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Nasty day for the inflation hedges …

edited March 28 in Other Investing
Oil fell over $10.00 .

Gold off $36.00

PM miners off 2.6%

Wheat got whacked

Most industrial metals weaker

Seems maybe forks folks are reasoning Putin ain’t such a bad dude after all … or possibly that the end of the war is nearer?

In Japan short rates were rising so fast (overnight) Bloomberg reported the BOJ was considering imposing some type of rate freeze.

Comments

  • edited March 28
    Hopefully, the war is nearing an end or at least they begin discussing options. Erdogan, of all people, seems to be the driving force behind this.

    As far as the inflation hedges and performance? I never got that right...I dabbled in several but nothing tp write home about. I did own SLV and GLD...I think I'd be better off owning the PRPFX
  • With but a few exceptions, FSRRX being one of them, the inflation hedges topped in early March. Seems like an overly crowded boat to me. Knowing how counterintuitive investing is wouldn’t be surprised if the March top is THE top.
  • edited March 28
    Oil pulled back due to China’s lockdown on Shanghai - worst outbreak in the last two years. It is severe enough to affect export production and oil consumption in that city. They are starting to use Pfizer vaccine which is considerable more effective than their Sinovac vaccine.

    Not sure why industrial and precious metals are down today. Same goes for agricultural products. Crude oil was down 9% this morning, but it is still over $100 prior to the war.

    Commodity is a volatile asset class so a small allocation will goes a long way. Ukraine war is still in-going so high oil price will return again.

    @junkster, you are right that FSRRX is the least volatile fund to gain exposure to commodities. The fund invested 30% in commodities and some in precious metals.
  • edited March 28
    I confess to being “a day late and a dollar short”. Missed out on the energy play - after oil topped $60. Decent exposure to broad based commodities thru a couple allocation funds. And of course own the precious metals miners. Looked and looked this weekend at stocks that might provide a back door into the energy sector. Nothing. All the majors + drillers are way up. Finally put a very small amount into ENOR today. It will probably fall. But an interesting fund with about 30% in energy & materials.

    @MikeM has had the energy play right all along. Suspect he was probably selling today?:)

    Yes. For the foreseeable future I agree the inflation hedges are way overdone. Longer term (more than a year out) it’s hard to say. And gold marches to its own drummer. Likely to do anything. But my guess is that it will be higher at year’s end.
  • edited March 28
    @hank, I was only playing in energy because DBC (Invesco DB Commodity Index Tracking Fund) happens to be ~50% energy. I wanted a 'broad basket commodity ETF and that's the one I bought last year. Inflation and rate hikes didn't just creep up on us. It has been a pretty pronounced topic for at least a year if not longer. Just took a while to get here.

    I still believe in the inflation hedge commodity theme through this year. Heck, energy still hasn't recovered fully from it's long trending drop starting around 2014. But I actually sold DBC a week or 2 ago because of it's over weight in energy/oil futures and the quick run-up. Others here mentioned COM, Direxion Auspice Broad Commodity Strategy ETF, a managed fund, much tamer than DBC, so I went that route. I switched dollar for dollar DBC to COM.

    Commodity trends normally last quite a long time. I think we are in one now, but hell, I've been wrong so any times. Could be again.

  • edited March 29
    @hank and @Mike M, please see @lynnbolin2021’s Seeking Alpha article - lots of good info. MikeM has made good move to COM.

    I too have invested small allocation in commodity futures via funds and ETFs since last year as my bonds lagged. They have moved up strongly as future prices on oil, gasoline, metals, agricultural products and livestock went up. I viewed today’s pull back as temporary and likely to move up again.

    Don’t think we are out of the wood yet?China’s COVID lockdown in that part of industrial city already affected the production of iPhones and other high valued products.


  • COM was down yesterday 1.6% yesterday, but is up 5.6% for the month and 15.3% YTD.
    FTGC faired well also, down 2.7%, but up 8% for the month.
    EAPCX and VCMDX both down about 2.5%, but up +9% for the month.
    FFGCX was down 1.9% for the day, but up 13% for the month.
    VGENX was down 1.3 for the day, but up 4.7% for the month.
    FSRRX was down 0.6%, and up 3.5% for the month.
    PZRMX was up 0.11%, and up 4.3% for the month.

    Inflation protection will be volatile as investors play the market, but inflation is high, and still worth owning in modest amounts.

    Just my two cents, or 1.9 cents adjusted for inflation.
  • I can't see inflation is controlled. Supply chain to China in worse mess than last year, due to Covid. Ukraine production of commodities will be hit bad, and will take time to trickle through the markets, although the recent spikes are likely an overreaction. What will happen to Agricultural prices when the food riots start because Ukrainian wheat deliveries to the Middle East are cut by 2/3s? Even if the Ukraine produces, all theport facilities have been destroyed.

    The Chinese are applying a hammer to Covid. Hong Kong apparently has only vaccinated 1/3 of their elderly ( what were they thinking?) and that with an ineffective vaccine.

    For the mainland to react this way they must realize their vaccine is worthless. Surely they have data on how the lockdown of Wuhan worked, and if they are trying it again, it must be pretty bad.

    While this will crush demand there, it will also hit supplies of chips etc hard.

    I started an overweight in energy and commodities last year, and have not added much. I didn't over do it but the rise is mainly price appreciation. I don't think it is time to sell. I don't really believe in a "Super cycle" but prices have been low for so long, and the worlds population is only getting larger.
  • edited March 29
    I should clarify that my reassessment of inflation assets was triggered largely by global events. Six months ago I thought a lot of industrial metals, agriculture, and especially energy assets were quite overvalued. That was before Russia invaded Ukraine and set in motion a wide range of unanticipated actions / events. The termination of the Nordstrom 2 pipeline project that would have supplied parts of Europe with cheaper natural gas was one. The efforts by NATO states to lessen dependence on Russian oil is another. Than there are the issues with grain production …

    Doesn’t appear to me that this is a temporary phenomenon. So net-net I raised my allocation to real assets from around 8% to 9%. Not a huge change. I accomplished this with the addition of ENOR which tracks an equity index in Norway - a nation rich in energy and minerals that should benefit from the above mentioned global situation. It is weighted about 20% energy and 10% other materials. As I said earlier, domestic petroleum producers and drillers look too expensive for my taste. As a cautionary note: This is a highly volatile fund that fell about 40% in the first quarter of 2020. You may recall, however, that around than oil fell below 0 on the futures markets.

    Real assets look a bit weak again today. Some froth being boiled off. RIO is off 1%. But the stock has been good to me since buying. Gold’s off a small amount and the p/c miners recently turned positive. I’ve always felt that in a well balanced portfolio you should have assets moving in both directions. It’s the days where 100% of my holdings move up in sync or down in sync that worry me.

  • edited March 29
    There are extensive articles in last week's The Economist detailing the points that @sma3 is making. He is not exaggerating- the commodity supply situation is going to be a disaster on many fronts.
  • CRB Index chart on TradingEconomics.com.
  • sma3 said:

    I can't see inflation is controlled. Supply chain to China in worse mess than last year, due to Covid. Ukraine production of commodities will be hit bad, and will take time to trickle through the markets, although the recent spikes are likely an overreaction. What will happen to Agricultural prices when the food riots start because Ukrainian wheat deliveries to the Middle East are cut by 2/3s? Even if the Ukraine produces, all theport facilities have been destroyed.

    The Chinese are applying a hammer to Covid. Hong Kong apparently has only vaccinated 1/3 of their elderly ( what were they thinking?) and that with an ineffective vaccine.

    For the mainland to react this way they must realize their vaccine is worthless. Surely they have data on how the lockdown of Wuhan worked, and if they are trying it again, it must be pretty bad.

    While this will crush demand there, it will also hit supplies of chips etc hard.

    I started an overweight in energy and commodities last year, and have not added much. I didn't over do it but the rise is mainly price appreciation. I don't think it is time to sell. I don't really believe in a "Super cycle" but prices have been low for so long, and the worlds population is only getting larger.

    .....I'm learning. Your valuable post is another example of why I stick to this webpage on a daily basis. And you put it all in such a way that even I can understand. :)
  • edited March 29
    I am surprised 2+yrs after COVID arrived PRC has not changed its approach to Covid. Hopefully, the PRC lovers in Taiwan wake and smell the coffee. Vietnam has one of the highest vaccine rates and they just went for the best available vaccines. So, PRC approach is not just a communists’ approach to life but I can see how communists are always paranoid about social unrest being just around the corner. PRC must be suffering from false Nationalistic pride. From an investment POV, I thought I would put most of my international allocation in China (as a hedge against US equities) but after learning PRC’ ways over the past 2 yrs, I have concluded that PRC is not set up to maximize human potential and I do not plan to allocate any new money to PRC. Let us hope other emerging countries gain more prominence and US decreases its reliance on PRC.
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