The falling dollar will create a long-term bull market in commodities…
Don’t look now, but the U.S. dollar has been falling for about a year.
This means people who aren’t paid in dollars and invest in the U.S. markets have been losing money.
When the dollar falls or even collapses, everyone will rush out of dollar-denominated assets like Treasuries and U.S. stocks. They will put their money into hard assets like gold, oil, and other commodities because these things will hold their value.
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According to this nifty chart by Nautilus Research, we are in a generational low point in commodities.
Commodities are cheaper now in relation to equities than they have been in 40 years.
And investors are starting to notice. The price of WTI crude is above $63.87. Cheniere Energy, Inc. (NYSE: LNG) jumped 23% last week on a positive outlook for liquid natural gas. Nickel, rhodium, lithium, cobalt, and other industrial metals are all up.
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And check out this chart showing earnings growth from the S&P 500 sectors:
Oil is having a strong year due to the doubling of the oil price and the weak comparables to a year ago.
Last week Baker Hughes reported, “U.S. energy companies added 26 oil rigs this week, boosting the count to 791, its highest since April 2015.” Most of these new rigs were in the Permian Basin in West Texas.
If you are looking to invest at a time when equities are on the expensive side, you should look to oil service companies and emerging markets. I recommended a small oil service company in Crisis and Opportunity last week.
There is an oil service ETF called the S&P Oil & Gas Equipt & Servs (NYSE: XES), if you’d like to play along. It has been bouncing along the bottom for two years but has recently started to percolate and is now putting in higher highs and lower lows.
Emerging markets like Chile also do well when the price of metals goes up and the dollar falls.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
