Skip to main content

The Most Hated Asset Class

I've spent a lifetime pointing out potential risks - in our economy, in our real estate market and in our stock market. All too often, we pay only lip service to the safety of our assets while taking unnecessary chances.

But sometimes you have to consider the other side of the risk/reward coin, too. Every asset has a buyer - if the price is low enough.

And I think that's where the market's at with a large swath of commodities these days.

It's all about risk/reward.

Real estate prices are sky-high. Even insiders at the Federal Reserve say there's a bubble in commercial property. And you've heard plenty from us and others about concerns in the stock market.

When it comes to risk versus reward in those two sectors, well... the "reward" part, after more than six years' worth of gains, is about as used up as a champagne bottle on the morning after New Year's.

The Case for Commodities

Commodities are the other side of the asset coin. Sure, oil prices have doubled since the start of the year, and precious-metal prices are up around 20%, but neither is anywhere near its highs of even a few years ago. The rest of the commodities complex represents a similar mixed bag of results in 2016:



  • Copper: +1%


  • Soybeans: +8%


  • Wheat: -15%


  • Corn: -8%


  • Sugar: +50%


  • Nickel: +20%

And take a look at just about any commodities-tracking price index or exchange-traded fund, and you'll see what I'm talking about. For instance, the Dow Jones Commodity Index is up only 23% since bottoming earlier this year (primarily due to the rise in energy prices). But it's down by more than 30% since 2014.

It might seem odd to point to an underperforming asset class and say "put some money there," but that's exactly why it's worth looking at the commodities sector right now.

It offers the chance to diversify a portion of your wealth out of stocks and property. And best of all, commodities aren't correlated - meaning they don't march to the same drummer, going up and down lockstep in price - as stocks and real estate are.

But there's another way to think about all this. For instance, house flipping and day trading are both back in vogue. But say "I like corn. It's at its cheapest price in a decade," and all you'll hear are sounds of silence (and maybe crickets).

Yet there's a flip side to the old adage that "the best cure for high prices is high prices." The best cure for low prices across the board in the commodities complex? Yup - low prices. And it's leading growers, miners and other producers to pare back while waiting for demand to kick in again once again.

For instance, Texas farmers are on track to plant as much as 20% less wheat this fall (after cutting planting by 13% in the same period last year).

When it comes to risk versus reward, you can't find an asset class that your neighbors and cocktail-party friends are more indifferent about than commodities. That's a good thing. When an asset is unpopular, even hated, it means there's a potential for profit. The same can't be broadly said about stocks and real estate at current levels.




Source by Jeff L. Yastine

Popular posts from this blog

Commoditizing the world

Let's discuss commodities; With the latest Enron situation, it is important to understand the way things work. A commodity is anything useful, especially a transportable agricultural product or mining product. This comes from the Latin word "commoditas" meaning roughly advantage, convenience. So then what is a commodity? Well we consider Gold, Silver, wheat, corn, pork bellies, coffee, etc all commodities. If you look in the back of the WSJ or Investors Business Daily you will see a listing of all the commodities traded on the commodities exchange. Enron made some errors no doubt, but let's not judge all commodity markets in haste. Commodity trading works best when there is a stable instrument of trade. Sometimes the instrument of trade is actually the commodity. If you looked most countries of the world today you would find that there are three basic instruments of trade; money, as in currency, precious metals and gems, drugs; like cocaine, opium, and

Virtual Currency Games

Every little boy's (and many grown men's) dream of making a living by playing video games is edging closer to reality. The recent release of HunterCoin and the in-development VoidSpace, games which reward players in digital currency rather than virtual princesses or gold stars point towards a future where one's ranking on a scoreboard could be rewarded in dollars, and sterling, euros and yen. The story of the millionaire (virtual) real estate agent... Digital currencies have been slowly gaining in maturity both in terms of their functionality and the financial infrastructure that enables them to be used as a credible alternative to non-virtual fiat currency. Though Bitcoin, the 1st and most well known of the crypto-currencies was created in 2009 there have been forms of virtual currencies used in video games for more than 15 years. 1997's Ultima Online was the first notable attempt to incorporate a large scale virtual economy in a game. Players could collect gold coins

Could This Be a Great & Extreme Reversal?

The EURGBP has been on of the best currency pairs to trade since the referendum. And it looks ready to kick off again... False Break Reversal The FBR is one of the great reversal patterns. They show up time and again but can catch us out because we've been conditioned to stay with the dominant trend. It started last Friday with the Harami, inside day. Monday broke lower following through, so it seemed, with the down trend running since July. By the end of the day, it had reversed, leaving behind a long wick that turned the day's trading into a Hammer, one of the best price action reversal candles. Tuesdays price action confirmed the FBR. The rule is that when price comes back above the high of the downside breakout candle, the FBR is set. Earlier sell trades closed and then reversed. That's exactly what we have done. Hikkake An added technical reversal is the Hikkake. It's formed by at least three candles, starting with the Harami. Following the break lower, recovery on