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I'm in the UK, so firstly I have to state that I can't give you investment
advice because I'd be breaching all sorts of securities regulations.
However, I can tell you the following since it is definitely *not* advice,
just observation:
1. Historically, commodities have indeed been inversely correlated with
stocks; however, one reason for this is simply that on a historical basis,
stock prices have always tended to rise whilst commodities have fallen as we
have gotten better at extracting them. There is no causality there - so it
is possible that stocks and commodities could both fall.
2. Commodities in general are very cheap on a historical basis - crude oil
for instance is cheaper than it was before the Arabs hiked prices in the
early 1970s (in inflation-adjusted terms).
3. If stock prices fall it may be because a depression is starting - in this
case, it is unlikely that commodities would rise since demand would fall.
This is what has happened in Asia over the past 12 months.
4. Portfolio theory & analysis have typically shown that adding some
commodity exposure to your portfolio reduces earnings volatility for the
same return - i.e. better Sharpe ratio, more diversified earnings.
5. Primary stocks (like oil/metals producers etc) are pretty well correlated
with commodity prices over the long term, but there can be huge divergence
in the short term: look at oil stocks over the past few days, trading very
well with oil price; this is certainly not always the case. Integrated
companies (liek Exxon) will be less correlated than specialists (like
Williams).
6. Commodities can be volatile in comparison with many regular stocks - more
like internet stocks in their characteristics.
7. May primary producers of metals (precious & base), oil & gas are trading
below theoretical asset value - so in the long run one might argue that
they're a better buy than commodities themselves! Indeed, you could even
formulate a strategy of figuring out the historical "beta" of a stock to the
underlying commodity and hedging that by buying the stock, selling futures.
But I'd guarantee the beta is very unstable!
Have fun.
Rus
-----Original Message-----
From: TWA7663@xxxxxxx <TWA7663@xxxxxxx>
To: rpn@xxxxxxxxxxxxxxxxxx <rpn@xxxxxxxxxxxxxxxxxx>
Date: 12 March 1999 14:16
Subject: Re: map to the H. grail/QQQ
>In a message dated 3/12/99 6:26:28 AM US Mountain Standard Time,
>rpn@xxxxxxxxxxxxxxxxxx writes:
>
><< There's already a "total return equity" for crude oil - JPMorgan's Crude
>Oil
> Preferred Security (ComPS) - think the AMEX ticker is JPO. The price is
> indexed to JPMorgan's Commodity Index Crude oil sub-component - so
> effectively it's NYMEX WTI on AMEX from a return perspective.
>
> A 10% increase in WTI (roll-adjusted, of course) should lead to exactly a
> 10% increase in JPO price I believe.
>
> They were planning to issue more of these, but recently closed down their
> commodity trading desk (I was there!) >>
>
>Rus
>
>I need to find stocks for my retirement fund that go up when the market
goes
>down because I can't trade short in the fund. I don't want to buy funds.
>Would energy or other commodity stocks be a good choice?
>
>I am confused about your comments. If I wanted to buy a stock that might
be
>going up when the stock market is tanking, which stock of the above would
you
>recommend? Aren't they very thinly traded? Which index would be best to
look
>at for a historical perspective for that stock's characteristics?
>
>Russ
>
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