Chapter 5. Hot Stuff: Investing in the Commodities Bull Market

If I Woke Up to news that it had all been a bad dream and the United States economy was in the pink of health, I would still put a portion of my portfolio in basic materials, the commodities group comprising natural resources, raw materials, and agriculture. (Gold and silver are part of the group but are covered in the next chapter.) Even after the early months of 2008 saw record highs in crude oil, metals, and grains followed by a significant pullback, I am unshaken in my belief that we are still in the early stages of a secular commodity bull market that will last at least another decade. Commodities have always been a good hedge against inflation. Today they are especially attractive because the upward trend in prices, which is rooted in supply-demand imbalances, is also being fueled by central banks around the world following the Fed's lead and debasing their own currencies.

In my view, a portfolio lacking diversification in commodities is missing a critical element.

By Way of Background

Historically, commodities and financial market cycles have gone in opposite directions—when the stocks and bonds are down, commodities are up, and vice versa. The last century saw four commodities secular bull markets averaging 17 years in duration. The most recent bear market in commodities was between 1982 and 2002, coinciding with the record bull market in stocks. The so-called New Economy sucked up capital as never before to pay ...

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