One of the things that keeps me sane in the really hectic, crazy world I have carved out for myself is frequent treks to the beach. Once there a daily run is absolute happiness for me. Ending a tough 2008 (there seems to be no better way to describe the year than just plain "tough") and launching into a hopeful 2009 I was able to get out for seven runs in six days. Believe me, I am grateful for the ability to do this all thanks to a wonderful career trading. If you don't know my past, you may be thinking that I am being pretentious by talking about my time on the beach. But it wasn't always this way for me. I went from a runner in the soybean pit during Chicago summers to the energy pits of New York. Early on, I recall thinking how cool it would be to be a trader. Those dreams were squashed when I realized that it would be a near impossibility given the fact that it required a $50,000 balance to trade. With no money in the bank (or family), and my $150 salary a week, it would be like climbing Mount Everest to ever get that trading badge. Back to the run. On one outing, my 10-year old son decided to run with me. On the way, we passed a cemetery and this started an interesting conversation between us. "Dad, why do people die?" he asked, along with many other inquisitive questions. He then asked me why God doesn't just drop money down from heaven so that everyone could buy anything they wanted? "And what about starving children?" It was getting heavy, but I did my best to explain.
As I answered the question about people buying everything they wanted, something became very clear to me. I said, "Think about it Eric Chase, if God dropped money from the sky, why would anyone want to work? If no one worked, nothing gets produced ... So how could anyone buy food, (and to further drive the point home) or the laptop you keep asking me for?" "If you were given all the money you need, where is the incentive to get up early in the morning, leave your family and go to work to produce the things we need to live?" I continued: "If everyone had tons of money, why would it have any value at all?" He suggested then that "maybe seaweed would replace money." Maybe. But in the meantime, money is being dropped from the sky and it will eventually become "worth less" if not "worthless." By the way, about my son's seaweed analogy: I think he gets it. And then, wow, it hit me like an ice cold shower. We are headed for a period of serious inflation with all the stimulus (free money) we are pumping into our economy. The dollar will be dramatically devalued and the reflation of the U.S. economy will happen, in a big way! Watch oil, gold and agricultural commodities soar in the coming years. With cheap and free dollars pumped into the system, the value, or buying power of those dollars, has to drop. The things we buy with dollars will increase in price just to keep up with the devaluing currency that is traded for it. And toss in a recovery and rebound in demand, you have the makings of a serious price recovery.
If you watch my TV shows, "Happy Hour" and "Strategy Room," you know I have been buying many commodity related exchange-traded funds and equities. I am more convinced than ever that if you have a 12- to 18-month time horizon, there are amazing opportunities out there in commodities. If you follow my content, I was very bearish on oil from $110 up. There was no reason for $147 crude given the economic slowdown we were seeing globally. As far oil overshot on the upside at $147, it has overshot on the downside. There is no reason to believe that $35 oil was realistic. Too many oil production projects based on $100-plus a barrel will be scrapped. Production will slow and demand will resume its multi-decade advance. It is very realistic to expect oil in the $75 to $90 range giving commodity related investments a handsome return from the depressed levels we are seeing now. In energy related stocks and ETFs, I own U.S. Oil Fund ( USO), El Paso ( EP), and Quantum Fuels ( QTWW). In metals, I own iShares Silver Trust ( SLV) and SPDR Gold Shares ( GLD). And finally, I bought PowerShares DB Agriculture ( DBA) as the agricultural commodities have fallen with the rest of the dollar-based commodities. Much of the timing of this trade relies on the length of the current recession. It is possible that this trade may take months to open up. If the global economy struggles, so will this trade, so either have a longer-term horizon or trade smaller. I am in this for the long haul. At lower oil prices, I like the trade even more.
One note to President-elect Barack Obama. I highly recommend you add 200 million to 300 million barrels to the Strategic Petroleum Reserve as soon as possible. We have been given a gift of cheap oil. Don't lose this opportunity to add at prices we haven't seen in many years. An investment of $8 billion to $10 billion out of a trillion dollar stimulus package will be cheap insurance. The SPR can be expanded to 1 billion to 1.1 billion barrels, providing a buffer from the next oil run up. What? You don't think oil is going up? Ever? When trading or investing, be mindful of this rule -- trade with your head, not over it.