Long time reader George left a comment that it might be time to get out of commodities in response to my Commodity A Go Go piece from yesterday.
In the past when there have been commodity super cycles, big declines have been part of the bargain so from a trading standpoint George could easily be correct. Also more to his point this rollout is a lot of supply of product which offers a potential warning.
I slipped something into that last paragraph that may not be correct; this may not be a super cycle for commodities I don't know.
My writing on this topic has been consistent from the start. Gold has a place for its usual disaster insurance and low correlation to equities. I own lumber, through Plum Creek Timber (PCL), for the correlation aspect as well.
I can see future utility for the industrial metal ETF and the agriculture and soft baskets could benefit from big, slow gradual shifts in global demand.
For perspective, GLD has a 3% weight for most clients, PCL is 2-3% and if I ever go into the metals or either food-related commodity basket they would probably be 2% each. This adds up, at most, to 10% of assets in a category that cannot go to zero (PCL noted as an exception), although I doubt I would have that much.
For me the thing is diversification more than anything else. I started writing about gold for the reasons above, very early in the move. I'll write about it in the same way when the spot light moves away from gold.
I was not necessarily right about gold. I expect that if gold had not generally done well in the last couple of years there would have been other parts of the market that would have done well. I'd own those parts too because that is what being diversified does, gives you exposure to what is working. It also gives exposure to what is not and correctly analyzing between the two is hopefully how you add value to your portfolio.
Tomorrow we go twelve miles.
8 comments:
Roger: The cycle is upposed to last about 9 years (until 2010) and comes every 30 years.
1911, 1941, 1971, 2001
Please do not take my comments in the wrong light ( don't think they were taken wrongly, though... ). I think it is highly probable that we are in some sort of cycle for commodities.
It's just that Wall Street seems to bring out the hot dot product at the exactly wrong time. BASED on this contrarian indicator---I say ease up a bit in here. Make sure you have the proper allocation. Like Roger says. He's right. If you just keep gold at 3-5% then you're ok. That would mean you've been trimming all year.
I think you guys know what I mean.
g
Roger-
The new CrossProfit evaluation line for PCL (posted 09/02/2006) shows little upside for the REIT over the next twelve months.
Larry-
Though commodity cycles have lasted on average for 9 years in the past, there have been pullbacks during the cycle period. In addition, all cycles seem to be getting shorter. This is true whether it is a monetary cycle, a computer processor cycle or a commodity cycle. The same holds true for a recession cycle. Cycles are getting shorter all the time.
Amongst many variables this is partially due to the pace of new developments on a global basis. In the past a development on one side of the globe could take years to affect the other side. Today both news and technology move along at a faster rate.
Disclosure: This comment was written by a CrossProfit analyst and may not reflect the opinion of CrossProfit.com.
http://www.crossprofit.com
"Cycles are getting shorter all the time."
Not a single person I know or read who I consider an expert on the subject agrees with this. (David Morgan, Jim Liles, Richard Rdez, Dennis Wheeler, Arch, Crawford, G Edward Griffin, Ian McAvity, Nick Russo, Pat Gorman)
In fact, I just received my monthly newsletter from Pat in which he interviews David (Silver-Investor.com) and he quotes David as saying, "This bull market should continue to at least 2010 to 2012."
I was curious, do you believe that PCL is best of breed in the timber/real estate industry. From my research it didn't appear so. What attracted you to this stock? Thanks
Larry-
No disrespect to the names you mentioned, however I prefer to get my ‘cycle’ info from the same source as the Fed.
http://www.businesscycle.com/services_academics.php
"Standard economic texts give short shrift to the subject of business cycles, including the definition and prediction of recessions. At most, there may be an obligatory reference to the index of leading economic indicators (LEI), which was originally developed by
ECRI’s founder, Geoffrey H. Moore, four decades ago.
The LEI, modified several times since, failed to predict the last few recessions. Yet, more state-of-the-art approaches capable of real-time forecasting accuracy are routinely overlooked in the literature.
This lack of exposure has perpetuated both theoretical misconceptions about business cycles and the challenge of “predicting upper turning points” highlighted by the late Otto Eckstein decades ago. The result has often been misspecification of models of the business cycle, and, as an IMF study put it, a “virtually unblemished” record of failure to predict recessions.
Resources available to academics
ECRI provides chronologies of international business cycle dates used as the standard reference by many authorities, including the U.S. Federal Reserve, as well as selected papers on business cycles and turning point forecasting, and a recent book used as a supplementary college text. Teaching aids are also available."
Disclosure: This comment was written by a CrossProfit analyst and may not reflect the opinion of CrossProfit.com. http://www.crossprofit.com
Roger -
I can't get over all the terrible comments re:"Arizona at Dusk."
Great Picture.
Jim
thanks Jim!
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