Could an investor think of the commodities sector as an inflation hedge?
Companies like Rio Tinto (RIO) or BHP Billeton (BHP) pay an solid 4ish% dividend.

http://seekingalpha.com/news/1977095-end-of-the-iron-age-as-iron-ore-prices-slide-to-five-year-lows
I do think of the commodities sector as an inflation hedge, but I think you have to be diversified and have a long-term view. I would favor energy as an inflation hedge more than basic materials, but it's good to be diversified.
I like anything that resembles a toll road - railroads, pipelines, credit card networks, etc. Especially like railroads - you have a handful of companies who have a lock on moving grain, energy and many other things for the foreseeable future. Railroads are one thing where I can sit and say, "what replaces this in the mid and probably long term?" The answer is nothing I can think of at this point.

Hi Guys,
Our recent MFO discussions that center more on the originality of the market commentary and observations tend to detract from the main themes of the subject works. That’s a wasteful distraction.
Original thinking on any subject is rare. If the communication requirement is originality, a room filled with clients would be mostly silent; a written report to clients would be mostly a blank sheet of paper.
Originality is nice and in some instances is necessary, but it surely is not a prerequisite when communicating for informational or even for persuasive purposes. Sure things change, but not that rapidly. What has happened in the past (history), and what has worked in the past provide a firm basis for what is likely to happen in the future. At a minimum, it is an excellent point of departure for planning purposes.
The key point here is that the referenced James Saft article emphasizes the shortfall of return’s volatility as a total measure of investment risk. That shortfall has been recognized within the investment community ever since it was proposed as a partial risk measurement back in the 1960s (Harry Markowitz and others). It definitely is not original stuff.
Note that no expert suggests a total discarding of volatility as a risk component; they merely argue that it is incomplete in that it does not capture all the interactive elements of it. Risk is a complex, multilayered phenomena, and is likely dissimilar for different folks.
The Saft article was okay; it did draw heavily from an Oaktree clients report written by Howard Marks very recently. The Marks report is excellent and develops a risk assessment concept much more completely than does Saft. If you enjoyed an/or learned from the Saft piece, I suggest you access the Marks document at:
http://www.oaktreecapital.com/memo.aspx
The arguments assembled by Marks are not new or even novel. These things evolve over time. However, in the Marks paper, they are cobbled together in a way that just might provide an improved risk guidance for your portfolio investment goals.
In the middle of the report, the graph that depicts the risk/reward tradeoffs yields a particularly useful picture at how the statistical distribution of expected returns more correctly overlays the reality of that tradeoff. Please take especial note of it.
The more careful collection of the data, the interpretations of that data, and the extrapolation (the most dangerous aspect of the entire process) of these interpretations (dare I say a model?) make revisiting the data and some recent analyses worthwhile. Since our recall is imperfect, and since our needs change over time, this revisiting is necessary and sometimes even profitable for investment decision-making. None of this probably qualifies as highly original thinking. That doesn’t trouble me whatsoever.
Care and precision must always be exercised when presenting data or an argument based on that data. Definitions are critical. The risk debate effectively illustrates the requirement for meticulous definitions. Along those lines, Morgan Housel recently published a list of “Things You Should Know the Difference Between”; these items do make a difference. Here is a Link to it:
http://www.fool.com/investing/general/2014/09/09/things-you-should-know-the-difference-between.aspx?source=iaasitlnk0000003
These days, it seems we are all fretting over the next looming market decline. The known unknowable is that it will surely happen; the unknown unknowable is its magnitude and when that will happen. Market decline history provides guidance in this arena. There is certainly no originality buried in these data, but they do directly bear on the downturn frequency. From a statistical perspective, these data establish a base-rate.
The data I quote come from the American Funds and includes the timeframe from 1900 to 2013.
A 5% downturn blip has occurred about 3 times a year; a 10% correction about once a year; a 15% downdraft about once every two years, a 20% Bear market approximately once every 3.5 years; and a 30% panic about once per decade.
These are all merely averages so beware the distribution element. These negative outcome stats do yield an overall context. Over short periods, the spacing and durations are somewhat haphazard, so money reserves are needed. That too is not original advice since it dates back to the Talmud as I reported in an earlier post.
I hope you guys enjoy and profit from the references. It’s far less important that you enjoyed my submittal which contains no original thoughts. I offer no apologizes for my lack of originality. Good luck to all.
Best Regards.

FYI: Can you name any mutual funds that have beat the S&P 500 Index over the past 10 years? I’m sure you wouldn’t need to think long to find one that has accomplished this feat.
Regards,
Ted
http://investorplace.com/2014/09/top-3-low-risk-mutual-funds-high-returns/print

http://www.businessinsider.com/forgetful-investors-performed-best-2014-9
The link above has been bandied about here recently. Scroll down to the end for a visual of the 20 year annualized returns of various equity and bond sectors. At your very young ages, it would seem to be a no brainer to invest that 10% to 15% entirely in an emerging markets bond fund and/or a high yield junk corporate bond fund.
As an aside, I put one of my ex-girl friends' ultra conservative accounts entirely in T Rowe Price's high yield bond fund (PRHYX) before we broke up in 1992. I was shocked to learn recently she hasn't touched that account since and she has been pleased as punch. She would have been even more than pleased had I put her in PREMX, Price's emerging markets bond fund which has far surpassed even the S&P (albeit not sure that was even around in 92) I put her in the junk fund because being very risk adverse, junk funds are most noted for their risk adjusted returns.
Edit: Nothing wrong with where you are at in VFIFX at your ages either. Not sure I have seen many in-deph discussions on target funds for the young on this board being it is skewed a bit to the old timers.

Hello all!
So I've been using VFIFX as a "very rough proxy" for allocation decisions for my fiancé and my retirement portfolios and we are in a running debate about whether or not it is worth holding 10% in bonds like they do and what type of bonds. Not really planning on moving anything until December, but planning ahead right now.
My general opinion is that it's worth holding 10-15% in bonds if only for the diversification benefits and having a less-correlated/safer haven to reallocate money out of in the event of a major correction. Her argument is that we're young (28 & 29) and don't need to allocate to conservative holdings since it won't matter in the long run. I thought I'd ask for your collective thoughts on various strategies.

Hi John. All too complicated for me.
In bull markets you hear things like:
- World's population is growing. People need to eat
- Limited supply of most resources (well ... before fracking)
- Paper currencies always depreciate. Hard assets hold their value
On the other hand:
-We continue to discover new energy sources.
-Solar is real.
-We're taking the weight out of everything reducing metal needed and energy consumed (though I've heard that the aluminum in Ford's new F150 actually consumes more energy in the manufacturing process than the truck saves over a lifetime.)
My guess? (skeptics welcome): The current slump in commodities has little to do with any of the above. Instead it's probably more related to currency exchange rates around the world (ie Dollar's very strong) along with momentum players who are riding the stuff down. Might also be a serious omen of a coming global slowdown (which would spill over into equities).
A point re fracking. There's rising cost of labor, equipment, environmental cleanup, legal fees, transportation, insurance, land leases, bribing politicians (oops - make that lobbying). So, it's not clear to me you don't have inflation protection with investment in energy.

Fracking is real, but I'm also fairly concerned that production will start to peak out and head South within a time period that is less than most would like. You also have companies who are taking on a huge amount of debt and if the tide turns (whether a fracking peak or even just an economic downturn that takes the price of oil below where production is cost effective) I think a number of smaller players are going to get obliterated.
If you do invest in oil, I'd say stick with biggest/best rather than speculative smaller players.
Solar is real, but I think much like 2008, if oil turns down, people will forget about it. There's absolutely no long-term plan in this country in regards to energy (or much of anything for that matter...) - none.
I'll agree that the current move down in commodities is heavily dollar-related, although at the same time, you have the IEA saying this: "The recent slowdown in demand growth is nothing short of remarkable,” the IEA said. “While demand growth is still expected to gain momentum, the expected pace of recovery is now looking somewhat more subdued.” (http://www.bloomberg.com/news/2014-09-11/iea-cuts-oil-demand-estimates-as-saudi-exports-drop-to-2011-low.html) You also have mortgage apps at a 14 year low. Things aren't great in a lot of regards.
I still like ag as a long-term holding.
I guess if anything I continue to like "needs" (whether it be healthcare, infrastructure, energy, etc) more than "wants" (although I have some investments in the latter.)

"...forget that you have an account."
Is this good advice?
They might as well add, "Just keep your hands off
your money so we can continue to suck our fees from your account."
So, is this good advice for someone in their late 40's or 50's?
Is it good advice for someone nearing retirement?
OK, maybe for someone just starting out.
And the chart -
Maybe contributing to the average investor's poor returns
vs. an individual asset class is due to too much diversification.
Just a thought.
AKAFlack

A somewhat related article about China's appetite for iron and one company's disastrous result. The most interesting part is the importing of Chinese workers that would have been paid Chinese wages. Australia would have none of that.
http://m.asia.wsj.com/articles/chinas-global-mining-play-is-failing-to-pan-out-1410402598?ref=/home-page

Even the new manager of Price's venerable old Natural Resources fund (PRNEX) is bearish on commodities. The fund - which I used to own, but don't now - is on my radar screen because of its low .66% ER. I was able to read the M* article when it came up on a Google search. However, the link I copied below won't work here. (Guess you need to subscribe to a trial of M*'s premium service.).
Here's the recap in my own words:
T Rowe Price analyst Shawn Driscoll replaced former fund manager Tim Parker last September (2013) as lead manager of New Era. PRENX is one of Price's oldest and largest funds (about 5 BIL). Its goal is to outperform more diversified equity investments during periods of rising inflation through concentrated investments in the natural resource sector. It is heavily invested in integrated petroleum and exploration and development. The ER at .66% is better than most peers. By contrast, PRAFX, Price's Real Assets Fund, carries a .80% ER.
While Parker maintained significant exposure to commodities, Driscoll has shifted the fund's focus more to producers, as he's bearish on commodities. Driscoll's more cautious approach - according to the article - is similar to long-time fund manager Charles Ober who retired more than a decade ago. Two of Driscoll's top holdings are: Quanta Services PWR and Jacobs Engineering JEC (pipeline and LNG terminal construction).
I rarely look at M* and this non-working link won't endear me to them. Lipper likes the fund, rating it "4" in performance and "5" for fees. Max Funds rates it "Excellent" (84%) which is better than their rating for its sister fund PRAFX. Fund Mojo is reserving judgement due to the manager change - but their comments are generally favorable.
http://analysisreport.morningstar.com/fund/research?t=PRNEX®ion=usa&culture=en-US&productCode=MLE
Above link from following article -
Author: Kevin McDivitt, CFA (M* Analyst)
Date 7/11/14
Title: "This Fund is Putting a New Twist on Its Old Formulas"

Hi Jerry and others,
I too, found the article of interest. It seems I have been doing much as to what the article's focus directs as I am heavy in my cash area, light in my income area, light in my growth & income area but heavy in my growth area of my portfolio from its target allocation. Currently, I am about 20% cash, 25% income, 30% growth & income and 25% growth. I'll put some of the cash to work "when" the pull back comes. And, I believe it will be coming as it is now boils down to just a question of "when" will it arrive? Answer, When you least expect it!
With this, Old_Skeet plans to keep on keeping-on.

Maybe I shouldn't admit it but I have a subscription and he tracks the recommended exposure to gold as well as stocks and bonds amongst newsletters that provide timing advice. In total he tracks more than 500 newsletter portfolios, some of which provide timing advice. When the average sentiment amongst those timing letters becomes extremely negative of gold he figures its a good sign of a bottom and a good time to buy.

Seems a bit odd. Those timing newsletters are so bad, they themselves are used as a contrary indicator. When the gold timers are negative on gold, it's time to buy gold.
But don't those gold timing newsletters also assess the sentiment of the gold market, and use it as a contrary indicator to make their own gold timing calls?
This is all a bit odd.

Granted, OSTIX is a different sort of animal. And I know M* sucks it. Yet M* puts DLTNX and DLFNX in the same Interm. Term Bond category. Look:
YTD, 1-month, 1-year, 3-year
DLTNX 4.81 -0.07 6.35 4.64
DLFNX 5.48 0.27 7.92 4.29
DLTNX is getting VERY crowded. It's been getting that way for quite some time. That's ONE reason I chose the other. I couldn't do for myself what JG is doing for me. Still, a lot more people have chosen to go with the other product. I habitually go and look to compare DLFNX with DODIX.
DODIX 4.56 0.07 7.18 4.49
So, given 3 year compounding, DODIX wins by a hair or two.

FWIW ... on the T Rowe Price M* Tool, GPGOX looks like this in the Portfolio Manager:
Cash ............. 2.95
US Stk ..........31.85
Non US Stk ...64.81
Other ............ 0.40
TOTAL ....... 100.00
Which agrees with M*'s "mothership" site.

Because of it's relevance to this conversation, I'm taking the liberty of reproducing my comments from the "Many market sectors are struggling a bit" thread, yesterday. If you've already seen it, please disregard the duplication. Thanks.
What's to be bearish about?
• The US is pretty much alone in climbing back... sort of... out of the great recession.
• The EU is heading back down, also in a major fistfight with their main energy supplier, Russia: there will be more collateral damage before that's over.
• South America isn't going anywhere for a while.
• China, Asia: Yes, what about China? Poised to shove their weight around and cause lots of trouble in the South China Sea area. No problem for us though, we'll just "pivot" over that way to keep an eye on those guys. Wait... wait... maybe we'd better stay in Europe and keep an eye on Putin... and what about Iraq/Syria/Iran/Israel (yet again)??? Holy smoke!
• The Mideast. Yes, the bloody never-ending fanatic, murderous Mideast. Well, nothing much new going on there, other than a new bunch of fanatic, bloody, murderous bastards who will do their best to overthrow, mutilate, behead, destroy and otherwise inconvenience all of the existing fanatic, bloody, murderous bastards. Not our problem, right? Oh-oh... wait a minute... that's not going so well either... it looks like we may have to do... something!
Well, at least things are just fine here at home. Fortunately we are completely independent of the rest of the world, so none of that other stuff can cause any problems here. The middle class is recovering nicely, the folks at the bottom are moving smartly right up the ladder, good jobs are plentiful, folks now have a little extra to put away for retirement, education is available at reasonable cost, our infrastructure is rapidly being modernized, and best of all, everyone has new iPhones!!
PARRRTTTTYYYY!!!

Hank said:
Commodities are getting absolutely crushed.As evidenced in today's news blips!
"iron ore prices slide to five-year lows"
http://seekingalpha.com/news/1977095-end-of-the-iron-age-as-iron-ore-prices-slide-to-five-year-lows
Crude closes below $92 on demand woes, energy shares hit
Sep 10 2014, 15:28 ET | By: Carl Surran,
http://seekingalpha.com/news/1976565-crude-closes-below-92-on-demand-woes-energy-shares-hit
OPEC's latest monthly report adds to the bearish outlook for crude oil, as it cuts forecasts for the amount of crude it will need to supply as surging North American shale output reduces reliance on its supplies.
http://seekingalpha.com/news/1976075-opec-sees-slower-demand-for-its-oil-thanks-to-u-s-shale-surge
OPEC reduced forecasts for the amount of crude it will need to supply by the most in at least three years as surging North American shale output reduces reliance on the group’s supplies.
http://www.bloomberg.com/news/2014-09-10/opec-cuts-demand-outlook-by-most-in-three-years-on-shale.html
Raw-sugar prices fell to the lowest in more than four years amid signs of an expanding global surplus as output accelerated in Brazil, the largest supplier.
“It’s basic economics -- more supply available than demand,” George Kopp, a senior market analyst at International Futures Group in Greenville, South Carolina, said in a telephone interview. “It’s hard to get excited about a market that’s been in a downtrend for so long.”
By Luzi Ann Javier Sep 10, 2014 2:12 PM CT
http://www.bloomberg.com/news/2014-09-10/sugar-declines-to-lowest-since-2010-on-global-surplus.html

@Junkster: In case you missed this earlier link.
Regards,
Ted
http://www.mutualfundobserver.com/discuss/discussion/15615/average-stock-declines-from-52-week-highs#latest

Thanks Ted, I read most of your links but not this one because I thought it was just referencing the S&P 500. After reading it now and seeing it also references the other indexes makes the market even more sickly as that CNBC technician was trying to convey.
Edit: Heard and saw all sorts of divegences with the market beginning in April 1998 (before the ultimate top in early 2000) and sure would have hated to have missed that nearly two year period. I get a bit leery when everyone and their mother sees the same things, so we shall see how this plays out.
Edit 2 - Before I hear about it yes, there are a lot of rich Wall Street technicians who make their income from being on the payrolls of various Wall Street firms and hedge funds. Just never met a rich mom and pop home-based trading technician using all the technical mumbo jumbo, at least any in that top 5% of U.S. households with over 1 million in investable assets.

@Junkster: In case you missed this earlier link.
Regards,
Ted
http://www.mutualfundobserver.com/discuss/discussion/15615/average-stock-declines-from-52-week-highs#latest

Not sure I ever a met a rich technician. Strong day today but more new 52 week lows than highs on the NASDAQ and AMEX and barely more 52 week highs than lows on the NYSE. Yet the Dow, S&P, and NASDAQ are hanging around 52 week highs. The Russell 2000 appears to have topped months ago and the Mid Cap Index appeared to have double topped just recently as have junk corporates which had another bad day today. Meanwhile the 10 year has looked ugly since Labor Day. There was some technician on CNBC lamenting how much the average listed stock is off its 52 week high compared to the averages. So what's my point here? No point, just idle technical chatter.

•This is now the 4th longest bull market in history. We're in the 2nd longest period without a 10% correction. Every day, we get closer to the next correction.
http://seekingalpha.com/article/2484155-theres-very-little-chance-of-beating-a-balanced-portfolio-from-here?source=feed_tag_editors_picks

"The bubble probably needs to continue in order to sustain the current global financial system and the necessary future deleveraging. However with yields moving ever lower in many parts of the world in recent times, partly due to weak growth, and with debt levels still moving higher, the chances are that most government bondholders are unlikely to achieve a positive real return over the medium to long-term from this starting point. Inflation or even the risk of sovereign restructuring will likely prevent this."
http://www.zerohedge.com/news/2014-09-10/deutsche-bank-bubble-must-go-sustain-current-global-financial-system

Maybe I shouldn't admit it but I have a subscription and he tracks the recommended exposure to gold as well as stocks and bonds amongst newsletters that provide timing advice. In total he tracks more than 500 newsletter portfolios, some of which provide timing advice. When the average sentiment amongst those timing letters becomes extremely negative of gold he figures its a good sign of a bottom and a good time to buy. I don't pay attention to his sentiment indexes or the timing newsletters so I have no idea how successful the sentiment index is at identifying bottoms.