Commodities-Alternative Assets

CFA Level III Portfolio Management
#1

hi Guys,

Commodities: When the inflation outlook is poor, cyclical commodities provide an effective inflation hedge.

can some one explain me -what is inflation outlook to be poor - Im expecting it to be poor. and when inflation is poor-how can commodities provide an inflation hedge?

Please suggest.

thanks,

#2

Poor outlook in terms of inflation might mean unexpected inflation. Non Agricultural commodities are positively correlated with inflation. So if there is unexpected inflation, the prices of these commodities increase hence providing an inflation hedge.

#3

Before economy is heading to recession, high inflation trend may happen. Then commodities do a job in your portfolio. Recall 2008. Watch commodities charts trends on Bloomberg and Yahoo Finance and it will be clear.

#4

so summarizing- Poor inflation can be unexpected as well if eco moving to recession - higher / un expected inflation and price increase for non agri commodities will provide inflation hedge,

Thanks gigaloo and Flashback for the explanation.

#5

Usually, poor inflation outlook (high inflation) happens when economy is over heating.

If economy is moving to recession, it is rare to have inflation.

#6

Usually high inflation outlook happens when economy is on peak and heading downturn. Accelerated inflation (not too high) may happen in earlier cycle.

http://www.macrotrends.net/1466/inflation-rates-100-year-historical-chart