Commodities

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Sep 13, 2010 4:05 pm

Money magazine article citing Ibbotson and UBS: commodities not a must - for inflation, use TIPS.

You can probably do fine with a standard stocks and bonds portfolio.

What I have been doing, was thinking of bringing more commodities or at least sector funds, what are you doing?

Sep 13, 2010 5:06 pm

We've done some silver and gold etf trades, and also done Franklin and Oppenheimer precious metals. The funds have significantly outperformed the base stuff, since we started this in Spring. We are encouraging clients to have 3-4% exposure, may move higher, like 5-7% come Spring. I see the Dow getting to 12k by mid late spring, top at 12.5. Then, I think bonds and stocks suffer for 18-24 months. I base this on my study of charts from the 70s. I think technical analysis is overtaking fundamentals right now...we have range bound folks right now, and they don't even know it.

Sep 13, 2010 6:05 pm

Cool. I just probably would not even bother to mess with 3-4% exposure, but I guess if you go closer to 10% it could be meaningful.

Sep 14, 2010 1:05 am

Hmm, someone's asking UBS what they think of inflation protection after the ARS fiasco?

Personally, I don't mind commodities for diversification, although most have had their run and will likely disappoint over the next ten years.  But I don't like them for inflation hedging, even, especially, gold, whose empirical performance since abandoning the gold standard is vastly overrated.  I would go for those that are tied to industrial production, like copper, over those that are based on speculation, like gold.  I think 10% allocation is heavy for most portfolios given their volatility.

I don't like TIPS much, when you can hedge against inflation with much better returns (although moderately more risk) by going with strong globally diversified consumer staples like P+G, McDonalds, etc.

Sep 14, 2010 11:08 am

Good points. I have been concentrating the large cap allocation with things like energy (VDE), consumer staples, and basic materials.

How much gold is there in the world? Something like, enough to fill three and one half olympic swimming pools. When its gets to the point where a client has a couple or three million in assets, it seems to give some peace of mind owning gold (held in a little bank vault across town).

Not practical. In a meltdown, are you going to walk around with your shotgun and a bag of gold and trade with the looters?

 I think TIPS can go up when things melt down, so in addition to inflation protection, they help the statements look nice during time of stock and even higher yielding bond volatility (like, heaven forbid, geopolitical problems).

I'm thinking some money in VA riders could help out, although I realize negative subaccount performance will show up on page one of the statements, you can flip back and look at the guaranteed benefit amount.

Sep 14, 2010 1:38 pm

Years ago, I looked at tips and i bonds. My conclusion was that i bonds were far superior to tips. Tips, when they backfire, can literally create a compliance problem. Very complicated little buggers...

A little fun project here, can anyone tell me what did exceptionally well in 1994 on the long side? Feb through Thanksgiving was brutal. ANd, does everyone remember the "flawed" pentium chip story that came out in Thanksgiving of that year? What a hit piece story that was huh?