In my recent article, The No-brainer Investment Strategy to Double Digit Returns, I opined that there is a 34 year cycle in the stock market. A 17 year bull market is followed by a 17 year bear market and that equities and commodities are inversely correlated. Based on this premise, a strategy could be devised in which equities and commodities are alternately invested during its appropriate time during the cycle. I also stated that the last equities bull market from 1982-200 ended with the bursting of the internet bubble and that we are now 5 years into the commodity up-cycle. Finally, I offered research to support this position and results through 2005. So, how is this theory performing over the first six months of 2006? As of 7/14/2006: DOW 0.2% S&P 500 -1.0% NASDAQ -7.6% SOX -14.7% CRX 14.5% GLD 27.7% The CRX, which may be a new index for many of you, is the Morgan Stanley Commodity Related Equity Index. The name is self-explanatory. Its results year to date support the thesis that we are in a commodity cycle. Gold lends further support as it is up 27.7% year to date as represented by GLD (a Gold Exchange Traded Fund - ETF). Equities are not doing as well. The DOW is up a mere 0.2%. The DOW is an amazing index. A few weeks ago it was within points of its all time high. How can an index be near its all time highs when its largest components Microsoft, Intel, GM, Pfizer, Home Depot, Wal-Mart, and IBM are near multi-year lows? Thats a story for a different day. The NASDAQ and SOX (Semiconductor Index) are significantly negative year to date. I am not professing that commodities will out-perform equities or that commodities will be positive each year over the cycle, but on average commodities should be a better place to build wealth over the next decade. The advent of commodity related ETFs are making it easier for individuals to participate in the commodity market. Commodity ETFs include: Gold GLD, IAU, Silver SLV, Oil OIH, XLE, Diversified Commodities DBC. It is human nature to gravitate to the familiar. This year the familiar is letting many down: Intel -28.4%, Home Depot -16.4% and Microsoft -14.8%. It is time to step out of the comfort zone and take a closer look at commodities. |
