Investing in the Stock Market
Profit From Inflation
(Date posted: December 30, 2010)

Warning - you must perform your own due diligence and take sole responsibility for any losses you suffer in the stock market.

This article discusses commodity Exchange Traded Funds (ETFs), which can be traded the same way as stocks. These vehicles can be a powerful way to profit from inflation via rising commodity prices.

Note: This information is meant only for experienced stock traders or investors.

An overview of the stock trading system is described in this article.

Here are the topics for this page:

The market opportunity
Introduction to trading ETFs
Vehicles to consider or avoid

DISCLAIMER -- Stock trading is not appropriate for everyone. There is a substantial risk of loss associated with trading the stock market. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using this methodology or system or the information in this article will generate profits or ensure freedom from losses.

The market opportunity

What is falsely called "money" in most countries today is really script, which has no intrinsic value. Script is just pieces of paper with some colored ink engraved on it. Even worst, large amounts of money are just a series of "1's" and "0's" stored on a computer file somewhere.

In contrast, commodities can only be produced through careful planning, risk taking, extraction or harvesting, manufacturing or processing, packaging, transportation and so on. Commodities cannot be produced out of thin air the way that "money" can be created.

As "money" is continually devalued, the price of commodities will rise. This is already happening; the US government just doesn't admit it. Commodity ETFs should reflect this price rise as inflation (decrease in purchasing power of "money") continues.

Introduction to trading ETFs

Trading method

You can use the same stock trading system for these vehicles that was discussed in previous articles. Thus, you would select possible vehicles based on their expected performance during rising inflation. You would prepare a money management plan and a stock trading plan before doing any trading. You would wait for a breakout before making a purchase. You would immediately place a stop loss order after making a purchase. As the price of the vehicle continues to rise, you would use the two other stop orders to minimize losses and take profits.

This trading method should reduce losses due to in and out trading, being influenced by your emotions, or following crowd behavior.

Trading vehicles

This article is concerned with commodity ETFs. Commodities always have some value whereas a company can go bankrupt. However, the ETF itself might encounter difficulties, which could cause its value to decrease.

The profits or losses from these vehicles may be treated differently for income tax purposes than if they were stocks. You need to consult your tax advisor if this situation concerns you.

Vehicles to consider or avoid

Central Fund of Canada Limited (CEF) is a gold and silver investment fund that is traded on the AMEX. This fund reportedly has invested 95% of its assets in gold and silver bullion, which is stored in secured vaults in Canada.

PowerShares DB Agriculture Fund (DBA) is an ETF that represents the agricultural sector.

PowerShares DB Commodity Index Tracking Fund (DBC) is an ETF that represents the broad commodity sector.

Popular vehicles to avoid

GLD (a gold related ETF) and SLV (a silver related ETF) are managed by companies which reportedly are massively short these same metals. This is a serious conflict of interest. Regardless of how popular these vehicles may be, I do not recommend them.

While the crowd is often correct during the main portion of a bull market, they are always wrong at the top of these markets. Just when you expect to reap a huge profit from these vehicles, you may find that they are not what they appear to be. You have been warned, my friend.