All of us know about conventional investment movements once they become popular. In the late 90s, it was stocks. In the mid 2000s, it was real estate. Some are now saying that the next hot trend is gold. Riding these trends can be highly profitable, if you get in at the right time.
The problem with following trends is that the easy money is usually made before the trend gets very popular, and once the trend becomes more about popularity than about investing fundamentals, and more about buying in the hopes of flipping on the investment to a greater fool than about buying based on fundamentals, then that might be a sign that things are getting dangerous. After all, you don’t want to end up like one of these guys:
So, what did these investments look like before they became popular? Battered and bruised, for the most part. Stocks suffered greatly throughout the 70s and only started picking up in the 80s, real estate had a dismal decade in the 90s, and gold was dissed for decades after the last bubble burst in the early 80s. Anyone putting money in these investments during their darkest hours would have been called a fool; these very same investors, however, are the ones that would have reaped the greatest profit, once these investments regained their shine and lustre.
So why did these investors choose to invest in these assets, even though their values were at rock bottom and everyone was fleeing them in droves? These investors tuned out the noise, analyzed the fundamentals, and after doing so, they made an educated guess based on their analysis. Given a positive fundamental outlook, low asset values greatly reduce the risk of buying into a bubble. If you believe that you make money when you buy an investment, not when you sell it, then you want to buy at the cheapest price that you possibly can.
Here are three different assets that are currently being dissed by the mainstream, and therefore might be good contrarian investment moves to consider:
4- Trade currencies
Opening a micro account forex makes it easy to dabble in currency trading for literally a handful of dollars.
3. Invest in natural gas
Natural gas has really taken a beating over the past few years. At current prices it’s hard to see how some extraction operations will remain profitable. Why are prices so low? Some are blaming excess supply and weak demand; others are blaming mild weather (they should come up to Canada during the winter time!)
While it’s easy to look at what has happened in natural gas and claim that the industry is finished (or at least dormant for now), there are a few problems that I have with these claims: while low prices are bad for investors, they should be great for consumers. If peak oil is a reality, and if oil dependence is a bad idea, and if natural gas is dirt cheap right now, and if natural gas is cleaner than oil, and if natural gas is abundant, then… we should be exploiting the heck out of natural gas! Whether for electricity, transportation, or heating, natural gas could help fulfill many crucial roles in our energy economy… and in taking on a bigger role, you can expect prices to rise.
2. Buy the U.S. Dollar
The U.S. dollar has rapidly plummeted over the last few months. With news of quantitative easing, massive debt overhangs, and a weak economy, it seems like the neck of the greenback is on the guillotine board… or is it?
In spite of all the bad news, the fact remains that the U.S. is still the world’s leading superpower, with high productivity and a large economy. The populace has seen where the road to serfdom is leading them, and on November 2 they collectively took a step back from the precipice. Although the USD has already jumped back somewhat due to further contagion in the Euro zone, it could still potentially be oversold.
1. Short the GLD and SLV ETFs
While I see the value of gold and silver as money, I do believe that they may be problematic as certain types of investments. GLD and SLV come to mind as precious metal investments that may be dangerous. When you invest in GLD and SLV, you may think that you’re holding physical bullion, but are you really? Are your holdings insured? Do GLD and SLV really hold the assets that they claim to? If the SHTF, will GLD and SLV have enough physical bullion on hand to satisfy redemption requests?
With counter-party risk at every step of the chain, GLD and SLV might be ETF bugs in search of a windshield. If and when they blow up, you might very well wish you had never heard of them… unless, that is, you happened to be on the short side of the trade. Just some food for thought.
Other unconventional investments
101 Centavos recently blogged about investing in uranium. I’m not sure if this is unconventional in the sense of going against an investor tide, but it is definitely an interesting sector to look at!
Challenging our assumptions and beliefs
I wrote this post because it can be helpful to challenge our core beliefs and argue the opposing point of view. In doing so, we can learn something new, or spot something that we might have missed.
Here are some great posts from fellow Yakeziers and personal finance bloggers that challenge the status quo and their own personal beliefs in one way or another:
- Buy a House without a Mortgage (First Gen American)
- Don’t Put Money in Your 401K (First Gen American)
- Don’t Save for Your Kid’s Education (First Gen American)
- F$&*(%&# Frugal (Ultra High Networth)
- Five Reasons To Stop Being Frugal And Get A Life (Aloysa’s Kitchen Sink)
- Scrooge Had The Right Idea (Control Your Cash)
- Top 5 Reasons Not to Budget (Budgeting in the Fun Stuff)
- Who Are You To Tell Me It’s Not Worth The Money? (Financial Samurai)
- Why I Have No Budget This Year (Barbara Friedberg Personal Finance)
Thanks for participating in the roundup, guys!
So, reader, what are your own thoughts on these investments, and which contrarian bets would you be making in 2011?
Disclaimer: This post is for entertainment purposes only and is not to be taken as investment advice. Do your own due diligence and talk to your financial advisor or security professional before making any trade. I currently hold a small position in TSE:PMT and a few U.S. dollars around somewhere.
Wow….while i applaud your attempts at making sense of a nonsensical economy, I feel that you are like a financial pied piper….leading these poor followers of yours straight into financial death…. “buy the US dollar”?????!!!!????? seriously? what sort of moronic blind faith do you have in the US government that has already increased the cumulative monetary supply from 2000- present day four fold. I’ve got some pretty simple economic truths for you; there has never been a fiat based currency that has lasted more than 100 years (the dollar is in year 87) and while the IMF, the G-20, the Group of 8, the world bank, the Chinese, Japanese, Russians, etc, etc….. have ALL been clamoring for the dollar to be removed as the worlds reserve currency which would obviously be a huge blow to the faith in the dollar…which is the only thing that the dollar is backed by nowadays anyway…. Honestly buddy, you need to look to some alternative news sources for your information, because you are so misinformed that it is truly tragic, and quite frankly i don’t have the time to get you up to speed…..though i will leave on a high note; I do happen to agree with your reasoning behind shorting gld and applaud you for that bit of research…..check out http://www.wnd.com for more objective news…conservative that is….
In the long run you might very well be right, but in the short term markets it’s very possible for the US dollar to be oversold. People have been saying what you’ve been saying since the 1970s, and again, I don’t deny that things could eventually play out that way, but nobody can predict the timing. 🙂
Thanks for the comment! And P.S., what do you think about Bitcoin?
Yes people have been saying what I’ve said since the 1970’s but we are in a very different economic climate today than we ever have been before, and to be quite frank, in my opinion the dollar has nowhere to go but down….particularly when you have the federal reserve chairman (old helicopter Ben Bernanke) giving reports like this at congressional hearings;
A February 9, 2011, CNBC story quoting the Fed Chairman was headlined “Bernanke to Congress: We’re much Closer to Total Destruction Than You Think.”
“By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit,” Bernanke told a congressional committee.
“One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point,” Bernanke continued. “The question is whether these adjustments will take place through a careful and deliberative process…or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis.”
I honestly have NO faith whatsoever in paper investments…..being that all paper investments based in the US are subject to any devaluation of the currency…. as for bitcoin…well to be honest it seems to me like a smaller scale ponzi scheme, and what would happen to those people who put that money in if there was a currency issue or a “banking holiday” ….seems to me it would be inaccessible, especially if, God forbid, there was an emp attack (i know, i know conspiracy theory blah blah blah) but it has been brought up in the news way too many times for me to completely discount it as a possibility. Mind you, i don’t think that is imminent, but if these so called terrorists really wanted to cripple the us economy that would be the most proficient way to go about it…..anyhow that is a long shot, but….well…the possibility comes to mind anyhow so i thought i’d mention it. you seem like a good enough guy, and to see my criticisms and respond the way you did tells me a lot about you….if you want to get a better idea of the perspective that i have on things shoot me a private email and I’ll send you a couple of things to read that I believe will blow you away (no not conspiracy theory nonsense, a simple factually based white paper on the uses of inflation and a great book that looks at the hard facts and figures behind the crashing dollar….. cheers!
Danny
Danny and Kevin,
I agree with both of you, if that is possible. The U.S. dollar is currently a joke. It reminds me of my grandfather whom bought a new car, and didn’t change the oil in it for 6 years because he believed that once you changed the oil things go downhill from there. It seems mass populace thinks maintainance of our economy is unnecessary and the dollar is self-sustaining for some reason in a growing global economy. Wait, I retract that the mass populace doesn’t think and the pseudo-representatives thieving the mass populace insidiously know they are driving the U.S. down for profit.
With that said, I do believe natural gas is a great long-term investment. This is not a commodity I would try and buy and sell seasonally, but view it as a nice stable long-term counter to the inevitable need to replace oil. I would supplant this with other reasonable commodities also that will be needed for alternative energies such as lithium mining, purification, and recycling. Again, I’d hold these things long-term.
Playing the dollar right now is probably the riskiest endeavor that investors can make. The potential for a double-dip in the recession is still quite real, with a percent chance between 10 and 50%. With the increased middle east political turmoil, oil commerce is indeed more unstable than usual and the U.S. is again paying to stabilize that commerce as it normally does, as evident in our Libya involvement. We are paying to stabilize the oil commerce to protect our wealthy oil investors while they continue to profit off of oil, but also to minimize the decrease in economic utility that comes with a diminished position in the global economy as the U.S.A. becomes poorer. If oil commerce becomes truly unstable and costs double or triple in weeks, the U.S. dollar will plummet, gold and silver will continue to soar, U.S. unemployment will rise again, homeforeclosures will soar again, and we will be indeed at the very least in the double-dip that will require even more considerable federal stimulus that will put America on a irreversible path of indebtedness and poverty. This is all ignoring the individual states’ debt problems that we’re currently not out of the woods yet with. That latter fact being why, regardless of the potential of a double-dip, I’m not seeing any alleviation of concerns about stagnation in the U.S. economy. Assuming we can pay off our state and federal debts in the next 15 years (which we won’t due to political stupidity), there are more certain and respectable investments to be made internationally with governments that aren’t as stupid as America, China, and Japan. I’m not saying that Russia is smart, but at least Vladimir Putin is stating that Russia’s population decline is a priority of his. That’s reassuring to me that a leader of a country is indeed saying, “Hey, we have a real cause to many of our problems here and I’m going to try and work on it.” That’s vastly different than China’s, the U.S.A.’s, and Japan’s perspectives on their problems. They are trying to profit off of the consequences of their malfunctions instead of fixing the malfunctions (China being the better of the three).
Thus, U.S.A. as an investment. Why? Foreign growth is too big now for the long-term. Now, if you want to invest in multinational U.S.-based corps that are making record profits and making the Warren Buffets super-richer then one might argue that is “U.S. growth”, but I don’t argue that as U.S. growth. It is international, and if you believe it is U.S. growth then maybe you should consider how many of the execs and investors of those corps have homes in multiple nations and also residencies of other nations. The U.S. growth of many of those corps like Walmart, McDonalds, Apple, etc.. is flatlining. Why invest in the flat-line when you can actually invest in the growth portion? I love my country, but from an investment perspective it is #$*&@! by the politicians/executives that are draining its wealth dry and they know they can become super-wealthier by siphoning off profit during this U.S.-based to global wealth transfer. It is fine to acknowlege there is still profit to be made in the U.S., however to recommend the U.S. dollar for investment is disingenuous. It isn’t safe, and you might as well recommend going rob a liquor store.
Gold and silver are going to continue to go up or stagnate during these times of uncertainty, and if they do stagnate you can sell them off and put your money in other commodities that are certain to increase regardless, stably, such as Nickel and Lithium, without any risk of loss unless some Nobel-winning technology renders both useless. Brazil and India will continue to grow, and other central and south American countries will become even more ripe to profit from over time. As China democrotizes and becomes even more corporate, that will be an easy wave to ride, however until I see China dealing with its serious socio-economic inequities I would not put them at more than at 15% of my portfolio because they are indeed a giant bubble that may never pop but if it does it’ll be big. Brazil and India have too certain of futures to not have heavy investment in for the long-term.
That’s my take on things. Go gas and other increasing global demand resources, hold and buy gold till it stagnates and sell off, ignore the U.S. except multinational corps, and go foreign for the long-term.
I love the lemmings image which is perfect for the gold and silver markets. I can’t see how either precious metal helps you come out ahead. The US dollar has come back due to the problems in Europe. Natural gas definitely has a future, but with fracking continuing to be controversial it’s hard to say how it will all play out. Some of the big oil companies are into the natural gas fracking, so you could buy their stocks as well. Thanks for a thought-provoking post!
lemmings huh? 500% up in 10 years in gold, 1000% up in ten years of silver, and the gold and silver buyers are lemmings…..how have your return been?????????
*returns
Ouch! If one bought the USD and shorted gold they’d be seriously hurtin! Donno what nat gas is doing now. Do you?
Sam
Hey Sam,
That’s why I put a disclaimer mentioning that the post is for entertainment purposes only. 😉 However, ironically Treasuries have risen due to the fear factor, and I think that GLD and SLV could still be drained out at some point. As for natural gas, there is a lot of potential here, but prices are a bit down. I think this is more for the long-term assuming that there is robust growth and a real recovery at some point.
I am a value investor all of the suggestion in the post above I like. The one that I really Like is natural gas the price of natural gas is down by 75% to 80% over the last five years. So I think its one of the few commodities thats still a real bargain. Theirs an exchange traded note trading under the symbol GAZ that tracts the price of natural gas using futures contracts.It currently trades around 4 dollars.
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