Analyste de Boston

Friday Outlook: Commodities, Global Markets

David -
Typo? I think you mean to write "GDX" where you've written "GLD."

You no doubt recall the Plaza Accord (9/18/85) and the 50% devaluation of the USD over the next two years or so. You probably also know that from that date to the 1987 mini-crash, the S&P500 rose almost 90%.

It may be instructive to see how 'throwing the Dollar under the bus' (like Van Jones, Acorn, Gov. Patterson, gay & lesbian supporters & maybe Afghanistan soon enough) could serve this Administration's craven & narrow interests in the short-term.

The Plaza Accord was a BOON for Wall Street, almost immediately. Can't see why they might sacrifice Uncle Buck, again?

PowerShares' DBA and DBC: The New Originals

Roger, I looked at the website and didn't see the detailed info I wanted - it's been announced that these (and other ETFs, like UNG and USO) have been forced by CFTC to diversify market exposure internationally. Which bourses, and what perecentages?

I think there's a story there. I'd hope someone with access can review that assertion/claim.

I very much like the idea of a Global Natural Gas Producers-Consumer Index, weighting open-market futures contracts from the relevant bourses. After all, global commodity prices are true market. In an era with a declining USD and rising inflation (to say nothing of Uncle Sam's wretched history of price manipulation), this should be a double-win for US investors. Global ag would be, too.

Just a thought/ wishful thinking.

Will the New DBC and DBA Be More Volatile?

Ron's speculation that increasing the number of commodities in each fund would generally tend to reduce volatility WOULD be plausible, EXCEPT it appears these ETFs will be buying contracts on bourses worldwide. The implications are significant: 10% - 20% foreign exposure? Futures denominated in Roubles?

There's a MAJOR story there - lots of questions need to be asked!

Times Are Changing for Commodity ETFs

I think there's potentially a FEW STORIES in the foreign & emerging mkts exposure of any commodity ETFs.

1) What's the %age exposure to foreign/emerging mkts?
2) If tens of millions of dollars is opportunistically moving into smaller bourses, what are the additional potential benefits & risks to the ETF investor?
3) Will investors realize any potential gain/losses from forex?
4) What are ancillary risk premia associated with contracts from Zeebrugge, TTF, NBP?

Consider this question: if Uncle Buck was falling against the Loon, would you rather buy a (Canadian) Natural Gas Exchange-based ETF or UNG? (Canada is the 2nd largest exporter, after Russia.)

The world's largest producer of NatGas is Russia, 3x the output of Canada. How comfortable are you holding an ETF w/ contracts from Санкт-Петербургская биржа, given their signed agreements to sell natgas for بورس نفت ایران ? (Look them up!!!)

Yeah, I'd suggest the Devil's in the details ...

Will the New DBC and DBA Be More Volatile?

The more I think about the CFTC meddling, the more irate I become. These govt regulatory bodies are just lapdogs for the MUTUAL FUND COMPANIES, harassing the popular ETFs. Why? Because commodity ETFs are taking assets from their pricey dud funds. And "their" clients are bolting - to better, cheaper ETF investments.

This is war.

The ETF companies shouldn't be forced to dilute or muddle their funds to suit the competitors' complaint (whatever the proxy's excuse.) I don't like all-&-everything ETFs, either. NARROW index funds are what sophisticated investors want!

At some point, the little guy will have to fight back: take the battle to THEIR conference calls, haranguing mf reps in 401k meetings, even picket their offices - slay the Mutual Fund dragons. The apathetic alternative? We lose ALL access to commodity, short- and leveraged ETFs. Because the Mutual Fund companies said so?! #$%@ 'em.

Harvard and Yale 2009 Returns

Returns? Most readers assume returns are 'what the investments generated.' WRONG.

University endowment INCLUDE donor contributions, other income & distributions in their performance (you can see why.) Contributions of what, +$1 BILLION a year sometimes?? Be very very careful when you read "endowment return" stats - don't assume these gross #s are germane to a retail investor's portfolio performance in any way, shape or form! Apples & oranges.

I ran numbers using the proxy ETFs & MFs that the author and others have suggested previously for various allocations 2006-2008. The 10/9/07-3/6/09 Great Bear Decline losses ranged -48% > -55%. For Yale (10/9/07-6/30/09), these older, unrebalanced, static allocations lost -36% > -46% (vs. the "-30%" stated recently.)

In his 12/16/08 letter, Yale President indicated -25% loss for the previous 6 months, with greater unrealized losses to appear later. I calc'd between -33% > -38% with the proxies, so they do approximate. I would also expect their pricey hedge funds managers could reduce risk & improve performance over mock-up ETF allocations from 2006!

I don't think Harvard or Yale did a good job managing risk - on the contrary, they seemed to carry the same overall risk as their asset allocation. And before we declare they "beat stocks" longer term, let's remove the billions in alumni contributions over the past 3 decades!

Securitize Commodities, And What Do You Get?

I believe the USD hegemony has long permitted the US govt & its financial proxies to HOLD DOWN commodities prices. I suspect this unilateral control effectively ended in 3q07, due to Chinese investment policy changes. It IS a question of 'US bonds OR commodities' already - easy to call which will benefit longer term.

Although the Chinese don't want to upset the apple-cart, the US leverage over the commodity mkts may be waning - that encourages the likelihood of a 'less restricted' commodity Bull Mkt & greater exposure to this asset class going forward.

Didn't/don't have commodity exposure, still? GET WITH THE PROGRAM already. It's called "asset allocation" ...

Securitize Commodities, And What Do You Get?

The established bond & mutual fund players HATE ETFs. Intense, behind-the-scenes lobbying and planted 'enraged short/leveraged investor' stories are two points of attack - that's not all.

A 2003 study for PIMCO on commodities' role in diversification has shocking implications - a 15-25% commodity wedge for long-term, medium risk, balanced "50/50" portfolios ?? How many investors (retail or instl) got that memo?

Yes, the shift of billion$ has already begun.

The Reflation Trade Portfolio

>I don't think this should be 100% (or even 50% or 25%) of someone's portfolio.<

Agreed, not ALL of one's portfolio but perhaps 50% (against your core 50%) in a 70/30 portfolio monitored quarterly. Nothing wildly exotic here, btw.

Is VWO plus EWC & GXC somewhat redundant? (China & Brazil are the Top Countries held by VWO, 25%.)

What if You Don't Trust the Government with Your Portfolio?

An important point about RE (real estate): the REITs are mostly commercial, and like homebuilders should be avoided.

If by "real estate" you mean farmland or exceptional income-producing distressed/foreclosed properties, fine: those are probably excellent investments for a long inflationary period.

Investing in commercial RE or buying houses in tumbleweed subdivisions is as idiotic now as it was in 2004 or thereafter.

Will Commodity ETFs Really Go Up?

Radu,
If you look back over the past year, Gary Gordon's calls have been positively atrocious. We do all make mistakes, but you don't flatter yourself with that opening reference.

A number of more credible commentators have suggested the same thesis, for longer and without the baggage of so many bunky calls.

Will Commodity ETFs Really Go Up?

Did anyone else laugh at the opener "I was recently reading Gary Gordon's article on ETFs..." ?

Prattle.

Don't Get Caught in the Dot Commodity Bubble

We are in a commodity bull market, its true. Could it be a bubble? YES. But only Time will tell.
We were in a stock bull market, could that bubble have popped? YES. But only Time will tell.

Its very telling that some investors wear blinders, regurgitating Wall St. spin without any critical thinking, balance or skepticism.

Many calling the current six years-and-counting commodity "bubble" would never admit the same for stocks. That double-standard is called BIAS. Many stock-pushers hate gold - they hated it 6 years ago, they hate it more now! They get daffier & daffier as commodities rise and the Stock Market declines - proving the gold-haters WRONG, month-by-month, year in, year out!

Invest without emotion, but don't drink anyone's Kool-Aid, either.