Tue, Mar 17, 2015|Sean Goldsmith

The most important story in the world today...

The most important story in the world today... Commodities are getting crushed... Crude oil hits a six-year low... Could oil hit $30 a barrel?... A rare moment for platinum... Chinese stocks hit a new high... Visit Rancho Santana...

The strong dollar is crushing commodities...

The U.S. dollar is at its highest level since 2003. The world's reserve currency has appreciated 25% since July 1 – an insane move for a major currency.

Commodities are priced in dollars, so it takes more money for other countries (with their weakened currencies) to buy the goods. And we're seeing this trend play out across the board.

Before we get to our discussion of commodities, it's important to note that the strengthening U.S. dollar has larger implications than just weighing on commodity prices.

For example, in the January 26 Digest, we showed you the similar effect the strong dollar is having in the currency markets (the world's largest, most important market)... As with commodities, most global currencies are plunging against the dollar. In that Digest, we presented a handful of charts showing you what "currency implosions" look like.

We'll present similar information today. But know this: The strength of the U.S. dollar is the single biggest trend in the world today.

West Texas Intermediate crude oil (the domestic benchmark) is at a six-year low of $43.40 a barrel today. That's down from a peak of $145 a barrel in July 2008... though it's still above the December 2008 low of $30 a barrel...

Brent crude (the international benchmark) and West Texas Intermediate crude are the most inversely correlated commodities to the U.S. dollar over the past 10 years, according to a study by Standard & Poor's, meaning they fall as the dollar rises. (For cocktail party banter... feeder cattle, sugar, and lean hogs are the least correlated to the dollar.)

In addition to a strong dollar, oil has faced another major headwind – a global supply glut. And much of that excess production is coming from the U.S. Nobody has followed the shale revolution happening today in the U.S. closer than Porter and his research team. Porter updated readers in the March 13 Digest. He predicted oil prices would fall to less than $30 per barrel...

Since bottoming in 2008, U.S. oil production has almost doubled from 5 million barrels a day to more than 9 million barrels per day. That's nearly a doubling of production in just seven years. The last time the U.S. produced this much oil was the year I was born – 1972. And the "doubling date" prior to this peak was 1944. It took the U.S. oil industry almost 30 years to double production.

But this time it only took seven years. And these numbers are a little misleading because they don't include other types of liquid hydrocarbons, demand for which has grown tremendously since the 1970s. When you put together all forms of liquid hydrocarbons, American supply is more like 14 million barrels per day – well over 100% more than we were producing seven years ago. How is this possible?

The simple answer is a little bit of technology and a whole lot of money. Spending on global oil production has increased by around 350% since the early 2000s. Back then, the global oil exploration and production industry was spending around $150 billion a year on capital investments. By 2013, that figure had grown to more than $500 billion a year. In the U.S. alone, the 50 largest oil and gas production companies in 2013 invested nearly $200 billion into new production. And guess what? Markets work. They found huge new supplies of oil and gas.

Platinum is also trading at a five-year low. The precious metal traded at a high of $1,884.80 an ounce on September 2, 2011. It trades for less than $1,100 an ounce today – a fall of more than 40%...

And today, we're seeing something rare in platinum... It's trading for less than the spot price of gold (which currently sits at $1,154 an ounce).

Platinum is about 20 times more rare than gold. And around 80% of the metal is used in catalytic converters in cars. Because of its industrial use, platinum prices are also falling due to weak global demand.

In addition, almost all of the world's platinum is mined in Zimbabwe, South Africa, and Russia. As we often say, going long platinum is like going long political instability in South Africa and Russia... a safe bet.

According to Stansberry Research analyst Greg Woodward, platinum has only traded for less than the price of gold 7% of the time in the last 30 years. As you can see from the following chart – which shows the platinum-to-gold ratio – when platinum becomes cheaper than gold, it's usually a good time to buy...

Sugar prices are also hitting a five-year low on fears in Brazil. The country is the world's largest producer of sugar, and its weakening currency (the real) could spur a flood of supply. Brazilian producers can flood the market with sugar and collect strong dollars...

A strong dollar, coupled with slowing demand and a surplus of supply have also crushed coal prices. They're down 62% from their 2008 peak...

Of course, it's not all bad news out there... Chinese stocks hit a new high today.

True Wealth editor Steve Sjuggerud recommended Chinese stocks in October. We discussed why Steve was bullish on China in the December 15 Digest. In short, the Chinese government wanted its market to boom. It's loosening regulations to encourage Chinese investors to buy local shares. And at the time, Steve said the government could cut interest rates and consider more stimulus.

Sure enough, on February 28, China cut interest rates for the second time in three months. It cut rates for the first time in two years in late November, just two months after Steve went long China.

And the market got another bump after Chinese Premier Li Keqiang said China could ease further at a March 15 news conference...

The good news is that in the past couple of years we did not resort to massive stimulus measures for economic growth. We still have more tools in our toolbox.

Today, the Shanghai Composite Index hit a seven-year high of 3,665. Steve's True Wealth subscribers are up more than 50%.

But remember, the Shanghai Index soared 600% from 2005 to 2007. At the time, the Chinese government announced new rules that would allow foreign investors to invest in the "locals-only" Chinese stocks (so-called "A" shares).

Then, Chinese stocks fell 60% from their 2007 peak, spurring the government to make "A" shares even easier for foreign investors to buy. The Chinese government is also encouraging locals to buy more stocks and cutting interest rates. As Steve wrote...

I can't say China's stock market will go up by more than 600% in a little over two years again, like it did in 2006. That was an outrageous gain. Today's conditions are even better than they were in 2006... Chinese stocks are cheaper now than they were back then. And China's government is in the midst of a big media campaign to get the Chinese to buy stocks.

In short, if you asked me where the best chance for 100% gains in the next two years is, my answer would be in Chinese "A" shares.

In tomorrow's Digest, we're sharing the full details of one of the greatest offers we've ever made at Stansberry Research... It's called the Permanent Wealth Program. And it's a must-have for every serious investor.

But before closing out today's Digest, a quick kudos to our friends in Nicaragua...

Rancho Santana – Agora founder Bill Bonner's Nicaraguan beachfront development – just graced the pages of Forbes magazine. That's in addition to features in the Wall Street Journal, the New York Times, and several other mainstream U.S. publications.

We've been visiting and writing about "The Ranch," as we call it, for more than a decade. We're amazed at how far it has come since then. When Porter first visited The Ranch, he rode a horse to the beach, clearing his path with a machete. Now, we're getting an airport that can handle commercial planes. There's a world-class golf course just down the road. And a former U.S. president once vacationed there.

Word is getting out. And the new Inn at Rancho Santana will only accelerate the process. From Forbes...

One of those enclaves for insiders is about to become less of a well-kept secret. Rancho Santana, a residential and resort community with dozens of privately owned and rentable houses, villas, casitas and condos on 2,700 acres, is opening an intimate inn next month. It will make a particularly picturesque corner of the country's Pacific coast accessible to couples or others who want to stay in high-luxury, local-feeling surroundings, without renting one of the larger accommodations.

You can read the full article here. And if you'd like to see Rancho Santana and the new Inn in person, we're hosting a small group of readers down there from April 15-19. A few spots just opened up... So if you'd like to attend, please contact Director of Sales Marc Brown at marcb@ranchosantana.com.

New 52-week highs (as of 3/16/15): AllianceBernstein (AB), American Financial Group (AFG), Deutsche X-trackers Harvest A-Shares Fund (ASHR), ProShares Ultra Nasdaq Biotech Fund (BIB), Bristol-Myers Squibb (BMY), Cempra (CEMP), CME Group (CME), CVS Health (CVS), Dollar General (DG), Esperion Therapeutics (ESPR), Expeditors International of Washington (EXPD), SPDR S&P International Health Care Sector Fund (IRY), Prestige Brands Holdings (PBH), ProShares Ultra Health Care Fund (RXL), Travelers (TRV), Varian Medical Systems (VAR), Walgreens (WBA), and Alleghany (Y).

In the mailbag, a subscriber asks for Steve Sjuggerud's advice on hedging... Send your thoughts to feedback@stansberryresearch.com.

"Steve Sjuggerud's thesis for soaring European stocks is the same as he plied for Japanese stocks a while back. And, yes, the NIKKEI soared, but what was the USD net gain/loss after accounting for the plummeting Yen? How does one hedge against these offsetting metrics?" – Paid-up subscriber Dennis Cline

Sjuggerud comment: Hi Dennis, thanks for writing in. My True Wealth subscribers captured all of the Nikkei's gains. We're up 72% on the WisdomTree Japan Hedged Equity Fund (DXJ). This fund "hedged" away the exposure to the Japanese yen, so we were able to capture all of the gain in the Nikkei while avoiding any losses in the yen.

As for Europe, we've had some success trading the WisdomTree Europe Hedged Equity Fund (HEDJ) as a way to gain exposure to or eliminate exposure to the euro. But I recently recommended switching out of HEDJ and into a different fund (which isn't hedged) because I think the euro's fall is nearing its end. So I don't want my True Wealth subscribers to be hedged anymore. But to answer your original question, the WisdomTree hedged exchange-traded funds are one easy way to offset any exposure to currencies.

Regards,

Sean Goldsmith
March 17, 2015