The most hated asset class

All my life I have pointed to potential risks – in our economy, in the real estate market and in the stock market. Too often we only pay for the security words of our assets, taking risks at the same time.

But sometimes you have to consider the other side of the coin risk / reward. Each asset has a buyer – if the price is low enough.

And I think that day is a market with a lot of goods.

It’s all about risk / reward.

Real estate prices are sky-high. Even Federal Reserve insiders say there are bubbles in the commercial property. And you’ve heard a lot from us and others about stock market issues.

When it comes to risk compared to the reward in these two sectors, well … the part of the “reward” received over six years is about the same as a bottle of champagne the morning after the New Year.

Case for goods

Goods are the other side of the asset coin. Of course, since the beginning of the year, oil prices have doubled and precious metal prices have risen by about 20%, but none of them reached a maximum even a few years ago. The rest of the product complex is a similar set of results in 2016:

  • Copper: + 1%

  • Soybean: + 8%

  • Wheat: -15%

  • Corn: -8%

  • Sugar: + 50%

  • Nickel: + 20%

And take a look at almost any commodity tracking price index or stock exchange and you’ll see what I’m talking about. For example, the Dow Jones commodity index rose only 23% from the bottom earlier this year (primarily due to rising energy prices). But since 2014, it has dropped by more than 30%.

It may seem strange to pay attention to an inefficient asset class and say “invest there money”, but that is why you should now look at the commodities sector.

This makes it possible to diversify part of your wealth from stocks and assets. And best of all, the goods don’t relate – meaning they don’t go to the same drummer, they go up and down in price – as is stock and real estate.

But there is still reason to think about it all. For example, flipping home and day trading are back in vogue. But say, “I like corn. It’s the lowest price in ten years,” and all you’ll hear are the sounds of silence (and maybe crickets).

However, there is a downside to the old adage that “the best treatment for high prices is high prices”. The best remedy for low prices in general in the raw materials complex? Yes – low prices. And this is forcing manufacturers, miners and other manufacturers to lag behind, waiting for demand to reappear.

For example, Texas farmers intend to plant 20% less wheat this fall (after a 13% reduction in planting over the same period last year).

When it comes to risk versus reward, you can’t find an asset class to which your neighbors and cocktail friends are more indifferent than merchandise. That’s good. If an asset is unpopular, even hated, it means there is an opportunity to make a profit. The same cannot be said in general about stocks and real estate at the current level.