Commodities

I’m extremely bullish on the commodities sector. I expect commodity prices to head higher for two main reasons:

(1) Increasing demand due to a rise in economic activity. Economies around the world are doing much better. The U.S. reported positive GDP growth for the third quarter, so we could be out of the recession. Germany and France could also be coming out of the recession. And the economies of China, Brazil, and India are once again running strong. This will lead to an increase in demand for commodities like oil, copper, grains, etc. A steady supply of commodities is needed to keep the engine of economic growth running.

(2) The prospect of higher inflation. America has a national debt of over $12 trillion. And deficit spending is out of control. I agree with Bob Irish and Andrew Gordon that the government’s policy will be to inflate their way out of this problem. Washington can simply fire up the printing presses and print their financial obligations away. All that extra money in circulation should lead to higher inflation down the road.

Keep in mind that America was not the only country to dump money into its economy in order to save it. Many countries did it. Because of this, many major world currencies are destined to see high levels of inflation. The explosion in global money supply could lead to a decline in the value of all paper money around the globe. Investors everywhere are having less and less confidence in fiat paper money that’s not backed by anything. As a result, they are jumping into commodity investments to protect themselves.

To protect against inflation rearing its ugly head in 2010, you want a portion of your portfolio allocated in commodities.

I suggest you look at energy, agriculture, metals, and even commodity-rich foreign markets.  

Oil is certainly the lifeblood of our society. Gasoline made from crude oil is still the cheapest and most efficient fuel for our vehicles, and demand for gasoline is not going away any time soon. Oil is now an alternative currency to paper money and will rise as the fiat currencies lose their luster. Oil demand is increasing in emerging markets like China and India. Plus, the worldwide supply of oil is running thin and it’s getting harder and more costly to get oil to the consumer. I expect oil prices to head over $100 per barrel in 2010.

I like the prospects for clean energy. This industry includes wind farms, nuclear power plant operators, and solar stocks.  Governments around the world are offering tax breaks and other incentives to encourage clean energy use. This opens up significant potential for investors to profit.

Agriculture prices are poised to blast higher. The world’s population continues to explode and food demand is constantly increasing. The standard of living in developing nations is rising – and that will push food prices even higher. I expect higher prices for food. There will be plenty of opportunities to profit by investing in raw food commodities and the fertilizer producers.

Prices for metals are poised to head higher due to growing demand. The industrial metals (copper, aluminum, and silver) will see strong demand as economic activity picks up. And gold will head higher as people lose faith in paper currencies and turn to gold as an alternative currency. (Remember, gold can’t be produced out of thin air on a printing press.) I expect gold to continue to hit new highs in 2010. I predict that gold will head well over $1,500 and silver will head over $20 per ounce.

There is also an opportunity to take gains in select commodity-rich economies. I like Brazil and Australia. These are just two of the countries that will benefit from a continued bull market in commodities.

Yes, I’m bullish on commodities. But in case the economy weakens or the dollar strengthens, it’s important to diversify your portfolio with other asset classes. That said, utilities, technology, and health care are three additional sectors that I expect to perform extremely well in 2010.

* Utilities

This sector includes companies that deal with the delivery of electricity, gas, and water to customers.

Utilities need considerable infrastructure to operate. So they often hold high levels of debt. Interest rates should remain low well into 2010, and utilities will benefit from the lower borrowing cost.

Investing in the utility sector is considered a non-cyclical defense play because it’s less susceptible to a market selloff. I recommend that you hold utilities in your portfolio because of that and for added diversification.

* Technology

The companies in this space include those that make computers and cell phones as well as those that create software.

Tech was one of the best performing sectors in 2009, and should do exceptionally well into next year too. It will benefit from economic growth, which will boost orders and profit margins.

People are still spending money on technology, even in this difficult economic environment. Tech companies have been cutting costs and building up large cash reserves. The tech sector is quite healthy, indeed.

I expect some of the best plays to involve cutting-edge technology that can change the world. This includes cloud computing, smart phones, and military technology.

* Health Care

This sector includes hospitals, drug manufacturers, and producers of medical products.

Some kind of health care reform is coming soon, and you can profit from it. There will be many winners as a result of this new legislation, like hospitals and pharma companies.

With more Americans getting health insurance coverage, health care use will go up – and so will drug sales. That means higher revenues for the drug makers.

In Conclusion …

So there you have it. In 2010, put your money in commodities, utilities, technology, and health care. I’ll be recommending highly leveraged plays on these sectors in Options Power Trader. My goal is to continue to show my readers 100% or more winners with my options plays.

Best Wishes,

Ted Peroulakis

Email: feedback@investorsdailyedge.com

Disclaimer…The subject matters expressed above is based purely on technical analysis and personal opinions of the writer. it is not a solicitation to buy or sell.