Sometimes, the best and most rewarding investments are not company specific, but instead bet on changes in sentiment or the macro economy. Look no further than John Paulson, who in 2007 made a big bet that housing prices would revert back to the mean. He did so by buying insurance on loan defaults via credit default swaps. When the housing market tanked, Paulson made billions in profit. (For related reading, see Taking Global Macro Trends To The Bank.)

IN PICTURES: 20 Tools For Building Up Your Portfolio

A Very Clear Picture
Investors may think it's easier to get away with macro-specific bets. That assertion couldn't be further from the truth. When deciding to make a bet such as Paulson did back in 2007, you had better be supremely confident in your analysis and reasoning. And once your data and reasoning say you are right, be prepared to stomach the short-term volatility that may occur. The reward, of course, is a potential big payoff when your thesis plays out.

Some Bold Bets
Despite the rise in price, a lot of smart money is betting on gold to go higher. The basic thesis is that gold is a play on uncertainty and monetary instability. Since central banks the world over are expanding the monetary base at a never-before seen pace, gold is a big bet against monetary stability. You can own gold simply by holding SPDR Gold Shares (NYSE: GLD), an ETF that buys gold bullion. Or you can make a more leveraged bet by owning shares in gold mining businesses, with the Market Vectors Gold Miners ETF (NYSE: GDX) being an excellent choice. The single most important variable affecting the share prices of these two ETFs is the price of gold. (For more, see 8 Reasons To Own Gold.)

Another bet might be that natural gas prices may be ready to climb once again. Natural gas has not performed as well as oil this year, and for good reason. Natural gas supplies continue to rise steadily, and demand continues to taper. Absent a severe winter, this dynamic might not change. The U.S., however, has a ton of natural gas reserves, and any plan to lessen our oil dependence could be a boon for natural gas. The U.S. Natural Gas ETF (NYSE: UNG) is a bet on the price of natural gas improving. Currently at $9 a share, it trades below NAV of $9.47. (For related reading, see Commodities That Move The Markets.)

Finally, we come to my favorite, the Market Vectors Agribusiness ETF (NYSE: MOO), which is a play on agriculture. This ETF holds positions in companies that directly benefit from an increased demand in agricultural products; or in layman's terms, food. As the world's population grows and arable land diminishes, the need for better seeds, more fertilizer and agricultural equipment also will grow.

Bottom Line
How the global economy will look once we fully exit this recession is anyone's guess. Compelling data support the coming of inflation, which would benefit the prices of all the commodities above. (For more, see Macroeconomic Analysis.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: Ultra Oil & Gas

    Find out more about the ProShares Ultra Oil & Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations for the fund.
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB Commodity Tracking

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  4. Mutual Funds & ETFs

    Comparing ETFs Vs. Mutual Funds For Tax Efficiency

    Explore a comparison of mutual funds and exchange-traded funds, or ETFs, and learn what makes ETFs a significantly more tax-efficient investment.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard Small-Cap Value

    Find out about the Vanguard Small-Cap Value ETF, and explore detailed analysis of its characteristics, suitability, recommendations and historical statistics.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  7. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares 10-20 Year Treasury Bond

    Learn about the iShares 1-20 Year Treasury Bond ETF and its holdings, and understand why investors may be better served to look at other bond funds.
  9. Mutual Funds & ETFs

    ETF Analysis: iShares Global Telecom

    Learn about the iShares Global Telecom exchange-traded fund, which invests in U.S. and foreign telecommunication companies with high dividend yields.
  10. Chart Advisor

    Gold Struggles to Climb Higher and May Fall Soon

    Traders will be watching the price of gold over the coming weeks. We'll take a look at how a couple major moving averages are suggesting that the next move could be lower.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. The New Deal

    A series of domestic programs designed to help the United States ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!