Follow China and Go Long Commodities

Many investors exert great effort in trying to predict the direction of the market instead of simply trying to find areas of opportunity that are likely to benefit from fundamental supply and demand factors. Today, investors are being offered a great opportunity to invest in commodities on the cheap.

What makes me think commodities are cheap? China is buying them up right before our very eyes every chance it gets. So instead of trying to guess the price of oil in next six months, pay attention to who has the cash and what they are doing with it. Today, China's actions in the marketplace are a screaming signal in favor of commodities.

At times, it seems the only commodity the market is fixated on is oil. As a result, when the general consensus is bearish on oil, the outlook for commodities in general can often follow suit. Understand that in the short run, commodity prices can fluctuate widely. However, in the long run there are fundamental shifts in our society that bode very well for commodities in the long run.

For one, commodities have pricing power in periods of inflation. And since commodities are global products, inflation in one part of the world can bode well for commodities all over the world. This point is extremely important if you are the camp that believes that the U.S. is currently exporting inflation to other parts of the world.

Although the Fed is printing money with wild abandon, immediate inflation in the U.S. seems very unlikely as long as institutions are delevering and consumers are saving. However, this doesn't mean that some of that printed money is not finding its way overseas to markets - such as China and Latin America -- that may likely recover from the global recession before the U.S. does.

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At the time of publication, Gad was long ATPG and LINE, although positions may change at any time.

Sham Gad is the managing partner of Gad Capital Management, a value-focused investment firm based in Athens, Ga. Gad has written extensively for The Motley Fool and was a securities analyst for UAS Asset Management, a small value investment fund in New York City, in 2007. Previously, Gad managed assets for the Gad Investment Group.

Gad runs a value-investing blog inspired by the teachings of Benjamin Graham. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Gad appreciates your feedback; click here to send him an email.