Tuesday

Commodities Double Dip Depression 1933 and 1938

We continue to accumulate Australian listed companies trading below cash/liquid assets - balanced by our shorts in Amazon and Chipotle. In an indirect (admittedly alot RISKIER) way, this is what Jim Rogers is doing: Long Commodities, Short US Tech. We are buying resource companies trading at significant discount to cash, and recently even picked up a holding micro cap company trading significantly below its holdings in listed producing gold companies with single digit PEs. Again, compounding discounts. As volume is negligible, we have not stocked up yet. We will add it to our portfolio once we have our first tranche of purchase. We WILL NOT be going all in, as we expect precious metals to drop - this will no doubt create further pressure on the company share price. We are hoping for an in-specie distribution, which we think is likely as the CEO is also topping up on his holdings. We have bought our initial parcel of shares at a 25% discount to his lowest purchase in his own company - and we hope to continue to out purchase him at lower levels.

Whilst we are bullish on precious metals long term, we are concern and have made provisions for a 30% pull back in gold and silver after a consecutive 10-11 year rally. Silver prices sub $20 (not a prediction) will be our buy signal. We did long silver post GFC at $14 and got off the bus way too early after a “vertical” ascent to $18-19 - feeling like a genius, this feeling did not last for long. Looking at charts of commodities in the Great Depression, we see a double dip in prices of commodities. First crash in 1932-33, prices recovered with quantitative easing (yes they did the same thing back then) in 1937 to peak in 1938, followed by another sharp decline. After this second dip, prices shot up to make higher highs.

We have no monopoly over the future, but when the next crises comes (Euro crisis and default, Japan crisis), commodities may double dip again. Year to date, the ASX is down about 15% - no surprise there as China remains one of the weakest markets for the year - whilst US markets are neutral/slightly up for the year.

Double Dip in Commodities in Great Depression

Double Dip in Commodities in Great Depression

ROGERS INTERNATIONAL COMMODITY AGRICULTURE ETN (ELEMENTS) - Yahoo Code: RJA

Rogers Agriculture Index ELEMENTS Chart

Plan:

1. Continue to accumulate soft commodity position - we are buying RJA in small bites. Buy order at $9, $8, $7 and $6 in increasing quantity (pyramidal increments)

2. Continue to buy cash backed resource companies with decent (tight arsed) management and tight capital structure

3. Short overvalued stocks