Sometimes investors should step back from the market. Grab a soda or another beverage of choice, and consider the landscape. Some suggest this is the only way to invest – buy a few long-term funds and sit back to watch things develop. They say, “cut short your losses and let your winners run”. That’s exactly what we’re doing this week. We’re taking a 30,000-ft view on the market. We’re looking at an investment that should be a great move over the next 6-18 months. It’s a fundamental play on the global economy – buying into a long-term uptrend with expectations of it continuing in that direction.
So what’s been happening the past few months? Let’s take a look. Since January 1, the best sectors to be in have been Energy (+10%) and Materials (+5%). The global economy has propelled these areas to new heights, while the rest of the major equity sections have declined year-to-date. This trend does not appear to be changing. News continues to favor Materials for the long-term. Underlying demand for natural resources like copper, aluminum and other base metals pushes the sector higher. Silver and gold also bolster the industry while coal has jumped to amazing heights in this unique market environment.
That’s why we’re excited about a targeted ETF that tracks one of the strongest trends in the market. The SPDR S&P Metals and Mining ETF (XME) is a targeted play on the trending materials sector. With specific exposure to coal mining, base metals, and precious metals companies, XME shows great potential for the rest of the year, possibly continuing until 2010. Why are we so confident about these commodities?
#1 Because Metals and Mining are Still Growing
The growth in emerging markets continues to impress analysts. The U.S. economy may be stalling, but demand for natural resources is expanding across the globe. Brazil’s debt was recently upgraded to investment grade. China continues to build cities along the eastern seaboard. Russia is investing in growth from the crude oil windfall it’s been enjoying. Question: How do you build skyscrapers without steel? Answer: You can’t. That’s why Australia just added more jobs to their mining operations for the 19th straight month. We expect mining and metals stocks to grow along with emerging market infrastructure.
#2 Because the Coal Industry is On Fire
As crude oil prices continues breaking new records, coal becomes even more attractive. Abandoned coal mines are being reopened as demand soars. Once-sleepy mining companies grow while environmentalist concerns are drowned out by calls for cheaper energy. One ETF (KOL) has risen +57% since April. This is pushing Materials higher and especially mining stocks. We expect this to continue.
#3 Because Precious Metals Should Rise in the Intermediate Term
On Monday , Bernanke warned the markets higher interest rates are likely later this year. Why? Because he has to "do something." He knows full well that inflation is hitting consumers hard. However, the Fed is between a rock and a hard place. Most commodities, including precious metals, are going higher, but higher interest rates will do nothing to solve this problem. The Fed is out of bullets. Silver and gold have fallen from their all-time levels in mid-March, but we expect them to mount another assault on the highs in the intermediate future.
All in all, XME is a vote of confidence for Metals and Mining stocks. It holds companies like Freeport-McMoran, Alcoa, Nucor, Peabody, Newmont and Consol Energy. XME is a targeted play on the continuation of the commodity bull market. Like all long-term moves, volatility is in play. But, XME holds promise for many more months. For a diversified pick on metals and mining, go with XME.
$87.99 (06/12/08)
