{"id":36090,"date":"2013-02-12T01:37:24","date_gmt":"2013-02-12T06:37:24","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36090"},"modified":"2013-02-12T01:37:24","modified_gmt":"2013-02-12T06:37:24","slug":"the-stuff-of-commodities","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/12\/the-stuff-of-commodities\/","title":{"rendered":"The \u2018Stuff\u2019 of Commodities"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

Every year Credit Suisse publishes the Global Investment Returns Yearbook. It’s a summary of how different asset classes have performed over the last 100 years or so. It also includes a bit of analysis and comment on what that means for investors.<\/p>\n

The main conclusion from this year’s study was pretty predictable.<\/p>\n

Returns on all asset classes are likely to be very modest in the next few years. That’s why pensioners-to-be need to ferret away more cash than ever. How much?<\/p>\n

Well, according to Allister Heath of City AM, the findings suggest that most people should probably think about something like a quarter to a third of their salaries.<\/p>\n

And given that most people won’t save anything like that, ‘a horrible crisis is looming’.<\/p>\n

Today I want to show you why I think this situation is scandalous. And I’ll look at what it all means for your asset allocation this year.<\/p>\n

A Torpedo Takes Out Capitalism<\/h2>\n<\/p>\n

The Credit Suisse study suggests (as if we didn’t know already!) that we can’t expect to earn much on savings anymore. Basically, the time value of money has been obliterated. <\/p>\n

You probably know by now that I put it all down to the central planners. Governments and central banks have gradually removed free capital markets from capitalism. And that has torpedoed the time value of money.<\/p>\n

And things are set to continue along this path.<\/p>\n

The planners won’t change course, of that I’m sure. And if the public increase their rate of savings to anything like a third of their salary, then demand for investments<\/a> will drive yields down even further.<\/p>\n

We’re constantly chasing our own tail. And returns on investments are heading toward zero…<\/p>\n

Buy What You Can Kick<\/h2>\n<\/p>\n

The planners attacked the bond markets first. By relentlessly buying government bonds<\/a>, they drove prices up (and yields down)…which means that pension investors must pay crazy prices for the same assets. <\/p>\n

But the real beneficiary of the collapsing time value of money is ‘stuff’. What stuff? Stuff is whatever you can kick. Practically anything – houses, classic cars, antiques, gold, silver<\/a>. Stuff pays no interest anyway, and if financial assets can’t reward investors in a way that matches their risks, then why hold them at all? Why not just buy stuff?<\/p>\n

The way I see it, the planners inflated the bond bubble first. Now they are inflating the equity bubble – and it’s useful to have some exposure to that too. But the final bubble to inflate is commodities<\/strong>.<\/p>\n

How to Build Commodity Exposure<\/h2>\n<\/p>\n

It’s why I recently upped my commodities allocation from 25% to 30%. Commodities<\/a> are the financial equivalent to ‘stuff’.<\/p>\n

However, commodities are a difficult area for private investors. Exchange-traded funds (ETFs) are probably the easiest way in, offering exposure to anything from precious metals<\/a> to agri-commodities and oil. <\/p>\n

You can buy ETFs through your regular stockbroker. But beware, you’ll have to do your homework. Make sure you understand the concept of ‘roll-yield’ before you put your money down.<\/p>\n

But if you’re not keen on ETFs, you can get exposure to rising commodities through judiciously selected equities. <\/p>\n

The point is, government meddling has totally twisted the price and the returns from financial assets. And that ultimately means that most private investors don’t have adequate exposure to commodities. <\/p>\n

Over the years that’s been pretty understandable. I mean, why would you want to hold the financial equivalent of ‘stuff’ if it doesn’t pay a respectable yield?<\/p>\n

But the way we’re heading, pretty soon there won’t be any income on financial investments<\/a> anyway. All they’ll offer is risk. That’s why investors are gradually moving towards stuff – and I think the flow is set to continue.<\/p>\n

However you get your exposure…just make sure your portfolio isn’t underweight stuff.<\/p>\n

Bengt Saelensminde
\nContributing Editor, Money Morning<\/em><\/strong><\/p>\n

Publisher’s Note<\/em>: This article first appeared in MoneyWeek<\/a><\/em><\/p>\n

From the Archives…<\/em><\/strong><\/p>\n

Two Questions to Ask Before You Buy Another Stock<\/a>
\n8-02-2013 – Kris Sayce <\/p>\n

Are These 5 Blue-Chip Stocks Still a Good Buy?<\/a>
\n7-02-2013 – Kris Sayce <\/p>\n

Don’t be Long and Wrong on this Stock Market Rally<\/a>
\n6-02-2013 – Kris Sayce <\/p>\n

Perceptions of Beauty and Stock Valuations<\/a>
\n5-02-2013 – Satyajit Das <\/p>\n

This Share Market Rally Has Angered Some Investors<\/a>
\n4-02-2013 – Kris Sayce <\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Every year Credit Suisse publishes the Global Investment Returns Yearbook. It’s a summary of how different asset classes have performed over the last 100 years or so. It also includes a bit of analysis and comment on what that means for investors. The main conclusion from this year’s study was pretty predictable. Returns … <\/p>\n

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