Egypt is experiencing mass demonstrations with protestors calling for a regime change and improved employment opportunities, i.e. a better quality of life. The results of this development within the most populous Arab country are as yet unknown, but the turmoil has concerned Egypt’s neighbors and trickled over into commodity markets.
What is to blame – Hosni Mubarak’s authoritarian regime or some other factor? Since I am a “Financial Advisor” I will stick with what I know. The dollar is the most important currency in the world and the Federal Reserve controls the value of the dollar by setting interest rates and controlling money supply. When the Fed prints too many dollars, price inflation results and often shows up in commodity prices first. When loose monetary policy lifts energy commodities, oil exporters typically benefit. Egypt is an oil producer and refiner, so rising energy prices should be slightly positive for their economy.
Likewise, when loose monetary policy lifts food commodities, food growers and exporters typically benefit. Egypt is a food importer; according to the Egyptian Agricultural Minister, the country imports 40% of its food. So, rising food prices are negative for the nation’s economy.
In the second-half of 2010, the Goldman Sachs Agricultural Index climbed 66%, the steepest increase for any 6-month period since 1974. Recently, there have been several instances where third world governments lifted subsidies on food & fuel and then, because of mass protests and discontent they, at least partially, re-instated the subsidies. In other words, the impact of a declining dollar and rising food prices has been detrimental to the average standard of living in Egypt and, in many other parts of the third world, where you can add rising energy costs to the mix.
Not helping this global situation is the fact that by 2010 the percentage of US corn production devoted to the production of ethanol was 39.4%, or nearly five billion bushels out of total U.S. production of 12.45 billion bushels, add to that the droughts last summer in Russia and Australia and then the floods and typhoon - again in Australia.
Portfolios under my advisement have maintained exposure to metal commodities for several months and recently (pre-Egypt) added broad agricultural commodity exposure. Agricultural commodities stand to benefit from a plethora of dollars, rising global demand and misguided policies.
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Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Friday, February 11, 2011
Wednesday, February 2, 2011
Rip van Winkle
Had you laid down to take an extended nap 2 1/2 years ago and recently woken, you would have noticed very little change on the surface of the stock market. The DJIA hit a high of 12,000 in June of 2008 and just the other day managed, for the first time since, to exceed that benchmark. Since June 2008 however, we experienced a wild ride with the Dow falling 45% only to turn around and gain 85%.
I have fielded several inquiries regarding the market’s round-trip and how it does or does not translate into portfolio performance. Let’s use C (Citigroup) as an example: C hit a (recent) high of $23 in October 2008 and then plummeted to $1 by March 2009 – sustaining a loss of over 90%!
Now, for those with the intestinal fortitude to buy C at $1, there were, in hindsight, rewards to be reaped as C is now trading close to $5 – a 500% return…However, those that rode it down from $23 are still sitting on a loss of 85%. Not to speak of the poor souls who paid $57 a share in December 2006…
The disciplined approach to investing that I bring to the table strives to exit the market, a sector or security, in the very early stages of a decline. Assuming success in this endeavor, this action will preclude us from owning a security at ‘the bottom’. After a decline, when demand is returning, we strive to invest in sectors that are exhibiting positive strength versus the broad market. We select sectors as opposed to individual companies because of an important study by Benjamin F. King, titled “The Latent Statistical Structure of Securities Price Changes”, which concluded that “Market and sector forces typically cause 80% of the price movement in a stock while company fundamentals usually account for less than 20% of a stock’s price movement.” Investing in sectors as opposed to individual companies helps shelter us from unfortunate situations like Exxon-Valdez & BP’s oil well.
On an uplifting note, 19 out of the 30 Dow members recently closed above their June '08 levels. On a more somber note, 6 of the worst performing stocks are still sitting on double digit losses. Home Depot, Inc. (HD) was the best of the best as it rose approximately 45% since June 2008 however, one can easily argue that a lot of HD’s outperformance was due to the fact that Building stocks had already declined substantially from the April 2006 high; the DWA Building Sector had already declined over -45% by June ‘08.
Bottom line, the DJIA recently hit 12,000 again after 2 1/2 years and during the aforementioned time period, net of dividends, the DJIA returned 1.4%, the S&P 500 lost 2.33% and EFA (Europe, Far East & Asia) lost 14.45%.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
I have fielded several inquiries regarding the market’s round-trip and how it does or does not translate into portfolio performance. Let’s use C (Citigroup) as an example: C hit a (recent) high of $23 in October 2008 and then plummeted to $1 by March 2009 – sustaining a loss of over 90%!
Now, for those with the intestinal fortitude to buy C at $1, there were, in hindsight, rewards to be reaped as C is now trading close to $5 – a 500% return…However, those that rode it down from $23 are still sitting on a loss of 85%. Not to speak of the poor souls who paid $57 a share in December 2006…
The disciplined approach to investing that I bring to the table strives to exit the market, a sector or security, in the very early stages of a decline. Assuming success in this endeavor, this action will preclude us from owning a security at ‘the bottom’. After a decline, when demand is returning, we strive to invest in sectors that are exhibiting positive strength versus the broad market. We select sectors as opposed to individual companies because of an important study by Benjamin F. King, titled “The Latent Statistical Structure of Securities Price Changes”, which concluded that “Market and sector forces typically cause 80% of the price movement in a stock while company fundamentals usually account for less than 20% of a stock’s price movement.” Investing in sectors as opposed to individual companies helps shelter us from unfortunate situations like Exxon-Valdez & BP’s oil well.
On an uplifting note, 19 out of the 30 Dow members recently closed above their June '08 levels. On a more somber note, 6 of the worst performing stocks are still sitting on double digit losses. Home Depot, Inc. (HD) was the best of the best as it rose approximately 45% since June 2008 however, one can easily argue that a lot of HD’s outperformance was due to the fact that Building stocks had already declined substantially from the April 2006 high; the DWA Building Sector had already declined over -45% by June ‘08.
Bottom line, the DJIA recently hit 12,000 again after 2 1/2 years and during the aforementioned time period, net of dividends, the DJIA returned 1.4%, the S&P 500 lost 2.33% and EFA (Europe, Far East & Asia) lost 14.45%.
Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
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