Article by Investment U
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In focus this week: why corn prices are set to rise, where gold miners are going, how Vanguard’s index mutual funds are raking in the dough and the SITFA.
There’s a ton of money to be made in corn this year. The current production estimates and demand trends can drive it back from its recent sell-off, and then some.
Corn prices jumped 9.5% recently following an 11% drop in early May that was driven by news of a huge U.S. crop this year.
Dave Marshall, an independent grain-marketing consultant, was quoted in the Journal this past week saying exporters and users are literally fighting over tight available supplies.
Wheat recently saw a 17% price increase, and corn should follow suit. Both can be used as animal feed, so corn and wheat prices are usually tied together.
And a recent comment by the Department of Agriculture has been adding to the surge in prices. It seems there were several very large corn export sales listed as going to unknown destinations, that were in fact headed for China. The International Grains Council said this past week that China’s demand could rise 50% in the year that starts this July.
I know I don’t have to tell you what increasing demand from China can mean to corn prices.
The best news: You can invest in corn without all the mechanics of the commodities exchange, via an ETF called the Teucrium Corn Fund (NYSE: CORN). Its chart is on your screen now.
Trending upward, rising demand and less of a crop than previously expected all add up to higher corn prices. Take a look at CORN.
Gold Miners
Barron’s says gold mining stocks could jump 50% if the price gap between gold and the miners narrows to historical levels.
Despite the recent sell-off in gold, it’s still up 80% since 2009, but gold miners are only up about 20% in the same period. The ratio between the two is at an all-time high.
The name Barron’s is throwing around, Newmont Mining (NYSE: NEM). It’s at or near its 52-week low and has a 3.1% dividend. Earnings are expected to hit an all-time high this year at $4.85 per share on a 6% increase in revenues. The P/E is a screaming 8!
Morgan Stanley said in a Barron’s article last week that all of the fundamentals that drove gold to the $1,900 level are still in place and they are expecting a further run-up, which can only add to the case for miners.
Newmont currently produces gold at $650 an ounce, but announced it is working to reduce that cost. Produce at $650, sell at $1,600 and higher, very nice!
The alternative play on the disparity between gold and the miners is the Market Vectors Gold Miners ETF (NYSE: GDX). It’s just a few dollars above its 52-week low and sports a diverse portfolio of mining stocks.
Spreads like this one between gold and the miners don’t last forever. Bet on it running back to its historic norm. NEM or GDX, take a look.
Mutual Funds That Have Tons of Cash Rolling In!
The top 1% of mutual funds last year brought in a net of $290 billion. The other 99% of funds had a net loss of $91 billion. That’s what I call a signal!
Which stock funds are investors pouring money into? Boring, vanilla, big-cap, dividend-paying mutual funds!
The chairman of thee top asset gathering funds, the Vanguard Group, described his funds as “not Wall Street and representative of Main Street.” The Vanguard Total Stock Market Index Fund (MUTF: VITSX) and the Vanguard Total International Stock Index Fund (MUTF: VGTSX) were the top dogs! In fact, Vanguard had seven of the top 20 asset gatherers from last year.
Bill McNabb, the Chairman of Vanguard, said they serve over 10 million families with low cost, high performance index funds. It’s hard to argue with that combination.
Boring and stable definitely appears to be the current investing trend.
The Ultimate SITFA
Usually I try to find something for this segment that hasn’t hit the big news sources, something off the beaten track. But this week I have to get my digs in on the Facebook (Nasdaq: FB) IPO.
IPOs, good ones anyway, are the ultimate insider’s territory. No one, and I mean no one who wasn’t one of the inner circle got any of this stock. The hype was so over the top I had to stop listening days before the offering. I still can’t believe how the so called intelligentsia got sucked into this one.
I wasn’t certain it was going to tank, but with a PE of 75 what did they expect?
Now we know the revenue numbers were secretly cut during the road show. A road show is when the lead underwriter travels around to talk to all the other ultimate insiders to assure them this is the one they have to own.
Having spent 10 years in the brokerage business watching the insiders scoop up all the stock in any IPO worth the paper they were printed on, I have to say it was somewhat satisfying to watch this one do the rock imitation.
FB ran the perfect scam on the wolves of the street and the insiders finally got the slap in the face they so richly deserved. FB priced this thing at the top of even the hype, not just the top of the numbers. Anyone who got caught at the top got exactly what he paid for. Hype.
This could very well turn out to be a good investment, but not until it finds its bottom. Which is where I’m sure most of the inner circle are quite sore after the good kick they just got.
Be careful, everything comes around!
Article by Investment U
