Old Soros Partner Thinks Commodities are the way to go

[andrasnm]

He even started a fund and wrote a book - his name is
Jim Rogers - the author of the "Investment Biker" etc.
I trade spreads on futures and I can get 40-50 percent on my money. If you need to know how come/visit my website
http://www.coach4traders.com

[DesertCat]

[ QUOTE ]
He even started a fund and wrote a book - his name is
Jim Rogers - the author of the "Investment Biker" etc.
I trade spreads on futures and I can get 40-50 percent on my money. If you need to know how come/visit my website
http://www.coach4traders.com

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A stopped clock is right twice every day. Jimmy has been touting commodities for about 15 years. The problem is the long term trend in all commodity prices is down. Read some Julian Simon.

[tech]

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The problem is the long term trend in all commodity prices is down. Read some Julian Simon.

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Too bad the last 25 years of data doesn't support Simon's hypothesis (on falling prices, that is).

[DesertCat]

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Too bad the last 25 years of data doesn't support Simon's hypothesis (on falling prices, that is).

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In 1980 crude oil prices were $38. Adjusted for inflation, they would be $94 today. So oil prices clearly support Julian's hypothesis. Name a commodity that hasn't over the last twenty five years.

BTW, median household income in 1980 was $17,700, so the typical U.S. family's income equaled 465 barrels of oil a year. Now it's around $45,000, so now the typical U.S. family income is equivilent to 833 barrels of oil per year. That's called getting cheaper.

[tech]

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Name a commodity that hasn't over the last twenty five years.


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Olive oil and some types of lumber, for starters. But with that said, 1980 is a bad starting point because of high inflation and high commodity prices (relative to a few years later). I suspect Julian was well aware of this when he made his famous bet. If you start in 1982-1983 and try to name commodities that have outpaced inflation, there are quite a few.

[DesertCat]

[ QUOTE ]
[ QUOTE ]
Name a commodity that hasn't over the last twenty five years.


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Olive oil and some types of lumber, for starters. But with that said, 1980 is a bad starting point because of high inflation and high commodity prices (relative to a few years later). I suspect Julian was well aware of this when he made his famous bet. If you start in 1982-1983 and try to name commodities that have outpaced inflation, there are quite a few.

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I'm pretty sure Julian made his arguments based on data that goes back hundreds of years. The argument is essentially that in general humanity gets wealthier over time, and that means commodities get more affordable, i.e the definition of wealth is that prices lag income gains.

Certainly commodities can increase in price dramatically in short periods, but over long periods the arrow points down. Even in the case of commodities such as oil, where we are within 50-100 years of exhausting currently known supplies.

I cherry picked a little in using oil, since 1980 was an all time high for oil prices. But right now we are at a 25 year high in prices as well so I thought it was still fair. Shifting back five years, from 1975-2000 would produce similar results, since oil prices were dramatically lower in 2000.

I can't find historical data on olive oil prices, or any types of woods that support your assertions. Can you point me to public data on any commodities that do?

[laserboy]

What do you mean by the long term trend? Since 1959, a collateralized commodity index would have outperformed ALL asset classes, including the S&P500, with less risk.

http://papers.nber.org/papers/w10595

Regardless, Rogers does not advocate commodities as an inherently superior investment, just that they are presently undervalued relative to stocks and bonds. He invests in cyclical macro trends, not long term buy and hold. Since he started the RICI in 1998, the index has outperformed all mutual funds regardless of industry.

[DesertCat]

[ QUOTE ]
What do you mean by the long term trend? Since 1959, a collateralized commodity index would have outperformed ALL asset classes, including the S&P500, with less risk.

http://papers.nber.org/papers/w10595



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Interesting study, I'd like to read it but don't want to pay for it. I'm assuming they acounted for stock dividends in their comparison. Two comments however. First, volatility isn't risk. Second, they studied commodities futures, not commodities values, and Keynes speculated that commodities future buyers are getting an enhanced return from hedgers.

I'm also curious as to why they started the study in 1959, instead over a longer period, say like from 1919. Then the same results would be even more compelling.

[laserboy]

There is no fee to look at the article, you can just click on the PDF file at the bottom of the page. [img]/images/graemlins/grin.gif[/img]

Here is the summary:

1) Between July 1959 and March 2004 average monthly returns on the S&P 500 and equally weighted commodity futures were remarkably similar at 10.8%, and 10.5%, respectively.

***Commodities have outperformed everything since then

2) They are also similar over economic expansions with 12.8% returns for the S&P 500 and 12.9% on equally weighted commodity futures.

3) During late stages of expansion when stock and bond returns are below average commodity returns are positive and outperform both stocks and bonds.

4) During the early stages of recession stocks, bonds and commodity returns are negative -15.5% and -2.9% respectively. By comparison the returns on commodity are positive by 3.5%.

They somehow came up with 1959-2004 as encompassing exactly 7 business cycles.

I highly recommend Rogers' books though. Even if you aren't into investing, his books are very entertaining. Particularly Investment Biker and Adventure Capitalist. Warren Buffett once called Rogers the finest Securities Analysis professor in the country.

Interesting facts:

Did you know that only one lead mine has been opened in the world in the last 25 years?

Or that over the past couple of decades Columbians have been tearing out their coffee trees to plant coca plants, the source of cocaine?

Or that with sugar prices at record lows and oil prices at record highs that sugar can be profitably converted into gasahol?

[DesertCat]

[ QUOTE ]


I highly recommend Rogers' books though. Even if you aren't into investing, his books are very entertaining. Particularly Investment Biker and Adventure Capitalist. Warren Buffett once called Rogers the finest Securities Analysis professor in the country.

Interesting facts:

Did you know that only one lead mine has been opened in the world in the last 25 years?

Or that over the past couple of decades Columbians have been tearing out their coffee trees to plant coca plants, the source of cocaine?

Or that with sugar prices at record lows and oil prices at record highs that sugar can be profitably converted into gasahol?

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I like Jim Rogers, he was a hell of a security analyst. But I think he's gotten a little nutty over commodities.

The facts you cite support that commodity prices decline over time. We get more efficient at pulling them out of existing mines, or farming certain crops gets so efficient farmers are forced to look for other opportunities.

And world sugar prices have gotten really cheap. I'm pretty sure the U.S. doesn't benefit from low world sugar prices, because our tariff system keeps domestic prices high.

Our prices for imported commodities are rising due to our huge budget deficits driving the dollar lower. That's a big reason why oil is $56 a barrel, if the Euro was still worth 86 cents U.S. oil prices would probably be about 30% lower.