Don't Abandon Commodities Just Yet

Diversified commodities have suffered approximately the same one-year decline as equities, but the decent has been more violent since commodity prices peaked in the first half of 2008, approximately six months after the peak in stocks. Just as it is not the time to abandon stocks, this is not the time to abandon commodity positions in the context of a diversified multi-asset portfolio.

Cyclical commodities are not a valuable hedge to a stock portfolio in a deflationary bust and a liquidity crisis such as we have seen, but those conditions are not likely to persist over any investment horizon measured in years rather than months. The massive re-flation and stimulus efforts of governments around the world will support hard assets in the short run, and the bullish longer-term supply/demand case for commodities has not changed.

Oil has had the most spectacular fall, but should rebound from long term support at $40. Gold has held up reasonably well in 2008 (down 10% year to date in U.S. dollar terms), and is the only asset class we track that is still showing double-digit returns on a three and five year basis.

Comments

[Roowns:]

Are you going to wait for 30-40 years till supply gets short having no idea about the demand in this period ? I don't plan to do it.
And what's this " Don't abandon commodities". You say you owned commodities in this free fall ? What a disaster....
Commodities have the same chance to rebound as stocks do and will probably occur same time with stocks.
If oil rebound will stabilize close to the bottom as stocks did.
I can't say the same thing about gold.

2008 Dec 15 10:08 AM

[Ishortyou:]

its all about he supply and demand and the new technologies been developed, new technologies replacing all ones certainly has a major impact on the market.

2008 Dec 15 10:28 AM

[Delojozafado:]

As for gold the DGP is smoking from the $780 per ohzee range and the TBT is making new lows. The treasury and dollar bubble will burst and it will end badly. AS for the Nat Gas the CHK_pD is also making noise, up 10% in a week. The ADM-pA is simmering but blasting out a +9% yield. The FCX-pM is a conundrum having moved +/- 30% off the three day plunge it saw after the dividend was suspended on the common. All of these are the commodity plays of substance and buys if they make some retreat in line with a market swoon. Very thinly traded USV? well there is some leverage there as well. Plan to be long if you take a bite as this one makes very sharp moves on silver but is thinly traded so selling is an issue on a near term basis. For the truly adventurous there is the utility GLHIF(.pk). A direct link to a strong currency divergence between the US dollar and the Loonie on less lunacy to the north in monetary policy as well as the ultimate medium term recovery in commodities. A decline in the Loonie to +/-75 would be a strong buy signal for GLHIF which could yields a safe +6% after Canadian Roy taxes Roy taxes in unsheltered accounts can be taken as foreign tax credits. There will be some impending tax changes on GLHIF after 12/10. Snow pack& Cold weather high pressure systems parking over the Northeast US and southeast Canada usually reduces KW outputs in the first qtr so a great buying opportunity may present over the next 3 months. Note the very strong chart off the 10/10 market lows range of the $12.60 US$.

2008 Dec 15 12:40 PM

[henarl:]

The dollar is doomed. Commodities, and especially oil, will be back.

2008 Dec 15 04:39 PM

[sr9web:]

good post

2008 Dec 16 01:41 AM