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Commodities Drop to 12-YEAR Low

edited January 2015 in Off-Topic
http://www.agweb.com/article/commodities-drop-to-12-year-low-as-oil-slumps-amid-global-glut-blmg/

I don't know what to make of all this. Certainly, equities are not immune from deflationary forces. So, brace yourself.

AG is dropping like a rock, yet we just paid nearly $3 for a head of lettuce. And $5 for a dozen small Campari tomatoes. A large salad at home for two with some decent trimmings came to $15-$20. Yes, I realize weather's been rotten in the growing areas.

Our $25 monthly increase in Social Security this morning disappointed. Not sure yet where to spend it. (Maybe on a big salad?). ... On the other hand, filling up the 30 gallon tank on the pickup for $50 yesterday instead of $125 a year ago felt good.

Retail dropped through the floor in December. Why on earth? Where's those gas savings going?
My guess:
Increased healthcare costs (for aging population)
Increased insurance costs (higher deductibles in employee-sponsored plans)
Increased spending on media (Internet, video streaming, cellular, cable, etc.)
Increased food costs (healthier choices)
Increased auto maintenance (due to crumbling highways)
Increased home maintenance costs (due to last year's harsh winter)
Increased airline fares (Where's the savings from fuel here? I don't see it.)


And the 30-Year is at a record all time low. Catch, you've had the bond call right for a long time (If possibly for the wrong reasons.:) )
-

Edit/Added: While I'd never accuse David of being wrong, his dire warning regarding bonds in a December 2012 piece for Amazon has proven to be - shall we say - a bit "premature". "Trees Do Not Grow to the Sky" https://money-markets-blog.amazon.com/post/Tx2DDAAXOP98J5K/Trees-Do-Not-Grow-To-The-Sky

In fairness, suspect one would have done much better putting the $$ into a low cost S&P Index fund at that time rather than into Treasuries.


Comments

  • Copper is getting crushed. With the way commodities are going, particularly crude and copper, it could signal some downside to equities.
  • edited January 2015
    @clancy

    But ... coffee and sugar are both up today.:)
  • edited January 2015
    I realize I am a minority of one on this board when it comes to commodities. But I have never felt that an investor should ever have one plug nickel invested in commodities. You look at a 100 year chart of equities vs commodities and it simply makes no sense. Then again, I also believe diversification is pure folly so what do I know?

    Disclaimer: My bias may have something to do with being a commodities broker in the 70s.
  • edited January 2015
    @Junkster:

    Point well taken. I hope it's understood I occasionally post articles on commodities because they are an intricate piece of the global economic puzzle and also affect our pocket-books directly.

    Possibly their behavior may shed additional light on bonds, or interest rates, or equities, or currency movements, or monetary policy, or other risk assets, or some combination of the preceding.

    In no way am I advocating people invest in commodities or anything else. Pick your own poison.

    Thanks for sharing your experiences and knowledge.
  • edited January 2015
    Hi Junkster,

    Thanks for your comments.

    Although, I have dabbled in them over the past ten years, or so, and currently have a small commodity position within my portfolio I agree that, in general, through the years stocks have out performed commodities. Thus far this year, my gold fund, SCCDX, has been very profitable while my commodity fund, JCRAX, has not. I am still dabbling in a very small commodity position. In hindsight, would I open it again? Probally not. But, I am hopeful that I'll be able to make something off of it before year end. And, then there is an option to take it as a tax loss. Even if I book it as a loss ... I'll be net positive overall in investing in commodities over the years. It will be that this time around that it just did not work.

    Old_Skeet
  • A lot of stock bulls are dismissing the drop in crude because they say it's supply driven, not demand, but I tend to think the counter point to that would be the plunge in copper is likely demand driven.

    Granted it's probably more of a global story with China's housing and infrastructure growth slowing significantly, but that could eventually affect the US, imo.
  • The fed stopped QE3 in Sept (Oct?) and commodities have been on a downward slope ever since. Equities have also become much more volatile since the end of QE3. Is there a correlation?
  • PopTart said:

    The fed stopped QE3 in Sept (Oct?) and commodities have been on a downward slope ever since. Equities have also become much more volatile since the end of QE3. Is there a correlation?

    That's one of the points Gundlach made yesterday

  • Hi @hank,

    You noted: "And the 30-Year is at a record all time low. Catch, you've had the bond call right for a long time (If possibly for the wrong reasons.)"

    >>>There has been more than one time during the past 6 years that we have been on the edge of leaving investment grade bond areas. Many experts have maintained that is was or is time to leave bonds, that the 30 year run is over. As to other bond areas, the equity cousins, being high yield bonds; have provided pleasant returns until the downward slide began in the fall of last year. We had as much as 45% of our portfolio in the HY area several years ago. Our current HY holdings, about 4% of our portfolio; are part of the internal holdings of active managed bond funds we now hold.

    As to the "(If possibly for the wrong reasons.)"; I'm not sure as to the meaning, and do not take this as implied that we have held bonds for a wrong reason. The odds of our having more than 50% in equites at this point in our life is very slim; so bonds find there place at this house for capital preservation purposes. So, we have held a variety of active managed bond funds. Our three current largest percentage holdings are PIMIX, FTBFX and PTTRX. Just after the new year, our previous largest bond fund holding, LSBDX ; was sold in total, having been in our portfolio for several years.

    Overall, and I have stated this in the past, including at FundAlarm, that since the market melt (beginning in October of 2007); "this time is different". A simple enough statement, but that every large market melt and the following recovery is going to be different because of the nature of everything involved. While I have looked at charts and read writings about comparing "this time" with some other period; well, I draw mostly a "so-what?". One may call it luck or intuitive; but our maintaining certain bond holdings is based upon our view of "this time is, indeed different".

    There will likely be a period in the future where investment grade bonds will get the full hammer down. Meanwhile, I will continue to read from the highly educated; about their theories of when bond prices are going to receive the big whammy and why.

    So, we cruise along at this time still trying to make sense of the crazy world of investments, with the overwhelming outside forces at work.

    Take care,
    Catch

  • edited January 2015
    Hi Catch. And thanks. My small "rub" referred to the point I don't take "capital appreciation" into account when making decisions about (Treasury) bonds. I've long felt the prospects of "capital depreciation" were at least equal. This skepticism has kept me largely out of the higher tier bond segment.

    I think we've differed a bit over the years over that way of valuing bonds as long term holdings. I'm in good company. Many others whom I respect have, I believe, also been surprised by how long rates have stayed extraordinarily low.

    For as long as I can recall your posting on FA & MFO the trend has been towards low and lower rates - resulting in significant bond "capital appreciation" and a very good call on your part.

    Regards
    ---

    (Correction: While largely avoiding upper tier "bond funds", I've long held significant positions in several funds that hold these bonds as part of a more diversified portfolio. A few that come to mind are DODIX, DODBX, OAKBX, PRPFX & TRRIX.)



  • Speaking of bonds, this is the 13th consecutive month of positive gains (price+div) in the high yield muni market.
  • Yes, that's the only section of our stuff that's in the black for a while now.
  • Yes, that's the only section of our stuff that's in the black for a while now.
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