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Hedge Rising Food and Gas Prices with ETFs

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I've been following the financial news a little more lately than I have in past. I don't like what I hear.

An interview with a Shell Oil representative is claiming we might be paying $5 a gallon in two years. I shudder to think about what that means for me for California because we are up there with the most expensive gas in the nation. It's a good thing that I work at home and don't drive too much.

Then earlier today, I came across this article that predicted food costs more than ever and the United Nations says prices can go much higher.

Great googly moogly, higher gas prices and higher food prices?!?! What can be done about this? I'll tell you what I'm doing: hedging my investments. When gas was cheap, I bought some PowerShares DB Oil Fund (NYSE:DBO). I also bought some PowerShares DB Agriculture Fund. Investing in these two commodities takes some of the sting away from rising prices.

Looking for a great way to complement that strategy? How about implementing these tips to save money on groceries and save money on gas?

What do you think? Are you hedging your bets against higher prices or not? Is now the time buy or have prices of these ETFs already risen too much? Is this six straight question I've asked? Yes it is.

Posted on January 5, 2011.

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7 Responses to “Hedge Rising Food and Gas Prices with ETFs”

  1. Money Beagle says:

    Having seen gas prices rise throughout the fall and winter (when they traditionally decline) and seeing the predictions of $4 and $5 gas, I decided to hedge by purchasing shares in the oil industry. They’re making record profits from all this so it’s a way to take some back. So far, so good.

  2. bb says:

    Oil and gas are two different things. Most of the price increase is due to manipulation, not demand and supply.

  3. Lazy Man says:

    I understand that, but I don’t see a way to hedge against manipulation. Plus I expect the amount of manipulation to be relatively constant number… over the long haul.

    If you put the graphs of gas prices over a graph of oil prices, they are related.

  4. Contrarian says:

    Lazyman – I have been doing this for years, and until now have never heard this strategy mentioned anywhere. I had planned on writing about my “unique” hedging strategy on my blog. Looks like you beat me to it.

    You are correct – the direction of oil/gas prices usually determine the stock prices. Price per gallon goes up, so do the the prices of oil and gas companies. Stock prices track +/- the cost of a barrel.

    When I go to the pump and see the price/per gallon up 10 cents, there is a good chance my stock price has gone up too, offsetting the extra money I’ve spent to fill my tank.

    Most complain about high fuel costs and don’t think they can do anything about it. Yes they can … they can hedge using ETF’s or individual equities.

    Good job, man! Thanks for being the first (to my knowledge) to bring this strategy to the masses.

    – The Contrarian

  5. I’ve worked in oil and gas for quite a few years – and yes, have had a hedge in place like this for a long time.

  6. OH says:

    Hello,

    There are better investments than DBO. I prefer investing in Oil (and gas) and receive a dividend.
    Look at PBT as an example. With up-trend and down-trend on the way, it’s better to get a good dividend on the side.
    I like your work.
    – OH

  7. Lazy Man says:

    I agree that there might be better ones out there than DBO. DBO is kind of an odd ETF… I had to fill out a Schedule K for it one year.

    I looked at PBT and I’m quite confused. It doesn’t look like it is designed to track gas prices or if it is, it doesn’t seem clear about it. The FAQ on the website makes sound very complicated with worksheets to fill out and such.

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