Tuesday, May 06, 2008
When Money Magazine starts running stories like this one in today's Wall Street Journal, then you'll know we're a lot closer to the end of the commodities boom than the beginning.
Are Commodities Funds a Long-Term Bet? ($)This is very matter-of-fact reporting in a manner that is very different from what you might read on the same subject in recent issues of Money Magazine.
Global Demand Could Drive Sector; The Inflation Hedge
By DAISY MAXEY
May 6, 2008; Page C13
Commodity-focused mutual funds' incredible multiyear run is leading some investors to wonder how much upside could possibly remain, but strong demand for raw materials likely means these funds can deliver additional gains, at least longer term.
While the sector may be due for a correction in the next six months or so, global demand is expected to buoy the funds over the next several years.
"In the near term, it does look like it's run too far, too fast," said Mihir Worah, manager of the $13.9 billion Pimco CommodityRealReturn Strategy Fund. "But the longer-term picture is unchanged; commodities are going to do well over the next three, five, 10 years; in my mind, there's no doubt about it."
With inventories for many raw materials unusually low and strong growth in emerging countries, commodity prices should continue their upward trajectory, said Mr. Worah.
"There's too much demand from emerging economies for energy and metals, and not enough supply," he said, noting that creating new supplies involves long cycles.
Investors generally use these kinds of mutual funds to diversify their portfolios as the sector's performance is relatively uncorrelated with that of the broader market. But commodity funds can also offer a good hedge against inflation.
And this is probably about as close as you'll every hear anyone in the mainstream financial media say, "Invest in commodtities - it's a good long term bet".
The question posed in the title was clearly answered in the affirmative within the story.
Recall that, like the delightfully memorable Time Magazine cover in mid-2005, Money Magazine also got on the housing boom bandwagon not long before it peaked a few years ago (see June 2, 2005- Money Magazine Does Real Estate).
Then they did a hasty dismount (see Sept 5, 2005 - Money Magazine Does a One-Eighty).
My guess is that, at some point, the nation's most popular personal finance magazine will grudgingly add "commodities" as one of their approved investment asset classes (with maybe a 15 percent weighting) and that will be the time to start thinking about selling everything you've got.
But, don't worry.
As explained in today's WSJ story, that won't happen until sometime in the next decade.