Useful Links

brewer12345 · 09-28-2005, 11:44 AM

DJ-AIG Commodities index is up almost 4 and a half points right now! Whether we have growth or not, we've definately got inflation. Its only a matter of time until we start seeing all of this trickle down to unit labor costs, or we get tipped into a recession. Not pretty...

wildcat · 09-28-2005, 11:51 AM

Do you think the wage cost increases are for real or do you think the 'global' economy will suppress wage growth below the level of material cost increases? China/other emerging markets are supposed to experience increases in labor costs so I imagine it could be a worldwide event.

brewer12345 · 09-28-2005, 11:59 AM

Like it or not, wage markets are imperfectly connected. Yes, you can outsource certain jobs very easily, but there are an awful lot you can't outsource, either because you need feet on the ground or because there aren't enough skilled workers, or for other structural reasons. There are some signs that Chinese and Indian labor are getting bid up by outsourcing efforts. At some point, higher cost of living has to be reflected back into unit labor costs. If higher COL doesn't translate into higher wages, the consumer will eventually get baly squeezed and consumer spending will fall. That would likely trigger a pretty ugly recession.

wildcat · 09-28-2005, 12:02 PM

Quote:

If higher COL doesn't translate into higher wages, the consumer will eventually get baly squeezed and consumer spending will fall. That would likely trigger a pretty ugly recession

That would be my concern but to me it is worst case scenario and not very likely.

laurence · 09-28-2005, 12:03 PM

For the uninitiated, would you go into the DJ-AIG index a bit, or maybe point to a link with an explanation of what it means? Is this a one day move, and is that significant? Or is this a periodic report like the consumer confidence number? Thanks much!

EDIT: DUH! Nevermind. D J stands for Dow Jones, sorry! All coming together now. :P

wildcat · 09-28-2005, 12:07 PM

It has been moving quite a bit lately but 4 1/2 is pretty big. It is the commodity index (like the S&P except it is commodities) that Pimco uses as a benchmark for the Commodity Real Return MF. So you wanna play it go with the Pimco MF.

brewer12345 · 09-28-2005, 12:16 PM

Further to what Wildcat said, the DJAIG index is a useful gauge of commodity inflation because it includes 5 different categories (precious metals, energy, agriculture, indstrials, and livestock) and has all kinds of governors that prevent any one category or commodity from making up too much of the index. The weights are re-set every year, and every quarter things get cut back to within certain limits, IIRC.

laurence · 09-28-2005, 12:26 PM

ah, excellent, none of that "once we remove the volatile housing, energy, and every other component that actually matters, the core inflation rate of cheap imported electronics is...."

. Thanks!

wildcat · 09-28-2005, 12:32 PM

Quote:

it includes 5 different categories (precious metals, energy, agriculture, indstrials, and livestock) and has all kinds of governors that prevent any one category or commodity from making up too much of the index. The weights are re-set every year, and every quarter things get cut back to within certain limits, IIRC

That is why it is better than most nat resource/commodity funds. Most are too weighted towards energy.

lazyday · 09-29-2005, 02:47 PM

Quote:

Originally Posted by wildcat

So you wanna play it go with the Pimco MF.

Is that a rap lyric?
At least you abbreviated... there might be kids reading

Martha · 09-29-2005, 03:39 PM

Quote:

Originally Posted by lazyday

Is that a rap lyric?
At least you abbreviated... there might be kids reading

Gone4Good · 09-29-2005, 03:49 PM

Quote:

Originally Posted by wildcat

* So you wanna play it go with the Pimco MF.*

Chasing the hot sector usually ends in

wildcat · 09-29-2005, 08:21 PM

Lazy -

Glad to see you noticed my skills

Quote:

Chasing the hot sector usually ends in

Commodities have been in a bear market for approx 20 years

Gone4Good · 09-29-2005, 08:24 PM

Yup. And they're now due for another 20-year stinker.

Bonds pay interest, stocks pay dividends and hopefully grow the capital base, and a lump of gold is pretty much a lump of gold.

Makes a nice paper weight though.

wildcat · 09-29-2005, 08:37 PM

Hmm I just collected a payment from my Pimco Commodity Fund. It holds TIPS as collateral so you do collect payments + net the returns on commodity futures.

The point of holding a commodities fund is diversification.

BUM · 09-30-2005, 02:33 AM

Quote:

Originally Posted by wildcat

Hmm I just collected a payment from my Pimco Commodity Fund.*

Hi wildcat,

I just collected the same dividend...very tasty indeed!

BUM

brewer12345 · 09-30-2005, 06:25 AM

Quote:

Originally Posted by . . . Yrs to Go

Yup.* And they're now due for another 20-year stinker.

Bonds pay interest, stocks pay dividends and hopefully grow the capital base, and a lump of gold is pretty much a lump of gold.*

Makes a nice paper weight though.

That's why I wn PCRDX and not gold coins or bullion. The Pimco funds own TIPS plus long positions in commodity futures, not actual commodities. If you poke around Raddr's site, you will find some very well-written articles that do a good job of explaining the difference and the source of return from this strategy. In a nutshell, you get:

- The return on the collateral (TIPS in this case)
- Whatever the gain/loss on the underlying commodity is
- An "insurance premium" that commodity producers are willing to pay to hedge out their exposure

If you look at the historical record, the DJAIG index is significantly negatively corrrelated with both stock and bond returns. It makes a very nice diversifier.

Dawg52 · 09-30-2005, 07:01 AM

Jimmy Rogers has been bullish on commodites. Here is his take on it.....
http://www.investment-u.com/ppc/spla...fm?kw=XVVIU282

brewer12345 · 09-30-2005, 07:14 AM

Quote:

Originally Posted by DOG51

Jimmy Rogers has been bullish on commodites. Here is his take on it.....
http://www.investment-u.com/ppc/spla...fm?kw=XVVIU282

FWIW, I dont own it because I hae a view on commodities. I own it because it tends to move in the opposite direction of equities and bonds while still having positive long term return potential. It lowers my overall risk without reducing return materially.