Saturday, January 17, 2009

Volume 3, Issue #3

Also in Today's Issue...

Beyond lumber's fantastic historical performance, it's even more attractive today. This is especially true if you're uneasy about the thought of all that money the government is printing or if you believe that the bear market isn't done with us. Not only is lumber a hedge against inflation, but like real estate and gold, lumber usually performs better when stocks and bonds lag.

In three of the past four largest bear markets, the value of lumber rose. From September 2000 to October 2002, while the S&P lost some -50% of its value, lumber actually gained about +5%. And during the rampant inflation of the '70s and early '80s, lumber gained +22% a year -- much better than traditional inflation hedges.

Woodland is also an income-generating asset: Over time, the value of land generally rises while creating income from selling wood for various products.

Now, while you could try to figure out how the commodities markets work or plant some acorns in your backyard, there's an easier way to get in on the lumber trend. And right now, this way is flashing the strongest buy signal we've seen in a year.

A Big Gap That's Closing Fast

From its launch in November 2007 to the middle of 2008, the returns of the Claymore/Clear Global Timber Index ETF (NYSE: CUT) -- an ETF that tracks a basket of global timber companies -- and the returns of timber have largely traded in synch, moving no more than 15 points apart and then converging again. This makes sense. If a company makes its money from selling lumber, its results should be determined by the price of lumber.

But in the two major sell-offs of 2008, weary equity investors oversold CUT, pushing it out of its equilibrium with lumber. At the same time, lumber was largely immune to the May sell-off -- staying strong through August -- but ended up falling a little before the October downturn. At their largest spread in November 2008, the returns of lumber and CUT were more than 40 points apart.

CUT's Comeback

Now they're making their way back together again. Lumber has lost a little ground, and CUT has gained some, removing about half the difference. In the coming months, I expect the CUT to make up the rest of the 20 points and trade, once again, in balance with lumber.

Judging from out chart, investors are beginning to realize CUT is too cheap compared to lumber prices. The short-term trend for the fund is up, and the long-term outlook for both CUT and the industry as a whole is extremely positive.

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I'm not alone in seeing opportunity in the lumber industry. Paul Tracy, editor of the StreetAuthority Market Advisor, recently cited the opportunity in lumber as Prediction #8 on his list of "11 Surprising Investment Predictions for 2009." Paul says that "The sleeper investment of the decade will be timber. Wood will beat both stocks and inflation hands down..."

Along with the timber outperforming the markets, Paul makes several other bold investment predictions in this report, including:

• A scarce metal needed for the defense industry will see its price soar after the violence in Africa cuts off supply.
   

• President Obama will pour billions into rebuilding the nation's highways, bridges and other ailing infrastructure. Three construction companies' revenues will skyrocket.
   

• A new way to cash in on nanotechnology may make early investors rich. Some people are calling this the "opportunity of the century" and comparing it with the introduction of cell phones in the '80s.

These are just four of the 11 investment angles that Paul's research team believes will trigger explosive profits for investors in 2009. Visit this link to read Paul's predictions right now.  

-- Anthony Haddad
Staff Writer
TopStockAnalysts Digest

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