When Commodity Trends Collide

By Kevin McElroy

NEW YORK ( TheStreet) - Today, there are two huge trends that are about to benefit one small sector more than any other.

First, I'll tell you the trends so you can connect the dots -- and I'll give you one way to invest.

The first trend is somewhat well known. It goes like this: when interest rates in the United States begin to rise, the Japanese stock market tends to outperform.

You can see this trend in action in the somewhat complicated table below:

(thanks to the Pragmatic Capitalist for this table)

So right now there's no arguing that United States bond yields are on the rise.

Japanese stocks and American bonds don't seem very correlated, but one of the main reasons Japan benefits from higher bond yields is that higher rates in the U.S. puts downward pressure on the Japanese yen, making Japanese goods relatively less expensive around the globe.

There are other causative factors, but that's the simplest explanation of how it works.

That brings me to the second trend that you'd be hard-pressed to disagree with: higher oil prices.

There are billions of reasons why oil prices are rising -- maybe trillions. I won't go into all of them, but very briefly: the better part of one billion people in China will begin using more and more oil in the coming decade.

Also, the United States Federal Reserve is printing trillions of dollars to counteract slowed growth. As Energy Economist Jeff Rubin says, "Fiscal stimulus is no substitute for cheap oil."

Both of these factors and many more will contribute to higher oil prices.

So the obvious conclusion? Look for Japanese companies with upside leverage to higher oil prices.

And I found one. It's in a specialized sector of oil production: deep sea drilling. Most people think of ExxonMobil ( XOM) or BP ( BP) as a way to benefit from higher oil prices. But those companies tend to be so big and diversified that they lag gains made in the price of oil.

The best way to profit from higher oil prices is to find companies that make more money the higher oil goes.

Before I tell you the name of this company, don't get too excited. Unfortunately it trades on the Tokyo Stock Exchange, and depending on your brokerage firm you may or may not be able to purchase this company's shares.

It's Nippon Yusen KK (9101: TYO).

They're one of Japan's biggest shipping companies, and until recently they had almost nothing to do with oil production.

But two months ago, they bought a 50% stake in the world's second largest deep sea offshore oil tanker company.

This company operates 24 highly specialized tankers that are specifically outfitted to transport oil from deep sea drilling platforms and ships to the mainland.

These specialized ships are known as moving pipelines; there's really no substitute for the service they provide.

If you are able to buy companies on the Tokyo exchange, I'd recommend picking up a small stake right now.
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Wyatt Investment Research, founded in 2001 as a publisher of newsletters, offers independent investment research of financial markets, stocks, bonds, ETFs and mutual funds to about 250,000 individual investors. The company is led by founder Ian Wyatt, who serves as publisher and chief investment strategist.

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