don't expect to see a huge run---especially given the fact that we didn't get a boost from the Chinese stimulus plan. I know that I can't call the exact bottom, but I do feel that we are going up over the long term and am trying to construct a list of indicators that will help me see when the real run starts.

I believe that we will see some of the agriculture plays begin to deliver. One of my favorites is Compass Mineral (CMP). It is a very well run company that has been able to pass through price increases virtually anytime they have desired.

I do like the coal etf KOL. I saw some headline that was talking about the decline in energy consumption in China. It was relatively minor and again we have had some short term confidence crises all over the world. When analyzing whether or not KOL is a good play I ask 2 questions. Is worldwide demand for electricity going to substantially decrease? Have we found a truly economical alternative for coal that can be implemented in a short period of time? If the answer to both of these questions is no (and it is in my mind), then KOL looks attractive as we pull out of this deflationary period.

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Dollar.Discipline said...

If you intend to look long term, you are exactly right about now being a good time to buy. Now when I say long term, I mean years (plural).

Inflation is on the way and demand for oil will rise due to more users and less production by OPEC trying to "control" pricing.

We are just going up and down inb the cycle right now. Over TIME things will rise as it did after the Great Depression.