Friday, February 1, 2008

Bookkeeping: Starting Position in Powershares DB Agriculture Fund (DBA) and Adding to Gold


The future is looking more clear to me. We are going to be laying the groundwork for another 50 basis point cut next meeting and as things degrade I can now see us going to 2%. All the while giving us some vague statements about being concerned about inflation. Inflation is a lost battle - here it comes.

I've written about Powershares DB Agriculture Fund (DBA) in the past [Food....Food...Food] - it is essentially a product that ties to 4 futures contracts for wheat, corn, sugar, soybeans. I think all of it is going up. Both due to world shortages and with a world awash in liquitity and the next bubble could certaintly be in this asset class. Either way, I have been awaiting a pullback that never comes. So I am going to bite the bullet and begin my position. I am going to use DBA differently than you might imagine. I am so confident in the inflation thesis and the food shortage thesis, that I am going to use this as both a hedge and my "money market". Since I get zero interest in for funds held in cash, I am going to use DBA as a larger than normal stake - I believe its yield (gains) will generate some nice return. Further, I am using it as my Altria (MO) - safe haven. Further it's an inflation hedge.

I could be very very wrong but I have spent 2 weeks thinking of a scenario where corn, soybean, or any major crop plummets in price. I have yet to devise one. If I had a way to buy futures contracts on farmland I'd be buying that too. And yes I am very serious. I think values for farmland across the world are going to rocket in the next decade.

I am also adding a bit more to my more conventional hedge, Kinross Gold (KGC)

I am as convinced today as I was in August the Fed will take every step necessary to bail out the US financial system by flooding the world with dollars. I also believe people underestimate the coming weakness in Europe, especially UK. Those countries want to hold the line on inflation (they actually care about it, unlike the American central bank who just TALKS about caring about it). But the economic weakness that will be coming in the next 2 quarters, will force W Europe to cut rates and flood the world with pounds and Euros. I think this will become clear by fall 2008. Again I could be wrong, but if you stand against the crowd you will never out perform the crowd.

I am beginning Powershares DB Agriculture Fund as a large 4% position right off the bat, with a 1200 share position bought in the $37s ($44K) Again this is going to be my "money market" and in many ways my "cash" going forward - so if the market tanks I will sell this down and use it as a source of funds. I might be increasing it anywhere up to 10% of the fund as time goes by as its both my safety hedge and a play on my #1 thesis for the coming decade. Again, my version of Altria (MO).

The Fed is now creating it's 3rd bubble in just over a decade. This is our system now. It is a sad statement on what the Fed has become in my opinion. But that's neither here or there - as an investor I have to figure out where the next bubble will be. My early guesses are commodities or foreign markets. We'll know by 2013 as this bubble bursts and creates the next worldwide crisis. But between now and then we want to take advantage and make money.

Long Powershares DB Agriculture Fund, Kinross Gold in fund; long Powershares DB Agriculture Fund in personal account

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