Themes: Commodities, Aim Shares, UK Shares
Things had become so bad that the government advised anyone with breathing problems to stay indoors with the windows closed.
The El Niño weather phenomenon of 1997 was in full swing and it was wreaking havoc across the Pacific region.
Forest fires ripped through Indonesia. The thick clouds of smoke drifted across the narrow Straits of Malacca into neighbouring Malaysia. I was living in the capital, Kuala Lumpur, at that time. And the smog was making life miserable.
But investors who made the right moves really cleaned-up. Agriculture across the region was badly hit. Take palm oil for example. Its production is concentrated in Malaysia and Indonesia. And both those countries were being battered by the El Niño. That sent the price of palm oil soaring by 127% in just six months. Coffee was another crop that gave investors a chance to double their money in just months that year.
As I will show you in a moment, there is now no doubt about it. El Niño is about to strike again this year. And I am going to show you how it has triggered the biggest profit opportunity in commodities this year. The supply and demand imbalance on this crop already looks set to drive its price sharply higher. And now production is being severely threatened by the El Niño.
Mainstream investors still haven’t caught on to this
I first wrote to you about the chance to make an extraordinary profit in commodities from this year’s El Niño two weeks ago. The incredible thing is that mainstream investors still haven’t caught on to the opportunity El Niño is creating in agricultural investments. I will show you why not in a moment. But first, just look at this…
I did a search on the Financial Times website this morning and found just 13 results for El Niño. And not one of those articles has an investment angle.
The City’s house journal is well and truly behind the curve on this one.
But it won’t be long before the mainstream press starts churning-out page-loads of drivel on El Niño. You can count on it. The warnings about an El Niño are beginning to pick-up. And you will probably find half a dozen people offering you a chance to make a quick gain as agricultural prices take-off.
Here’s the thing though. By the time it hits the mainstream press, the opportunity to make big profits will already be past. The key to making an extraordinary gain on commodities in a situation like this is to get in before the investment heavyweights in the City start piling-in.
You can’t just stick money into every crop during an El Niño and expect to make blockbuster profits either. You really need to understand the supply and demand situation as well.
How I uncovered the commodity play of the year
I started tracking this opportunity in April this year. That’s when I received the first reports from Indonesia that there were weak signs of an El Niño beginning to form in the Pacific. Mainstream analysts didn’t pick-up on this, probably because the data was in Indonesian. Having grown-up in that corner of the world though, I still keep an ear very close to the ground. Indonesia is almost always badly hit when an El Niño happens. So they keep a very close watch for any signs of one forming.
Indonesia’s economy has been on the tear since the start of the decade. And I had actually been researching investment opportunities in its energy sector. That’s when I came across the first early warnings that the country’s coal industry might be threatened by an El Niño this year. I dumped the idea of energy right away. Because when an El Niño hits, the real money is made in agriculture.
At the same time, some of the established western weather forecasters dismissed the chances of an El Niño this year.
You ought to write them a thank you note. Because that false sense of security has now given you a chance to snatch a profit before mainstream analysts catch on. Because there is absolutely no doubt about it. The El Niño has already begun. On 10th July the Japan Meteorological Agency announced that we are now in an El Niño. Two days before that, the Australian Weather Bureau warned that their “indicators suggest an El Niño event is developing across the Pacific Basin.” And their computer forecasts show there’s very little chance of the development stalling or reversing. Agriculture is definitely the place to be right now.
How to make good profits from bad weather
The price of palm oil looks set to rise later this year. But there is still isn’t a straight way to invest in its price. One way in is through Singapore-listed Wilmar International. It is the world’s biggest trader in palm oil. Its shares also trade in Germany (Ticker symbol: RTHA) so it is not difficult to get into. But it looks rather expensive right now.
Cocoa also looks set to benefit. Some of the biggest producing countries are at risk from El Niño this year. You can get direct exposure to the cocoa price through the US-listed iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (Ticker symbol NIB).
Both of these are interesting, but they aren’t where I would put my money. I am now putting finishing touches on my “Perfect Storm” report that will show you how to profit from El Niño. It is a dead simple strategy of investing in the one commodity whose supply and demand balance is already starting to drive its price higher.
You’ll have my report inside the next week. Stay tuned…
Good investing,
Manraaj Singh
For The Right Side
Editor’s note: Manraaj Singh is the Chief Investment Strategist for the Profit Hunter service.
MARKET NOTES
Small companies are riding out the storm
BY SHIVVY ARORA
London’s ‘junior’ stock market is outdoing the Blue Chips. It’s surged by 42% since early March, while FTSE 100 – comprising 98% of UK market cap – has lagged behind with little over half these gains.
The FTSE AIM All-Share is an index of all companies quoted on the Alternative Investment Market (AIM). And the AIM is a London Stock Exchange sub-market which allows smaller companies to raise funds.
Take a look at the chart below for the year-to-date. We’ve tracked the FTSE AIM All-Share Index versus the FTSE All-Share. You can see the juniors’ increase which crushes the broader index. The latter is down by 3% since the start of the year.
Small businesses have outdone the big guns by close to 20%
If you would like a larger version of this graph please click here
Source: Financial Times
You’d do well to look at AIM-listed companies that are cash-rich and market leaders in their sectors. Here are some stellar examples… Stem cell storage bank Cryo-Save is up 83% to date. Alliance Pharma has gained a whopping 416%. But the real gem is Norseman Gold with a staggering 1840% gain!
Don’t disregard small businesses. They enjoy a regulatory system that is tailored for growing companies. The AIM is a successful market for secondary fundraising.
And they’ve held up well out of the crisis. Consider this – the main market lost 15% of trading volume in 12 months. Now think about the vast difference in size between major FTSE companies and ‘junior’ businesses. You’d expect a very steep drop-off in trading for AIM companies. But the decline has been almost equal to the broad market with 16%. That’s very reassuring.
You may have concerns that small companies are more exposed to the credit crunch than mature markets. But if you look closely, you’ll find many opportunities to profit from small stalwarts that are doing remarkably well.
Editor’s note: Tom Bulford writes monthly newsletter Red Hot Penny Shares where he makes in-depth recommendations on the UK’s most exciting small cap shares. He also writes a twice weekly e-letter The Penny Sleuth. To read the latest edition, click here.
The Daily Reckoning - Bubble Deniers II
BY BILL BONNER
Two important headlines this morning, both of them fraudulent:
"Chinese economy bounces back," says one headline in the International Herald Tribune.
"JPMorgan profit soars despite downturn," says another.
The average reader or TV viewer will go no further. "Ah," he says to himself, "good news; the worst is over. China is a green shoot as big as the Amazon. And JPMorgan is a leader in the financial sector. If the financial sector is doing well, the whole world economy must be doing well."
But here at the Daily Reckoning, we can’t help ourselves. If we see a silver lining, we look for the cloud. We see garbage... we look for the rat...
We begin with the JPMorgan profit announcement, because it is the most intriguing. Let us set the stage:
Logo1McAfee Secure sites help keep you safe from identity theft, credit card fraud, spyware, spam, viruses and online scamsPrivacy Policy In the last half century, credit has expanded faster even than dress sizes. Naturally, this has made the business of hawking credit extremely profitable. Profits in the financial sector soared to 40% of the US total. And every momma wanted her baby to grow up to be an investment banker.
But then, in 2007 & 2008, the bubble in the financial sector popped. Many banks and financial institutions went broke... or had to be bailed out by the government. Instead of being the world’s highest-flying industry... finance became the scene of its biggest crash.
And now, from all we’ve been able to detect, a fundamental shift has occurred. People are no longer eager to go deeper and deeper into debt. Instead, they are eager to pay off debt... that is, to rid themselves of finance... and to get as far away from the financial sector as possible. Savings rates, for example, have gone from zero to 7% in just the last 12 months. But in the midst of this remarkable and historic change, we get news that at least a couple of the biggest firms in the financial sector - JPMorgan and Goldman Sachs - are making billions in profits:
"Even as it weathers the worst economic downturn in decades, JPMorgan Chase said Thursday that it had made a $2.7 billion second-quarter profit as a result of stellar trading and investment banking results."
Read on...
To read the Daily Reckoning in full, click here.
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