Posts filed under “Commodities”
You probably heard the chatter over the past few quarters: “The Great Rotation” was about to unleash a new leg up in Equities. Bonds were going to be sold, equities purchased, and a new leg up was starting.
The story goes something like this: U.S. Treasury Bonds had enjoyed a 30 year bull market, and it was now coming to an end. Paul Volcker rebooted fixed income, taking rates to 20% to break inflation, and in the three decades since bonds have seen their prices inflate as rates normalized, then fell precariously low, then were driven to zero by QE. That cycle is over, we are told, as rates now have nowhere to go but up, and investors will soon become sensible and rotate into equities.
Except, of course, that it hasn’t.
Why? Perhaps we should consider an alternative explanation to the sector rotation story, which is rapidly being revealed as little more than wishful thinking.
The story that is not getting told nearly as much: The investment community noticed the success of Endowment funds (e.g., Yale’s David Swensen). The monkey-see-monkey-do community, ignoring valuations and prior gains, hired new consultants to shake it up. “Make us look like Yale” they pleaded to the mostly worthless community of consultants. No fools they, the overpaid consultants happily complied, and the next thing we know, these Whiffenpoof Wannabes are up to their eyeballs in private equity, hedge funds, structured products, real estate, and commodities/managed futures.
Gee, late-to-the-party investors in illiquid, pricey investments — who ever could have imagined that this was not going work out particularly well.
Time for a change: Fast forward a disastrous decade. As managers and consultants were replaced/fired, the new guys wanted to start unwinding the work of their priors. Since most of these alternative asset classes are illiquid, there is not a lot of wiggle room without severe haircuts (penalties for early withdrawal). What to do.
One of the few that is not are the Commodities/Managed futures bucket. My guess, based on prices and logic, is that these new managers are selling what they can — and that is commodities.
What do the charts (after jump) say?
Gold and Silver flat for 2 years. Energy for even longer. Agricultural products back to 2010 prices. Industrial metals near 2010 lows.
Commodities started the 2000s so promising — what with rampant inflation and the dollar losing 41% of its value, have since gone nowhere. So the new guys are sellers, and the money is going into less esoteric, liquid assets.
That means traditional assets: Munis, Treasuries and Corporates for the safe money, stocks for their risk assets.
The great rotation is already underway. Just not the way the stock bulls have been hoping for.
Click to enlarge: Source: Bianco research Various hedge funds that had extensive commodity exposure have been throttling back, according to a recent Bloomberg report: “Hedge funds trimmed bets on a commodity rally for the first time in nine weeks as signs of U.S. growth and speculation that central banks will do more to…Read More
Dr. Copper is weak and at risk for a downside break, according to Merrill Lynch’s technical team: Copper futures (aka Dr. Copper) are often used as a proxy for global economic growth expectations. Dr. Copper has a weak chart pattern and the risk is for a significant breakdown that would not bode well for global…Read More
Corn David R. Kotok August 11, 2012 Two expert agricultural economists joined this year’s gathering in Maine. Their expertise is worldwide. Each of them has years of experience forecasting various ag scenarios and resulting global impacts. One is chief economist of a major, worldwide trading company; the other is affiliated with a bank that…Read More
Click to enlarge: The New York Times – Searing Sun and Drought Shrivel Corn in Midwest Across a wide stretch of the Midwest, sweltering temperatures and a lack of rain are threatening what had been expected to be the nation’s largest corn crop in generations. Already, some farmers in Illinois and Missouri have given up…Read More
Reuters.com – COMMODITIES-Markets tumble again; CRB at 20-month low The sell-off in commodities showed little signs of abating on Wednesday as the dollar’s relentless climb against the euro and fears of a Greek exit from the euro zone forced a fresh tumble in prices of grains, metals and oil. The 19- commodity Thomson Reuters-Jefferies CRB…Read More
The BoJ meets tomorrow (2 day meeting) to decide on monetary policy. Speculation continues that they will add to their stimulus measures, which has weakened the Yen. Trade data is out on the 23rd May, which may reveal that the Japanese trade deficit widened in April - once again Yen negative; The FT reports that…Read More