Commodity Expert: It's Time To Sell
TRANG HO, INVESTOR'S BUSINESS
Posted 11/16/2010 06:52 PM ET
Hackett's call at the beginning of the month to sell
commodities proved a bit premature. But the publisher
of Hackett's Money Flow Report is looking more right
ETFs and ETNs have fallen sharply from their recent
peaks, led lower by Sugar.
who is also president of Hackett Financial Advisors,
a Florida-based commodity brokerage firm, made winning
calls on buying coffee, grain and uranium this year.
research shows over the past 200 years commodities
cycles reach a major peak every 30 years that ends
in a major crash. He says the latest apex will be
no later than May of 2011, if it hasn't already
Commodities across the board —
including grains, gold, silver, corn, cotton,
sugar, and soybeans — have risen too far too fast
owing to "over ebullience of speculators"
and need to come down to "a more reasonable
price level," he said.
"Over the last 100 years there have been
three major cyclical commodity peaks that occurred
in 1920/1921 1950/1951 and 1980/1981 and the next
cyclical peak is expected in 2010/2011,"
Hackett wrote in his Nov. 8 newsletter, catering
to farmers and end users.
What's more, the Fed's quantitative easing, commonly
referred to as printing more money, hasn't devalued
the dollar or lowered interest rates as intended.
A stronger greenback means fewer are needed to
buy dollar-traded goods. The dollar has rallied
4.6% against other major currencies since bouncing
off a one-year low earlier this month.
history repeats itself, this year's trendiest commodity
— cotton — will unravel faster than a cheap sweater.
Going Out Of Style
its three prior bull runs since 1900, cotton vaulted
fourfold each time. And since November 2008, cotton
has increased fourfold. Investor sentiment gauges and
overbought indicators have reached a 40-year extreme.
On average, cotton corrected 50% from its peak.
DJ-UBS Cotton (BAL) has fallen 15% from a record
high of 77 reached last week. The white fluffy stuff
has more than doubled since the start of the year. The
rise followed lower global production the three prior
seasons, higher-than-expected recovery in demand, export
restrictions in India, weather problems in China and
Pakistan, a weak dollar and market speculators.
cotton supplies of 2.2 million bales are the lowest
since 1925, according to the U.S. Department of Agriculture,
which says global supplies fall short of demand. A supply
shortage in China has been the biggest force driving
cotton prices to a never-seen-before $2 a pound. But
in its November "World Agricultural Supply and
Demand Estimates" report, the USDA forecast China
will consume 47 million bales in 2010-11 — 6% less than
last year — despite growing consumer demand. Limited
supply worldwide and exorbitant prices will force mills
to lower production and use polyester instead.
DJ-UBS Sugar (SGG) has plunged 21% since peaking
at 97 a share last week. It had rocketed nearly 150%
in just six months from its May low. Sugar supplies
are projected to rise by 218,000 short tons over last
month due to higher imports, according to the USDA.
says sugar and cotton are ideal for shorting, in which
traders make money from falling prices.
— this year's shiniest metal — has corrected 13% from
a 52-week high also reached last week. It nearly doubled
from trough to peak between February and November.
To Buy Now
only undervalued commodities currently are cocoa, coffee,
lumber, milk and rice, which Hackett advises to buy
to the first three can be had through iPath
DJ-UBS Cocoa ETN (NIB), down 18% this year;
iPath DJ-UBS Coffee ETN (JO), up 44%;
iShares S&P Global Timber & Forestry Index
(WOOD), up 12%; and Guggenheim/Beacon Global
Timber Index (CUT), up 14%.
holds 24 companies engaged in real estate and producing
paper, wood products, containers and packaging. It carries
a 0.48% expense ratio. CUT has 27 stocks and charges
0.65% of assets a year for expenses.
is no ETF or ETN tracking milk, but milk producers
Feihe International (ADY) of China and Wimm-Bill-Dann
Foods (WBD) of Russia can be used as proxies.
Feihe is down 48% this year, while Wimm ticked up 4%.
is there a rice ETF. Elements/Rogers International
Commodity Agriculture (RJA), up 22% this year,
holds some rice, but it only makes up 1.43% of the portfolio.