How to Keep Your Financial Head Above Water
Here's my take on this week's frenzy of monumental macroeconomic developments:
Your thoughts are most welcome.
Although commodity equities could conceivably succumb to additional rounds of indiscriminate panic selling like that which gripped markets for portions of this year, the inevitable resumption of relative strength in the stocks of bulk commodity producers strikes me as one of the few financial scenarios I can look to with any substantial degree of confidence. While leaving my core positions untouched, I will look to build my own cash position into this latest rally in order to increase my commodity exposure into any forthcoming market malaise. For a steady flow of ideas as to which commodity stocks and sectors look attractive, please be sure to bookmark my article list. I maintain a particularly bullish long-term demand outlook for copper and metallurgical coal, so Teck Resources (NYSE: TCK ) -- which mines them both in droves -- looks like a nice play to me. But as deep as the recent correction in copper equities dove, even a sector ETF like the First Trust ISE Global Copper Index Fund (NYSE: ETF ) gained allure, and I intend to stick with my corresponding bullish CAPScall. For a more targeted exposure to coal, I consider Peabody Energy (NYSE: BTU ) the undisputed king.
Fools may have noticed that gold and silver rebounded strongly Wednesday as markets digested all this new information, and certainly a portion of that strength relates to the sudden drop in the U.S. dollar that accompanied a general reversion to "risk-on" mode. But gold and silver are not "risk-on" assets, and to view them that way is to misunderstand them completely. To the contrary, they are the ultimate safe-haven assets while governments continue to address this debt crisis with ever-increasing mounds of debt. My precious-metal CAPScalls have served me well since I created my CAPS portfolio in 2006, and everything I have observed on the world's macroeconomic stage since that time has materially enhanced the long-term outlook for the prices of these metals. The recent pledge of currency liquidity from the major central banks -- or, more precisely, the very real systemic risks that precipitated the move -- lends further support to the outlook. The additional borrowing that will be required to expand the lending capacity of the IMF is, very clearly, bullish for gold and silver. For those seeking shelter from the unavoidable consequences of this massive worldwide blitz of debt issuance, gold and silver will have no peer. I consider cash an important defensive allocation as well, but I simply believe investors cannot afford to eschew gold and silver. Aurico Gold (NYSE: AUQ ) and Primero Mining (NYSE: PPP ) continue to top my list of favorite gold stocks. Goldcorp (NYSE: GG ) looks best to me among the major producers, while its brainchild Silver Wheaton (NYSE: SLW ) is bound to enjoy explosive profit growth going forward.
The floodwaters of toxic debt contagion have grown too high for investors to remain dry, but with a careful eye toward anticipating some key implications of the mess, I believe savvy Fools will continue to swim in the right direction when they swim toward some allocation to cash, precious metals, and select bulk commodities. It's bound to be a wild ride, and I look forward to discussing the journey with you once we're back in dry land. In the meantime, consider sounding off in the comments section below to indicate the direction in which you intend to swim.