Managing Editor

Consumers Buy Into Disinflation

Let's not forget timing. The real time inflation indicator is just that: it takes the measure of the dollar on a DAILY basis.

The Bureau of Engraving and Printing hasn't stepped up the minting of new currency--YET. What happens first is an increase in the issuance of Treasury bills, notes and bonds. Increased Federal Reserve Note production follows as tranches of bills and notes are redeemed.

The indicator can head downward during the current disinflationary phase before turning north when the dollar's reinflated.



On Nov 14 05:40 PM Consider_this wrote:

> Response to Hervert Hoover,
>
> Inflation of prices of items (not produced in the country) without
> corresponding increase in *WAGES* of people is actually deflationary.
>
>
> It's not hard to envision why if wages don't have inflation, price
> inflation ends up deflationary overall.
>
> In the end, true inflationary spiral can happen only if WAGE is also
> inflating.
>
> My problem is that with global arbitration of wages; and production
> capacity of GOODS and ENERGY is outside of the country; and outsourcing
> controlling wage increase domestically; the only way you can get
> into an inflationary spiral within the USA; is if USD complete depegs
> with the rest of the world and goes into a downward spiral.
>
> However, that kind of inflation-attempt would happen with a high
> price: Cutoff of foreign goods and energy (too expensive); Cutoff
> of govt funding; Removal of USD as a reserve currency.
>
> Because we will lose (reasonably priced) energy and foreign goods,
> whether the economy will end up collapsing completely, thereby skipping
> wage increase (to increase wage, you need to have functioning economy
> and jobs), or be able to go into an inflation period, is unclear.
>
>
> This is the part that inflation scenario arguments that I cannot
> find. In pre-globalization days, it is possible to have Germany style
> chaos; In modern integrated era, WHAT IS THE MECHANISM to achieve
> overall wage gain?

Why Sugar Has Never Been Sweeter

Yes. It's SGG.


On Nov 15 01:22 AM John Tandlich wrote:

> Does anyone know the ticker symbol for the ETF that tracks sugar?

A Bumper Crop of Agricultural Products

GCC is a broad-based commodity index tracker. While GCC INCLUDES agricultural commodities, it isn't LIMITED to ags like the products compared in the table.

Playing the Agriculture Game

Alonzo - Even though there's no physical portfolio behind an ETN, the note's value is derived from futures index. The index methodology determines which futures are to be included and how they'll be rolled forward. Thus, the futures curves affects ETNs as well as ETFs. The difference is that the ETN won't be subject to slippage and tracking error as an ETF might.

Emily - Some commodity company stocks (and these would be on the 'producer' rather than the 'consumer' side, i.e., ADM produces soybeans and other foodstuffs, while Kellogg's uses them) in fact outperformed agricultural ETFs or ETNs. MOS, in particular. But look at the table. The stocks' volatilities were HIGHER than those of the commodities ETFs and ETNs. The stocks' correlations to SPY, too, were higher than those of the ETFs and ETNs.

Two Rainy Weeks from Armageddon

Those short ag products are, in fact, a reality.

On April 15, Deutsche Bank launched a suite of four new exchange-traded notes, including ADZ (short 1x) and AGA (short 2x) that track the Deutsche Bank Optimum Yield Agriculture Index, a benchmark comprised of futures on CBOT wheat, corn, soybeans and ICE world sugar.

There hasn't been much effect from hedge activity since the ETNs' debut. According to the latest Commodity Futures Trading Commission reports, short index open interest was esssentially flat in the week ending April 22. This, in part, It may be a result of DB's floatattion of two complementary long-side notes (AGF and DAG) in the April 15 offer. Selling hedges by swaps dealers might have been unnecessary at this point because of the long note exposure on their books.

You can keep track of developments on HardAssetsInvestor.com.

The Good, the Not-So-Bad and the Ugly Commodites ETFs

No worries. UCR and DCR are novelties as far as oil ETFs/ETNs go. They're issued in tandem as complementary sides of a trust made up of credit instruments.

When you deal with the MacroShares products, you're taking on a huge tracking error risk. Tracking spot WTI can be hard enough for "old-fashioned" oil ETFs/ETN when the market's in contango.

Wheat in the Teens?

Société Générale, for obvious reasons, didn't disclose the positions Jérôme Kerviel undertook. Given his position, it's more likely he dealt in financial, rather than agricultural, contracts.

The Good, the Not-So-Bad and the Ugly Commodites ETFs

Thanks for your insights.

Look back on the article, though. It says: "SOMEDAY (emphasis added) the commodities tower will topple leaving imprudent investors who've OVERSPENT (again, added emphasis) on commodities vulnerable ..."

Note I haven't said WHEN the reversal of fortunes will occur. To think that commodities will remain in the ascendency indefinitely denies history. Commodities prices and inflation are cyclical, to wit:

Commodity vs. Stock Bull Markets

US Stock Market Producer Price Index
Composite (All Commodities)

1898-1920 61% 228%
1920-1929 196% -38%
1929-1951* -12% -58%
1951-1965 256% 6%
1965-1981 49% 204%
1981-2001 828% 37%

*Includes anomalous effect of the Great Depression (1929 – 1940)
(Source: Legg Mason)

Without market timing, overexposure to the asset class can be deleterious to a portfolio with a date-certain horizon. And how good are any of us in the timing department?


I'm not saying one SHOULDN'T have commodity exposure, only that the allocation be prudent.