Short on Credit, Long on Agriculture?

by: Devin Hobbes December 01, 2008 | about stocks: AXP / DFS / RJA    

Devin Hobbes

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I mentioned in October that I planned to buy puts on Discover (DFS) because of current and impending credit card defaults. The stock hovered between around $10 and $12.50 before dropping below $7. I thought I missed my opportunity. (Why am I trying to time the buying of puts? Although I think DFS will eventually go to $0, July is the farthest out put available right now and I don't think it'll happen that soon. I don't short sell because I think it's riskier than puts, and the government loves to change the rules). Now that DFS is again above $10, I have another chance. If American Express (AXP) continues going up, I might buy puts on it too (but I don't think it'll go out of business).

Besides my own doom and gloom thoughts on the matter (here and here), here's a great op-ed on Minyanville:

Some quotes:

The most amusing part of CEOs begging Congressmen for $25 billion is the assumption that there's $25 billion to give. The United States has no money. It's broke. It already spent $10.6 trillion more than it has.

"The second-largest merchant-vendor for credit card use is now McDonald's (MCD)."

The unemployment rate is currently 6.5%, according to U-3 government figures. The broadest U-6 measure, which includes discouraged and marginally attached workers, is 11.8%. If you're still discouraged and jobless after 1 year, the government ignores you in its calculation. How convenient. If these workers were to be included, the unemployment rate is currently 16%.

The dollar's plunge seems inevitable, given the soaring national debt. Meanwhile, the world's population is increasing, and its grain supplies are at historic lows. Farmers are having trouble getting loans to buy fertilizer. That means lower crop yields. As long as demand stays constant or grows, it points to higher agriculture prices.

Although stocks at last appear fairly valued, they can go lower. I have a target allocation fund in my Roth IRA. I'm thinking of selling it (at a loss of course) and using the proceeds to buy agriculture. I already own the Rogers Agriculture Index ETN (RJA), which is also down from when I bought it. I'm unwilling to buy more of it, because of the now very real risk of bank and sovereign bankruptcy. I'm not saying that Swedish bank SEK will default. I don't know one way or the other. But right now it's probably safer to avoid buying bonds (ETNs are bonds). When I find a suitable replacement, I'll make a post on it.

Disclosure: At the time of writing, I owned RJA.

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This article has 4 comments:

  •  
    Dec 01 12:16 PM
    I like the composition of RJA too but DBA appears to be the most liquid ag commodity etf and when the ag bounce happens mid to late '09 (?) I don't think the different indexes will be far off the bigger momentum effect
    Reply | Link to Comment
  •  
    Dec 01 01:02 PM
    "I am buying, Taiwan, China and agriculture" Jim Rogers said in London.

    Agriculture is still very cheap on a historical basis.

    www.jimrogers-investme...
    Reply | Link to Comment
  •  
    Dec 01 04:48 PM
    Yes, agricultural products are cheap - and a LOT cheaper since Rogers started recommending them as a buy.

    Hmm.
    Reply | Link to Comment
  •  
    Dec 02 05:12 PM
    Maybe Jim is taking a long term approach while you sit and point your fingers showing how he didn't time the market perfectly in the short-term?

    How do yo know he won't be right when looking out 25 years into the future?


    On Dec 01 04:48 PM dlaw wrote:

    > Yes, agricultural products are cheap - and a LOT cheaper since Rogers
    > started recommending them as a buy.
    >
    > Hmm.
    Reply | Link to Comment
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