NEW YORK (TheStreet) -- Earlier this year, the U.S. government introduced two-year notes with adjustable rates. That is bearish news for the American economy, because it hints that inflation and higher interest rates are on the way. The short term and the floating feature suggest that investors will not lock in for the long term at the prevailing low interest rates for debt instruments issued by the U.S. government.
Still, there are a few ways investors can profit from this dominant negative sentiment: they can buy into certain stocks, currencies and commodities.
For one, higher interest rates and more inflation mean that natural resource stocks should rise.
Gold, silver and other hard assets are traditional hedges against rising inflation. Goldcorp (GG), the world's largest gold company, is up 23.77% for 2014. The world's largest natural resource entity with massive holdings in oil, coal, copper, and gold, among others, BHP Billiton (BHP), is off 3.64% for the year due to the economic slowdown in China, which consumes more industrial commodities than any other country.
According to John Ryan, CEO of Premium Exploration, the Chinese are buying big time in the North American energy sector. The Wall Street Journal reported over $44 billion in acquisitions since 2008. The future should be bullish for China, which means it is bright for BHP Billiton, Rio Tinto (RIO), and others in the natural resources group. With dividend yields of 3.64% and 4.16% respectively, BHP Billiton and Rio Tinto pay enough for investors to wait for the rebound in Chinese demand.For currencies, investors should probably bet against the greenback. That is already happening with those buying up the two-year notes with floating rates. Investors do not want to lock in the present low interest rates for the long term, as they obviously expect interest rates to rise due to inflation increasing. That in turn decreases the value of the U.S. dollar. PowerShares DB U.S. Dollar Bullish (UUP), an exchange traded fund that goes long for the greenback, is down for the month, quarter, six months, year and year to date. By contrast, PowerShares DB U.S. Dollar Bearish (UDN), an exchange traded fund short on the U.S. dollar, is up for the last month, quarter, six months, year and year to date. And, for dollar bears, there are many ways to invest in commodities and precious metals. For the individual investor, the easiest way is through exchange traded funds. The ETF for gold, SPDR Gold Shares (GLD), is up 10.64% for 2014. iShares Silver Trust (SLV), the ETF for silver, has risen 4.33% for the year. These and other commodities can be purchased in physical form, but that entails storage costs, insuring the asset and other complications. It is much more practical for the average investor to buy precious metals in securities instead. The United States is experiencing its weakest-ever recovery from a recession, even though it has incurred trillions in debt from deficit spending and quantitative easing to stimulate the rebound. The market is naturally bearish on the U.S. dollar as a result. That's why two-year notes with adjustable rates were created. But these bad market conditions should not keep investors from profiting from buying stocks, currencies, and commodities that will gain over the long term. At the time of publication, the author held no positions in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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