Thanksgiving Dinner Is a “Buy”

Eric Fry By Eric Fry, Macro Strategist, The Oxford Club


Editor’s Note: Last week, Sean Brodrick sat down with Karim Rahemtulla, editor of Beyond the Dollar, to talk about the commodity supercycle and where energy commodities land in it.

Today, we’re revisiting that idea. Below you’ll find a special guest editorial from Beyond the Dollar’s contributing editor, Eric Fry.

In the spirit of the holiday, Eric’s exploring where your Thanksgiving dinner falls in the supercycle. Read on to find out why he considers the whole thing a resounding “buy.”

To learn more about Beyond the Dollar – and the controversial move investors need to make before President-elect Trump takes office – click here now.

– Rachel Gearhart, Managing Editor

Your Thanksgiving dinner is on sale.

Forgive us for this crass, materialistic observation, but almost every commodity that makes Thanksgiving dinner possible is a lot less expensive today than it was six years ago!

This “discount pricing” does not automatically signal an investment opportunity… but it does suggest that many commodities are better “buys” than “sells.”

Thanksgiving dinner is first and foremost a moment to count your blessings… and to share those blessings with friends and family. But this year’s meal may also represent a compelling investment opportunity.

The chart below features a sampling of “Thanksgiving commodities.”

Grains like wheat and corn are staples of a farm-raised turkey’s diet. Grains also contribute to the turkey stuffing, dinner rolls and pie crusts.

Sugar and cocoa are key for various dessert items. And natural gas is the fuel that cooks everything on most Thanksgiving tables. Gas does the job either directly or indirectly by powering about one-third of the nation’s electric power grid.

The prices of these six Thanksgiving commodities have fallen by an average of 36% since 2010. Their slumping prices contrast sharply with the 10% rise of consumer price inflation over the last six years and the near doubling of the S&P 500 Index.

Not only are wheat, coffee and natural gas trading close to multiyear lows, but most other commodities are also trading close to multiyear lows.

Obviously, wheat isn’t copper and cocoa isn’t heating oil. Each commodity market is unique. But if we examine the commodity markets from the proverbial 30,000-foot view, we find a sector that is begging to be bought by contrarian investors.

Relative to U.S. stocks, for example, the Bloomberg Commodity Total Return Index has dropped to its lowest level of the last 25 years. Early in 1999, this index fell to a similarly depressed level. It doubled over the following three years, while the S&P 500 Index produced a loss.

This time around, the commodity sector is likely to produce a similarly outstanding result – both in absolute terms and relative to U.S. stocks.

Global demand for most commodities is on the rise… and not just on Thanksgiving. And yet, in general, supplies have increased to satisfy this growing demand.

The result? Static commodity prices.

But the days of plenty may be drawing to a close… at least the days of plenty at today’s commodity prices may be drawing to a close. Several commodity markets – like the natural gas market – are bumping up against the kinds of supply constraints that could push prices higher.

But natural gas is not the only commodity that could produce explosive returns over the next couple of years. Bullish supply-demand trends are developing in many other markets as well – from wheat to zinc and palladium to palm oil.

To gain exposure to these markets, investors could use either a rifle shot or a shotgun blast. A wide variety of ETFs provide exposure to individual commodities like palladium – ETFS Physical Palladium Shares (NYSE: PALL); natural gas – United States Natural Gas Fund (NYSE: UNG); and silver – iShares Silver Trust (NYSE: SLV).

Other funds provide exposure to groups of commodities, like industrial metals – iPath Bloomberg Industrial Metals Total Return Subindex ETN (NYSE: JJM) – or agricultural commodities – PowerShares DB Agriculture Fund (NYSE: DBA). Most of these funds should thrive over the next year or two.

But the commodity sector has become so depressed that a broad shotgun approach is likely to produce excellent results as well.

One way to gain broad exposure to the sector is to invest in the iPath Bloomberg Commodity Index Total Return ETN (NYSE: DJP). This security tracks the price trends of crude oil, natural gas, copper, corn, soybeans, gold, silver, sugar and heating oil.

The commodity sector is coming to life once again… which means your Thanksgiving dinner is likely to be a bit more expensive next year.

Good investing,