| Wednesday, September 30, 2015 | |
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Major Loophole in American Markets...
Several studies have uncovered a major irregularity in the current markets... That is handing certain investors outsized gains.
One study says it's "generated the greatest average annual return for investors since 2000."
Another by a prominent university says this loophole can reduce risk "by more than half." Click here to find out how.
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Finding a Life Preserver in a Sea of Blood
 There's blood in the streets... a lot of blood.
The days of 18,000 on the Dow Jones Industrials seem like a distant memory - a point in the past where investors were uncertain, but not outright distraught.
We've had weeks of bleeding. Out of the past 26 sessions, the Dow has ended higher in just 11 of them.
We have oceans of blood, more than the tidal wave that wanders the halls and spills from the elevators at The Overlook Hotel in The Shining. In the last three months, there isn't a market across the globe that's posted a gain...
Click to view larger image
Red, red, red...
So... should you buy when there's blood in the streets? Particularly in the energy and resources sectors?
Well, here's the deal. The Federal Reserve's move - or lack of movement - to leave rates unchanged creates an interesting moment for commodity investors.
The dollar is near a five-week high. Bad news for crude, gold, platinum, silver and pretty much anything priced in dollars.
The Bloomberg Commodity Index (BCOM) is down 16% year-to-date and down more than 26% over the past year.
But there continues to be a way to play this from a resource and commodities angle.
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I've talked here in the past about how refiners continue to be one of the best plays for lower crude prices. Gasoline is one of the only commodities that have posted gains in 2015, along with cotton and cocoa. The gain on retail gasoline isn't enormous, roughly 5%, and it's still down heavily, more than 30%, from where it was a year ago.
The lower input costs allow refiners to profit as consumer demand for gasoline increases.
One of the biggest safety nets that exists in the world is the U.S. consumer. The U.S. consumer makes up 15% of global GDP. In comparison, China's economy accounts for 13%.
Our focus in the ongoing commodities rout is on that end market: the consumer. And we do this by targeting the companies that benefit from these lower input costs.
For instance, let's take a look at coffee...
The price of coffee has been collapsing. That's for both lower-quality robusta beans and higher-quality arabica beans. And that collapse has to do with the implosion of the Brazilian real.
Brazil is the world's largest coffee producer, responsible for about a third of all coffee in the world. The only commodity that has performed worse than coffee in 2015 is nickel. And no surprise, the Russian ruble has been the worst-performing currency against the dollar this year, and Russia is the world's largest nickel and palladium producer.
But lower coffee prices are a benefit to companies that consume a lot of coffee and continually raise prices. Take Starbucks (Nasdaq: SBUX), Dunkin' Donuts (Nasdaq: DNKN) and Farmer Brothers (Nasdaq: FARM) for example...
Shares of Starbucks are up nearly 40% this year. Inversely, the price of arabica beans is down 40%.
Dunkin' Donuts is currently up 14%, whereas Farmer Brothers is negative, but is coming off a strong fourth quarter report this month.
In its third quarter report released at the end of July, Starbucks reported record revenue as well as record third quarter earnings per share. Profitability increased because of lower coffee costs as well as lower dairy costs. Revenue moved higher due to continued strong sales growth. Plus, we're now in one of Starbucks' best times of the year - for a lot of other coffee chains as well - thanks to the consumers' undying seasonal devotion to pumpkin spice-flavored everything.
So, there is blood spilling out across the globe. It's a scary time for investors, particularly those who are focused on commodities. But the flip side is that there are benefits to the consumer side that we as investors can play and profit from.
Good investing,
Matthew
What Would You Do if You Received an Extra $7,783 Paycheck This Friday?
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Now is a good time to be thinking about natural resource investing, primarily in precious metals. Find out the five reasons why we're bullish. Read On… | |
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The metals markets are at a crossroads. In particular, palladium looks poised to go much higher, while platinum is crashing to six-year lows. And there are good reasons for this. Read On… | |
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As Japan restarts its first nuclear reactor since 2011, let's look at this controversial power source… and why uranium could soon feel serious upward pressure. Read On... | |
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