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Which Inflation Is It Anyway?
With China, Japan, Middle East countries increasingly taking their dollars and putting them to use in other asset classes, including commodities, we will see inflation here in the US, while wages fall and unemployment rise.
It will be the worst of all possible worlds for the US. A weaker dollar, and higher unemployment, as well as stagnant wages.
The experts will tell us that inflation should be falling because wages aren't rising--so don't worry.
Foreign governments and individuals control HALF of the total dollars in circulation, a little more than 7 trillion.
These dollars are starting to come home to roost--driving up inflation here. It is the unwinding of the exporting of inflation that we have been so successful at the last three decades.
Credit will continue to contract, and inflation will continue to accelerate--and people will shake their heads and wonder "why?"
Is Oil a Bubble? Part One
Craig Israelsen: Commodities Provide Good Diversification
Studies show that investors are slow to adapt to changing environments and new paradigms that conflict with what they think they know.
People that include a percentage of their portfolio to commodities will be better off on average over the next decade. Great article, thanks.
Fed Easing: No Free Lunch for Dollar, Oil and Commodities
Hard Assets Investing: An Interview With Brad Zigler
One problem--I don't agree with Swenson about one little item. As a small investor (non-institutional) an individual can participate although not replicate what Swenson does in the real asset space.
It is through ETF's that the average retail investor has unprecedented access.
Sure, you cant replicate the complicated trades of the big traders, but so what?
If there is a major commodity bull market destined to last 5-10 more years--which seems very likely--it makes sense to buy and hold commodity ETFs (CUT, SLV, DBA for example) until money supply growth and inflation moderate.
Silver, for example likely has significant upside from here, as does natural gas--two undervalued commodities right now.
After 25 years of falling inflation and interest rates, it appears likely we are headed to a stagflationary environment. Such an environment favors commodities.
It is wise to allocate a portion of your overall portfolio to some commodity base, as bonds and stocks trade sideways.
Peak Oil, Gold and the U.S. Dollar
See also excellent WSJ article on Chinese inflation: online.wsj.com/article...
Get Out of Commodities - Barron's
Did Barron's Really Pan All Commodity Investing?
Barron's Misses the Other Side of the Commodities Story
Did Barron's Really Pan All Commodity Investing?
I know because this is what clients say they want.
Then, it makes the erroneous connection that commercials are "smart money".
Keep in mind that Citigroup's purchase of MBS and other derivatives was "smart money", as was the idea of off balance sheet investments. Thats "smart money" taking more risk than the "dumb money".
But many of these commercials are more "speculative"... (i.e.--short term and leveraged) than the ETF holders.The short term, and leveraged positions of the commercials shorts in particular is the opposite of "non-speculative&...
The evidence that the article uses would better used to make the opposite conclusion of the one it comes to.
Moreover, The word "bubble" is overused, and in fact, a linguistic bubble has developed in its use. The contrarian linguistic sentiment indicator I use tell me that as the use of the word Bubble increases in the press...the overall level of actual financial bubble declines. (ok, not really, but it amuses me).
Bubble should include--increasing financial leverage, short term traders taking more and more of the trades, and a subjective sense that the assett price cant decline,
Therefore: belief that Houses cant decline+excessive leverage+ house flipping= bubble.
lets look at commodities: overwhelming belief that they will decline+little leverage on long side (but excessive leverage on short side in some commodities+little evidence (at least in most of ETF's) that traders are DOMINATING the markets. What does this spell?
Not a bubble...a short term correction perhaps. Lets not contribute to the linguistic bubble by overusing the word "bubble".
Its a misuse of language and non-analytical.
Barron's Misses the Other Side of the Commodities Story
Looks like more than speculation to me.
Get Out of Commodities - Barron's
1) Commodities are increasing in US dollar terms, but in other currencies as well...so it is not merely a US dollar play, and over the long term, commodities can rally with an increasing dollar (but not short term).
2) Commodities are an asset class, simple as that, although under owned. Most people, by far, have little or no exposure.
3) Commodities do well in a rising inflation environment, but tend to under perform in stable or falling price environments.
4) Why no mention of the "bond bubble"? Bonds are ridiculously overpriced and under yielding. Why isn't the smart money rushing for the exits from bond exposure, including treasuries? Answer: There is hope of another rate cut, and inflation expectations are for moderating prices going forward.
5) Keep your exposure to commodities to a reasonable level--say 5-30% depending on your inflation expectations, and then don't worry about it. Diversify across the four mega classes of assets and the markets will take care of themselves--real estate, stocks, bonds, commodities. Then it doesn't matter if Barron's is correct or not--going forward, you are protected.
Why I Don't Own Commodities
"The hubris of rich liberals who..." can only be outdone by the hubris of even richer neo-conservatives who wage wars for "freedom" and "democracy" based not on facts, or the wisdom of generals with a lifetime experience in the arts of war, but on faith, ideology, and gut instincts...and send 4000 Americans to their undeserved deaths.
(Please don't remind me they volunteered to serve--they didn't volunteer to serve under false pretenses, lies, manufactured evidence, and propaganda/misinformat... campaign).
But its just a thought, probably has nothing to do with commodities or inflation...or oil, or future wars that will effect these same trends....
Why I Don't Own Commodities
1) ETF's globally are taking larger and larger share of commodities out of the spot market--in some cases ETF demand is the largest open long category in the COT reports. This is institutional money, buy and hold, hedge funds that don't want exposure to futures, sovereign wealth funds, and managed institutional accounts. In contrast to the sub-prime fiasco, where leverage made the bubble, most of these ETF commodity investments are unleveraged, and not subject to interest rates, margin calls, or collapse in panic selling.
I hate to say it, but I'm going to: "this time it its different" because it really is different--we've never had a commodity market with the new demand made available by ETF's. see: www.investmentrarities...
Ted Butler archives "Still A Great Trade" March 11, 2008 Letter.
2) Rising demand from BRIC's, and consequent supply/demand imbalance. Saudi oil is not going to raise spare capacity going forward, neither is Canadian Oil sands. Supply technically isn't the problem but daily production growth. Petrpobras discovered a big feild that is a 7-8 years away from production, same with Venez. Oil sands, same with Devons big find with deep Water Gulf fields...
many years away, and not enough to keep pace with consumption.
It is different this time (thats twice) because we have lost meaningful spare capacity in oil especially, but other commodities as well.
Moreover, higher prices are not necessarily in feedback with lower demand. China subsidizes gasoline prices, keeping them artificially low, at loss of billions to PTR.
3) Inflation, inflation, inflation---by definition the growth in the money supply at a rate that surpasses the economic growth and trade growth. Thats why you see commodities rising in all currencies--because all countries (some worse than others) are engaged in competitive currency devaluation. In commodities and currencies as in Physics, there is no non-arbitrary frame of reference (with the exception of the speed of light) and so, there is no standard currency. The closest we get to a non-arbitrary currency is a basket of commodities. The markets are telling us a strong message that all currencies are being inflated and losing value--that is the message of commodities.
Why I Don't Own Commodities
Two relatives of mine, in their 50s and 60s sent me savings bonds (series ee) when my daughter was born three years ago. This is well meaning but foolish. I am planning on taking the bonds, cashing them, and buying Apache oil.
Which would you rather fund your son or daughters education with--paper debt of a bloated and undisciplined nation---or the single most actively traded commodity on earth?
After the depression and into the 50s, people stayed invested with bonds because stocks were "too risky". This in spite of the recovery in the markets. There was no doubt in their minds that bonds were safe, and less risky.
They wrote articles like, "Why I dont invest in Stocks"--everyone knew that bonds were the way to go and protect your wealth in the deflationary times, and next depression.
Now, on the heels of the worst bear market in commodities possibly ever (1980 to 2002) the commodity market has been on fire.
But old beliefs die hard. Stocks must be the way to go, and every year people express amazement that the commodity bull still has legs. Surprise of what great heights gold, oil has achieved, and utter skepticism that commodities will go higher. There is always supreme confidence in those that fight the last war, that they know the way.
"There must be a bubble. It must be hot money chasing too few goods. It cant last because it doesn't fit my mental model. My confidence tells me so." Ranks right up there with "I'm the decider".