Friday, March 28, 2014

An Update On Agriculture Buying To Start The Year

I mentioned in the 2014 Outlook to start the year that I was buying wheat, corn and sugar. I am a horrible market timer and certainly do not consider myself a "trader." As I discussed in the outlook, I buy investments that I believe have strong long term fundamentals (5 years out), have recently experienced a price decline and have rock bottom sentiment levels. Waiting for those three to connect causes me to mostly sit in cash and wait for the occasional buying opportunity.

Agriculture has been on a tear since January so I was fortunate in the timing. Just as an update for readers, I am no longer adding to positions as prices have moved higher and positive sentiment has returned. As with all investments, I will hold the positions and hope that prices and sentiment decline again. The only asset I am currently buying is physical silver (strong long term fundamentals, recent price decline, and low sentiment levels).

I am watching Chinese stocks and emerging market debt very closely (specifically Russia, India, Brazil and South Africa). My hope is that the continued taper from the Fed leads to further weakness in their currencies (I guess I could call those four the RIBS?), which would trigger a purchase of 3 to 5 year government bonds denominated in those currencies. As almost always, I will most likely be early, which is part of the process in investing in assets people hate.

This site is focused on global economics/finance and not my personal portfolio, but "what are you doing right now?" is the most common question I receive so I thought I would update.

5 comments:

  1. Do you think that the AUD will fall given the Chinese economic contractions? I understand that AUD is currently on your prospective buy list - with the reason probably being that the AUD will rise along with commodities. How likely do you think this will play out over the year?

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  2. I do think the AUD has further room to fall. It was due for a rally after a huge short position built up a few weeks back. I am personally waiting to accumulate AUD's under 80 (against the US dollar), but I don't know if or when that will come again. I purchased AUD's back in mid 2010, but I've been holding and watching since.

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  3. Hope you don't mind me asking - what is the key interest with the AUD? Wouldn't the AUD fall in a recession (much like how it fell in 2008 during the Great Recession) and given the economic signals lately, should one still hold on to the AUD?

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    1. No problem, ask away. Australia has many problems (including a housing bubble), but they have a low government debt to GDP ratio. They are a production focused export oriented nation. Those exports are currently focused on Asia which will likely be problematic in the short term, but I will believe it will be beneficial in the long term. Australian interest rates are higher than more developed countries (you get a better return on your money). While it has not happened yet during this debt crisis, I think that the value of a currency will have some correlation with the fact that a government is bankrupt and could never possibly back back their debts without massive monetization and dilution of the currency supply (U.S. and Japan). I don't like the AUD at 105, but at 75 it becomes attractive because many of the problems are priced in.

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    2. great, thanks!

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