Gains in a Recession

Gains in a Recession: Three Market Picks That Can Inoculate You Against the Great Recession of 2008
A Taipan Publishing Group Strategy Report
by Irwin Greenstein, Senior Research Analyst, Taipan Publishing Group

With the storm clouds of recession rolling in fast, a bunker mentality has set in on Wall Street, creating a fantastic opportunity for investors ready to parachute in for big gains in this recession.

Even a flight into cash provides no safety from the ravages of the worst dollar erosion in decades. Stuff your greenbacks into a mattress, and by the end of this year you’ll end up buying decidedly less with that money than you can today.

For most Americans, there is no relief in sight. Their retirement nest egg is crushed, their home equity is tapped out and their debt continues to grow.

But the researchers at Taipan Publishing Group have identified three market opportunities that can inoculate you against today’s recession.

Some of these recommendations may seem counterintuitive or downright scary. However, our expert opinion is that the three picks you’re about to discover offer you the best chances to make money while others lose their shirts. From our perspective, a do-nothing approach in the current market is like being a rudderless ship in a storm -- and eventually you’ll either sink or get hurled against the rocks.

Gains in a Recession: Recession Fighter #1 - The Mortgage Rebound

For contrarian investors, this is a dream play. It’s time to get back into the mortgage industry. Yes, you heard me right.

We recently made over 50% off of a major homebuilder after it hit bottom. And for the same reason, we suggest you buy a mortgage company. Our approach to this play is that the subprime meltdown can’t get much worse. And as any good contrarian knows, in fact, it is quickly getting much better.

The Federal Reserve will continue to slash interest rates in the coming months. An old market adage is “don’t fight the Fed.” This means that if the Fed is opening the money floodgate some of that money will sluice out into the stock market. As an end result, you will have higher share prices.

While you still may see some mortgage companies continue their downtrend for a while longer, we are declaring the housing bubble has already popped.

In fact, as of early January 2008, mortgage applications surged. During the week ended January 18, refinance applications rose 16.9% over the previous week, and are up 92% since November 2007, according to the Mortgage Bankers Association.

Gains in a Recession: A Dream Play for Contrarians

The same period saw home-purchase applications rise 7%. Also, the four-week moving average for all loan applications increased 13.7% compared with the same period a year ago.

As recently as February 1, 2008, Wells Fargo, which issued $2.4 billion worth of residential mortgages in 2006, said its January 2008 new mortgage applications roughly doubled the number it processed in December.

It’s important to bear in mind, though, that the real-estate market is currently sitting on about a 10-month supply of listings. Sure, home prices will continue to drop for a while, but that huge inventory will have to be worked off before housing prices can begin to recover.

Gains in a Recession: Recession Fighter #2 - The Agriculture Boom

You see it every day.

Retail food prices increased faster than inflation in 2007. And agricultural economists don't expect much relief in 2008.

The forces behind rising food prices are global. Today, food that is shipped around the world ends up eating into American’s grocery budgets. The boom in China, a corn-fed biofuel industry, the surge in fertilizer prices -- all add up to bigger receipt at the check-out counter.

Rapid growth in China, Brazil, Russia, India and other developing nations is giving rise to a new global middle class. These people want to eat like you and me. They want meat, vegetables and fast food. Milk replaces tea, corn replaces rice and cheeseburgers replace beans.

These economic and cultural influences are the causes of what’s commonly called “agflation.”

Gains in a Recession: How Pork Can Fight the Recession

It takes about 12 pounds of grain to get a pound of pig. Last year in India, food costs rose 10%, in the E.U. 2.5%, in Singapore 2.9%, in China 18.2% and in Nigeria 30%.

Right now, the world population is about 6.6 billion. By current rates, there’s going to be an estimated 8.2 billion people by 2030. And with everyone eating more and more, food demand will continue to rise.

Here on the home front, skyrocketing wheat prices fuel higher cereal prices. America’s ethanol mandate is driving up the price of livestock feed and corn-based sweeteners -- and the increase is then passed along to consumers in the form of fatter prices for beef, pork, chicken
and soda.

Gains in a Recession: Milk Prices Up 84%

The same gallon of milk that sold for $1.63 sells in 2004 costs $3 a gallon today -- an increase of 84%. While that price difference is shocking, it’s a double-whammy when one considers that the recession is corroding the purchasing power of the American consumer.

It’s no wonder dapper financial analysts and soccer moms are pummeling each other in the produce aisle. Bloomberg recently reported that wheat climbed above $10 a bushel for the first time in human history.

There is a deep concern that global farmers may not be able to grow enough to meet demand for bread, pasta and livestock feed. Rice hit record prices. Soybeans tagged a 34-year high and corn hit a nine-month high (after it doubled last year on ethanol demand).

While agriculture is clearly a winning play, we believe that there is plenty of room to give you higher returns.

Gains in a Recession: The Surprise Agriculture Play

The global agriculture market is already stretched to the limit. The main problem is there aren’t too many new sources of agricultural land under development. About 90% of farmland is already being utilized.

The only solution is to get more out of each acre and the best way is to optimize output with more fertilizer. The key ingredient to fertilizer is potash.

Fertilizer potash is applied to increases root growth, reduce water loss during dry conditions, produce starch and increase photosynthesis. (You remember photosynthesis from your science classes?)

Currently, about 75% of the potash used in U.S. crop production comes from vast, high-quality potash deposits in western Canada. Commercial production of potash in the U.S. has largely been centered on ore deposits near Carlsbad, New Mexico, and at Moab, Utah. While most potash is mined, it is also produced by evaporation of brines, such as those from the Great Salt Lake in Utah and California.

Gains in a Recession: Fight the Recession With Potash

No matter where it comes from, potash prices are on a tear. The demand for more food coupled with the effectiveness of potash is why we’ve seen potash prices almost double in the past couple of years.

Now, we’re still more than 40% away from the all-time high in potash prices and there’s plenty more to go after that. For instance, in the U.S., the breadbasket of the world, grain production is up 300% in the past 50 years. Over that same period, potash consumption has soared more than 600%.

Farmers require exponentially more potash just to get an extra bushel of corn, wheat, or barley. It’s the law of diminishing returns and the only solution is more potash. You can cash in on the potash frenzy through any number of companies that mine it (just like any other mineral).

Overall, potash demand is soaring just to keep food supplies in line with demand growth. Clearly, we’re still at the beginning of the bull run in potash.

Gains in a Recession: Recession Fighter #3 - Emerging Markets

After decades of stability and financial strength in the Western world, the shoe is on the other foot now; emerging markets are the ones that offer stability, strength and growth.

Even if full-blown financial crisis is successfully averted in the U.S., the dollar will continue to slide. That means stock markets in developing nations offer a better bet.

For the first time in the history of the industrialized world, countries that were once written off as banana republics are the hottest plays on Wall Street. The reason is that they’ve been sitting on some of the biggest commodity reserves on the planet.

Gains in a Recession: Oil, Gold, Silver

Now that prices are going to the moon, it finally makes sense to explore these underdeveloped regions for oil, copper, natural gas, gold, silver and other valuable resources.

Sure we’ll see volatility and some corrections along the way, but the reality is we have bit of an ironic twist here: We have the world’s undeveloped nations chasing the world’s most developed nation.

Developing world economies are the ones with the growth and the cash. Take China, for example. Even if the Chinese market does take a tumble, it would only be temporary setback -- just like the temporary stumbles American markets went through a century ago.

Consider that the Chinese economy’s growth rate has averaged 9% since the beginning of the 1980s. Their savings rate makes the U.S. look ridiculous -- 35% compared to the U.S.’s paltry 2%.

Gains in a Recession: $60 Billion Trade Surplus for Stability

And don’t forget that China has a huge trade surplus and $60 billion a year in direct foreign investment. This brings Beijing’s foreign currency reserves to well over $1 trillion. That’s a lot of firepower.

China is also becoming more industrialized every day. As millions of people migrate to cities, the demand for infrastructure -- bridges, ports, roads and buildings -- will continue with greater velocity. 

China’s estimated $10.2 trillion worth of purchasing power is second only to the U.S.
This means that for all its supposed shortcomings, China is stronger than other wealthy countries like Japan, the U.K., Germany and France.

Gains in a Recession: Aggressive Build-Outs Assure Investors

The growth potential is huge.

Using their commodities billions, emerging nations are embarking on aggressive infrastructure build-outs. On the one hand, this major push for modernization is driving up the very commodities sold by these new economies. On the other hand, though, modern infrastructures clearly indicate a coming of age for industrialization, consumerism and political stability.

Emerging markets represent a powerful opportunity in their right, but also give you an entrée into other currencies that are stronger relative to the declining dollar.

Whether it’s China, India, Latin America or Southeast Asia, emerging markets can pay off handsomely as the U.S. continues to slip into a recession.

To make money while others are in dire straits requires innovation and conviction. There are always investment opportunities -- even in the worst of times. This is where thorough and experienced research pays off. The days of the hot tip over the water cooler are over -- at least for the foreseeable future. The only place for gains during a recession now may be in companies that offer a safe alternative to U.S. markets.

Originally published February 14 , 2008.

More Articles About Gains in a Recession from Taipan Publishing Group

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2008 Recession: When the Levee Breaks

Recession Averted?

Useful Links about Gains in a Recession

Recession? Where to put your money now

A Great Way to Recession-Proof Your Portfolio

Recession In 2008? What Does That Mean For Consumers?

Copyright 2007-2008, The Taipan Publishing Group, Taipan Daily and Chart of the Day, 808 St. Paul St., Baltimore, MD 21202. All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.

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