A reader forwarded me a link from Index Universe about a broad based commodity ETF from Deutsche Bank that was approved by the SEC. Unless I missed it in the article I did not see an expectation of when it will price.
The reader wanted to know if it is a good idea to own something like this coming ETF given the run that commodities have had.
Jim Rogers says he expects this commodity bull market to last for at least 15 years (based on the duration of past commodity bull markets) which means there are at least ten years to go. There is no way to know if that will be right but I think the logic is sound; commodities could outperform for an extended period.
I think every diversified portfolio needs some commodity exposure and if this is better than what I am using now I would not hesitate to switch.
One thing to understand is that where it has been it not very important. That commodities zig when equities zag is important. Buying Google at $345 (the price I sold it) was a great trade. The move from $85 to $345 should not have mattered to the person on the other side of my trade.
To be candid I do expect the run in commodities, in general, to last. I don't know about doubling in price from here and I don't know about gold either but I think it makes sense to overweight the asset class for a while to come.
Overweight does not mean 30%. For the portfolios I manage it does not even mean 10%. The other thing to add on this topic is that we are talking about an asset class. Being diversified means exposure to all asset classes, even the ones you don't expect much from.
I had some good comments left about my most recent thoughts on gold. After a big drop in such a short time, yeah I think it might be better to buy right here. It has fallen fast and hard as opposed to rolling over. Maybe I am wrong and it will fall a lot more. I still do not think $800 gold is coming soon. A lot of the comments about this point out the some of the fundamental catalysts for why gold should go higher. I know all of the reasons and they may turn out to be right but I don't think the central bank buying, as an example, will mean what so many folks think it will mean.
$500 may be high but I do not think is is baseless. The story has evolved to be more favorable for gold. From the start of this dialogue I have been doubtful about $800 and higher. I have not doubted a move a little higher above current levels.
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7 comments:
Could you summarize the ways to get commodities exposure? You've probably talked about this in other blogs. Just a recap, please. Thanks!
AU, GLD, Australia, Chile (in some cases), Brazil (in some cases), Canada.
Not to forget PCRAX...
Also, there is a great gold commentary by Paul vanEeden here:
http://www.paulvaneeden.com/displayArticle.php?articleId=137
One does not need to speculate on commodities to gain exposure to them. A broadly diversified stock portfolio will include companies that make money when commodity prices go up and those that will make money when commodity prices go down. It is a mistake to accept the poor average returns that come from holding gold just to be diversified. Keynes was correct in saying that with perfect diversification there is no profit.
Emerging market stocks correlate strongly to resources and even somewhat to gold. Developed nations, including Japan, do not normally correlate highly to gold. The recent divergence was one of my reasons to suggest, in prior comments, that while Japan's market is on fire (most likely a long secular move), gold is likely to perform relatively poorly.
By the way, the day after you sold your Google I encouraged you to buy it back. Google currently has about 1% of the advertising market. The prospects for revenue and profit growth are incredible. I have mentioned to you that I have purchased GOOG (for accounts) at around $90, $190, $290 and I have since purchased at about $390 (as well as many other prices). I bought more today and expect to buy more at $590, $690, etc.
I also purchased more AMR and CAL today. AMR and CAL will do particularly well if oil prices trade down. The chair of Peabody Coal says that coal can be converted to liquids for $35 to $40 per barrel. Other professionals have stated that the conversion cost is in the low to mid $40 range. In either case, the indication is that the law of substitution is going to bring oil prices down. Oil and gold correlate strongly. If you own energy stocks, then you have exposure to commodity prices. I suggest caution in combining exposure in oil with other securities with high resource correlations. No matter if you own energy or not, you should consider exposure in the international airlines. Their revenues and profits are likely to climb no matter the price of oil. It will take a very strong economy to boost the price of oil from here and business travel will be very strong if the economy is very strong.
Jack was exactly right on the GOOG. He told me to by it right after I sold.
In case you didn't see this:
"Some Commodity Funds May Lose
Tax Benefit Following IRS Ruling"
wsj.com
http://online.wsj.com/article/SB113512597665127988.html?mod=mkts_main_featured_stories_hs
thank you for the link
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