CME: CME: Own the commodity markets

Buy: CME, Target Price: $720, Time Frame: 6 months There are numerous reasons to buy the exchanges right now, and in particular the Chicago Mercantile Exchange (CME). The CME is a futures contracts exchange. There, you can buy derivatives on numerous commodities among others. And that reason alone is worth buying CME for. If you haven't noticed the commodities boom with the weak US dollar then you've simply been living under a rock, there's no way around it. As the dollar declines, commodities denominated in dollars tend to surge. Oil is currently trading around $98 a barrel. Sure, mid-term there should be a pullback based on fundamental reasons, but for the near-term, this thing has too much momentum and will test the unholy $100 level. Tie in the fact that numerous agricultural commodities are facing supply concerns and you have one booming commodities market. And, the CME is a direct beneficiary of such action. A booming commodities market means that traders and investors are more active than ever in the commodities markets. CME is the commodities markets. Last year, the CME saw 1 billion contracts traded on its exchanges. And, just this past October, the CME has surpassed the 1 billion contracts traded number for the 2nd straight year in a row. And, the year isn't even over yet. As commodities boom, the CME booms; its as simple as that. In late October, CME reported 3rd quarter earnings and saw a rise of 94%, mainly due to its acquisition of the Chicago Board of Trade. This just further illustrates how the CME benefits by owning numerous exchanges. All the exchanges are seeing heated trading as the markets become more volatile and have yet to truly settle down. Profits from the 3rd quarter easily trumped analyst expectations and their total revenue more than doubled. What's not to like about this situation? They cited robust growth in their agricultural, equity index, foreign exchange, and interest rate products. Not to mention, continued growth in their energy and metals derivatives. Every single one of those trading vehicles just mentioned are hot right now and will continue to be hot. Agriculture: bull market, having supply issues, crop prices rising and thus commodity prices rising. Equity index: retail or retirement investors wanting indexed portfolios. Foreign exchanges: with the weak US dollar, international investing is as strong as ever, and offering higher returns. Interest rate products: The fed continues to ease rates and there will be continued debate/speculation as to their future moves. Energy: Oil, enough said. Metals: weak dollar safe-havens have spiked as investors and traders try to avoid a weak dollar. So, there's simply too many bull markets that are traded on the CME to not be bullish on the CME itself. Another reason to invest in CME is the fact that Atticus Capital has disclosed a new stake in the company. In their latest 13F SEC Filing, Atticus is shown as adding a new position in CME to their portfolio to the tune of 378,564 shares. Multiple the number of shares times CME's current stock price of 648.90 and you see that Atticus has made a $245.6 million investment in CME. That is by no means chump change. If you are unsure as to why you should even care what Atticus is investing in, then I should point you to the fact that they returned 32% for the year of 2006 and 45% for the year of 2005. Now, we all know that past performance is not necessarily indicative of future performance. But, with the same management team in place as has been since its inception in 1995, you have to be confident. That's all there is to it. Commodities prices are booming and will continue to boom as the Fed contemplates taking further action on an already weak US dollar. Whether it be agriculture, metals, or energy, the commodities markets are firing on all cylinders. When commodities markets boom, the exchanges they are traded on boom. Therefore, CME is a buy for its direct relationship to the commodities markets and the traders that have been heavily trading them. Buy: CME, Target Price: $720, Time Frame: 6 months