wearmanyhats

On the drive to my hometown lies a field of what used to be pine trees.  It was planted in the Conservation Reserve Program (CRP),  where farmers are paid to take their crops out of production, put in trees, and then they are paid by the government.  It’s an interesting arrangement; topsoil is preserved and enhanced.  The price of wheat or corn is not pushed down because of too much production, and the farmer still can pay his taxes on the land.  The American taxpayer, despite what might seem at first glance to be a pork barrel subsidy, is kept fat and happy since food prices are stabalized.

 Then China woke up, Saudia Arabia figured out it was cheaper to buy wheat than grow it, and someone at the top of the government got the silly idea that we should burn food (corn) as fuel.  Suddenly the price of commodities went through the roof, and the man owning that field went right out and tore up all of the trees.  The land is going back into production.

I wonder how many other farmers are going to tear out trees and plant something to eat.  How will that affect my biggest holding?  It’s a the Powershares DC Commodity Index Trading Fund (DBC.)   Larry Edelson of the Martin Weiss Research group recommended it last October, and since then, the stock as streaked up over 59%.   Pretty sweet.  I know there are people out there that scoff at ETF’s, but I NEVER scoff at making a profit.  It is a wonderful index of many different types of commodities, including oil, gold, and agricultural products.   I received an e-mail on Monday requesting the call letters for this stock, but immediately asked the reader to return here and hear what I have to say on this subject.

I devoted probably more money to this fund than I have to any fund in my life because for a long time it did nothing but streak upward.  However, after seeing trees being uprooted, and then talking to local farmers, I am thinking about taking a good share of my profits home.  Perhaps  I’ll sell half and leave half in to give me more peace of mind.  Since it also tracks gold and silver, plus oil, it seems to ride on the fast train up every time some commodity gets on a bull run.  I think that’s the secret of its success.  But how long before oil takes another breather, and gold, too?  It lost 10% here this past week, but seemed to recover on Monday.  Looking at the chart, it also seems that it is still in an upward trend.  But how will a bumper crop this fall affect the price of the agricultural commodities that have skyrocketed this year?  I can only predict that we may see a bit of a temporary drop as the market is flooded with corn and beans. 

Over the past twenty years that I’ve invested, I’ve noticed that after a fairly long movement upward, most commoditites rest for six to eighteen months.  There’s a good chance that all these commodities may come to rest all at once.  If so, DBC may decline or just move sideways.

My recommendation is that if you are going to pick up DBC, be careful not to invest more than several thousand in it.  And keep a good stop loss of 25% on it as it moves up the ladder to enriching your portfolio.  DBC is up 78% in one year, and if it could do it agian, wouldn’t you be happy?

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