Source: Mineweb.com 06/09/2008
Since the onset of the so-called supercycle, around early 2002, commodities have increasingly gained the reputation of being a hedge against everything – except, now, so it seems, commodities.

In the past few days, crude oil prices have surged into unchartered territory, close to $140 per barrel, closer to an as-yet unknown “choke point”, where oil will demonstrably unleash serious damage on the global economy. Today’s oil prices are the highest – in inflation-adjusted terms – seen since the 1860s, an event that triggered the Pennsylvania oil boom. In the modern era, oil crises were seen in the mid-1970s, when prices topped $45 a barrel in today’s money, and then $90 a barrel in the early 1980s.

In their most modern manifestation, commodities have also increasingly emerged as a separate asset class, and, when seen as a “hedge against everything”, offer indirect exposure to emerging markets industrialization, …

Teri Horton may be the greatest living investor.

You wouldn’t think so to look at her. Horton, a retired truck driver, lives in a trailer furnished and decorated with items she found dumpster diving. She doesn’t own any stocks. She doesn’t even know what a junk bond is. And if you asked her to forecast the Dow, she’d probably tell you to get lost. You see, Horton deals in the most illiquid asset class in the world: fine art. And she got into it by complete accident.

In the mid-90s, Horton was browsing through a thrift store in her hometown of Costa Mesa, California, looking for a gift to cheer up a depressed friend. She came across a massive “ugly” painting. She asked the clerk how much the painting cost. When the clerk responded “$8”, Teri said, “I love my friend, but I don’t love her that much. Couldn’t we do …

I have been interested in and invested in Vietnam since the fall of 2006. I bought the Vietnam Opportunity Fund (VOF.L) at $2.48, sold half of it at $4.73 a few months later and still have some shares now trading at $1.99.The fund hovered along at down a little for the year before starting to swoon about a month ago, consistent with the VN Index which is down 59% YTD.The GDP has been en fuego, but less than in China, which has proven too hot to handle as now inflation appears to be running at 25-30%.As I wrote several times along the way about Vietnam, a destination like this is going to have huge booms and huge busts along the way.The story on the ground, which of course includes the inflation ...

Commodities have become an accepted asset class for a significant portion of investors. Ibbotson has performed studies showing that commodities are a beneficial asset class addition to a portfolio.

The ETF/ETN providers have created convenient and low cost ways to invest in a diversified basket of commodities. This article looks at the the iPath ETN (DJP), the PowerShares ETF (DBC) and the iShares ETF (GSG). There are other broad index commodity funds, but at this time DJP, DBC and GSG are the most liquid.

The index differences, underlying assets differences, and entity structure differences create materially different gross total returns and tax liabilities.

The performance charts that follow are linked to the Yahoo Finance site and are up-to-date (daily), even past the date of this publication.

PERFORMANCE

One-Year Chart Comparing DJP, DBC and GSG:

Three-Month Chart Comparing DJP, DBC and GSG:

OTHER LINKED DATA:

You

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The practical challenge when tax loss harvesting is maintaining a continuous asset class exposure at target levels without time gaps, while avoiding penalties under the IRS Wash Sale Rule (IRC Section 1091).

The problem with time gaps is that significant market moves can occur in the 30-day waiting period of the Wash Sale rule, which would prevent the portfolio from achieving the risk and return expectations on which the portfolio asset allocation was designed.

The solution to the problem is substitution. Immediately upon realizing a loss in one fund, open a position in an alternate fund that is similar to, but not “substantially identical” to, the fund on which the loss was realized.

After the waiting period of 30 days, close the substitute fund position and reopen the original position (assuming …

The practical challenge when tax loss harvesting is maintaining a continuous asset class exposure at target levels without time gaps, while avoiding penalties under the IRS Wash Sale Rule (IRC Section 1091).

The problem with time gaps is that significant market moves can occur in the 30-day waiting period of the Wash Sale rule, which would prevent the portfolio from achieving the risk and return expectations on which the portfolio asset allocation was designed.

The solution to the problem is substitution. Immediately upon realizing a loss in one fund, open a position in an alternate fund that is similar to, but not “substantially identical” to, the fund on which the loss was realized.

After the waiting period of 30 days, close the substitute fund position and reopen the original position (assuming the alternate fund is a second best choice). Or, if the substitute fund is equally attractive for

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Stocks in the US are often classified by market capitalization or by style (growth, value or blend). Those differences are not sufficient to create different asset classes, but within the US stocks asset class they have produced different results.

The categories are similar in character and their correlation with the broad US market is high (from the low 80’s to the high 90’s). For those reasons, they just don’t work well as separate asset classes. That said, they may present some element of opportunity for sub-class rebalancing gains due to return rotation within an allocated portfolio.

The chart shows the return for the index of each category for each of 11 calendar years, including 1997-2007. The top half of the chart color codes each year for each index category based on the level of return. The bottom half of the chart color codes each year according to

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We believe it is important to look at return and volatility risk in both absolute and relative terms. For relative performance, we think the 10-year US Treasury bond is a good base to use, because is it relevant to all asset classes.

It relates as well to stocks as to bonds, to real estate, to commodities or to just about any asset class.

Tables of numbers have their place and use, but we also believe a picture is worth a thousand words. We try to put important data into visual formats to make it easier to see meaning. Some people do better with numbers in tables and some do better with pictures. Here is our way of visualizing risk adjusted return.

We call our proprietary way of calculating returns and volatility relative to government bonds “Treasury Indexed Quotients (TIQ)”, a registered trademark.

Each month, we calculate the TIQ for

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One of the ingredients for "bubbles" is the quest for the home run. Investors look to how much they wish to gain rather than to risk and reward. What happens when this quest intersects with a major downturn in an asset class? The Foreclosure Boom: Donald Trump Our local papers have featured ads from Donald Trump, explaining how you can profit from the foreclosure explosion. This article, while a few months old, is typical of what is happening. It is from Seattle, a pretty strong housing area which we visit four times a year for board meetings. But not to fear, capitalists, because one man's misery is another man's meat. In the same issue of the P-ITrump University"," a class where Trump promises "If you're not a millionaire by December 2008, you didn't attend my foreclosure workshop." Yes, that's right. Your struggling neighbors who are losing their homes in the subprime fiasco, are easy ...

One of the principal reasons for asset allocation is risk management. 

Market risk is generally defined as return fluctuation – volatility.  That is different than issue risk (the risk of owning a single stock or bond issue), which includes not only volatility, but also the risk of company bankruptcy or default on bonds.

While most investment professionals understand and take the risk reduction aspect of asset allocation for granted, that is not the case for all investment advisory clients.  We have been asked on more than one occasion, how we know that to be true, and for some evidence of that truth.

There are probably many ways to respond to that question, one of which is with a practical example with real market data.  We have created one such example for this article.

The image below shows the relative weekly return and weekly rate of change of six index investment funds representing six major

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