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.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

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 (ARCA: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 (ARCA:GDX) being an excellent choice. The single most important variable affecting the share prices of these two ETFs is the price of gold.

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 summer, 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 (ARCA:UNG) is a bet on the price of natural gas improving. Currently at around $16.41 a share, it trades slightly above the NAV of $15.65.

Finally, we come to the Market Vectors Agribusiness ETF (ARCA: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.

SEE: Explaining The World Through 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: United States Gasoline Fund

    Learn about the United States Gasoline Fund, the characteristics of the exchange-traded fund, and the suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: United States 12 Month Oil

    Find out more information about the United States 12 Month Oil ETF, and explore detailed analysis of the characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Ultra Nasdaq Biotechnology

    Find out information about the ProShares Ultra Nasdaq Biotechnology exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  4. Mutual Funds & ETFs

    ETF Analysis: Direxion Daily S&P Biotech Bull 3X

    Learn more about the Direxion Daily S&P Biotech Bull 3x exchange-traded fund, a new triple-leveraged ETF tracking biotechnology equities.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Health Care AlphaDEX

    Learn more about the First Trust Health Care AlphaDEX exchange-traded fund, an indexed fund that uses an advanced stock selection methodology.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  8. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  9. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  10. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
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. Exchange-Traded Mutual Funds (ETMF)

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

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

    When an investor has essentially risked all of his capital for ...
  6. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
RELATED FAQS
  1. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

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!