Commodities making a comeback

market-rallies-since-beginning-2009 Don Coxe is one of the godfathers of commodities investment.  His recent investment letter highlights some market developments over the past half year, and is delivered with some commentaries.

  • Interbank lending heading back to normalcy: TED spread had fallen from 110 to 72.
  • The Chicago Volatility Index (VIX): high of 86 on October, 48 in mid-March, now at 32.
  • Commodities as measured by CRB Index: low of 200 in February, down from 460 last June, now at 232.
  • On the surprising performance of copper: not likely to see strong correlation between copper and industrial activity as some would suggest.
  • China is stockpiling on industrial metals as a result of low LME prices. Even with copper’s sales surge, copper inventories on the LME has not shrunk. Investors are advised from drawing broad conclusions, instead, watch for decisive recovery of Baltic Dry Index.
  • Base metals and steel stocks are the most economically sensitive group, followed by energy and agriculture; precious metals are responsive to fears of dollar or banking collapse, and inflation.
  • Agriculture stocks are driven by demand on the ground. The economic slowdown has reduced demand for wheat and feed grains, but it will not to the same level as the fall in metals and oil.
  • Skepticism on Obama’s initiatives on Clean Energy: jobs (estimated 4 million) will be created in universities and laboratories, but other than political goodwill, it’s far from certain his investment will provide good returns.
  • Long gold, short bond, short the dollar.
  • Once economic outlook improves, may boost base metal exposure and return to more exposure to oil refiners.

Some other things that caught my attention today:

  • The Dutch becoming “euro-skeptics” (opens to video): I live in the Netherlands, but this is news to me.  The Dutch do not seem  overly political, and are painfully aware of the symbiotic, and highly dependent relationship it has with greater Europe.  The pragmatists are truly concerned over money (and really, that is the one unwavering theme that will always bring the country together), and the populists are throwing the usual immigration, insecurity and border issues around. Not sure why the FT focus is on the Netherlands this time, perhaps there are French and German segments coming up also?
  • There are girl soldiers in the world.  Horrifying? But when your mind gets around the bend, it’s hardly surprising. There’s an equal number of girls as well as boys for the picking, so it’s only natural that military factions will take advantage of their youthful ignorance and compliance equally.  It reminds me of this story on Marie Clare years ago on the proliferation of female suicide bomers in Sri Lanka.  More often or not, they are victims of social ostracism and poverty, playthings of larger and more sinister political agendas.
  • To lose a companion of many decades and have to walk the earth alone, to lose a son and not see closure in your lifetime, these are stories that will make life at this very moment seem so easy and carefree.  How does one make peace with death?  How will family and friends of the Air France crash victims cope?  Heartfelt condolensces to them all.

picture source: joy55

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