less time writing, more time editing

[Allacalander]

I hate that the chapters in Maginn/Tuttle are so long because reading just 1 is practically a marathon. Thank the gods (take your pick) that most of them are "background" reading and thus avoidable. Its a shame too because they really aren't that hard to read, but they're just so long...

Anyway, to my main point. On page 524 you will find the following line: "In periods of financial and economic distress, commodity prices tend to rise, potentially providing valuable diversification services in such times." This is in the first paragraph of sub-sub-section 5.3.1.1 (which by the way is another indication that your chapters are too long.)

Only a few lines down the page you'll find the following line: "Finally, commodity prices tend to decline during times of a weak economy." This is the last line of item number 1 under section 5.3.1.1.


What gives? Which of these two completely contradicting lines is true? Unless commodity prices just ALWAYS go up no matter what. I'd say that perhaps one of the lines was merely a typo, but both lines are preceded by convincing arguments supporting them.

I hope they ask on the exam about how commodity prices react, because I can't lose!

[Allacalander]

And it keeps coming! On page 535: "Hedge Fund Research estimated, as reported in Forbes, that in 2004, US$800 billion was invested in 6,300 hedge funds..." (top of page)

Meanwhile, page 560: ...the managed future industry has grown...to approximately US$130 billion under management in 2004. To put this last figure in perspective, consider that the managed futures industry is probably somewhat less than 10% the size of the hedge fund industry."

Therefore 10% * $800 > $130. Nice. I think that indicates arbitrage. I should go long in hedge funds and short futures.

[Lame in the Sactuary]

Originally Posted by Allacalander

IAnyway, to my main point. On page 524 you will find the following line: "In periods of financial and economic distress, commodity prices tend to rise, potentially providing valuable diversification services in such times." This is in the first paragraph of sub-sub-section 5.3.1.1 (which by the way is another indication that your chapters are too long.)

Only a few lines down the page you'll find the following line: "Finally, commodity prices tend to decline during times of a weak economy." This is the last line of item number 1 under section 5.3.1.1.


What gives? Which of these two completely contradicting lines is true? Unless commodity prices just ALWAYS go up no matter what. I'd say that perhaps one of the lines was merely a typo, but both lines are preceded by convincing arguments supporting them.

I think the only way we can reconcile these two statements is to separate "financial / economic distress" from "weak economy" (which, admittedly, is difficult). Distress tends to arise from a lack of stability which needn't coincide with depressed values of goods and services (i.e. a weak economy). Stocks and bonds are theoretically* more susceptible to systematic shocks, whereas commodities are able to ride them out (through the exercise of real options, allowing control over the level of production) and even outperform traditional securities when (for instance) the prices of raw materials are negatively correlated with macroeconomic indicators.

On the other hand, periods of persistent disinflation and deflation significantly inhibit the performance of commodities, while bonds actually profit from it, and (non-agriculture / -energy / -commodity) equities will be relatively attractive to the extent that firms are able to boost earnings in light of cheaper inputs and capitalize on its existing franchise.

*A lot of this gets tossed out the window when you look at what has happened in the recent past. Commodities fared no better than stocks / bonds when the economy was in crisis mode (circa 2008) as they did in the prolonged (albeit stable) recession that followed.

[Car'a'carn]

Originally Posted by Allacalander

I hate that the chapters in Maginn/Tuttle are so long because reading just 1 is practically a marathon. Thank the gods (take your pick) that most of them are "background" reading and thus avoidable. Its a shame too because they really aren't that hard to read, but they're just so long...

Anyway, to my main point. On page 524 you will find the following line: "In periods of financial and economic distress, commodity prices tend to rise, potentially providing valuable diversification services in such times." This is in the first paragraph of sub-sub-section 5.3.1.1 (which by the way is another indication that your chapters are too long.)

Only a few lines down the page you'll find the following line: "Finally, commodity prices tend to decline during times of a weak economy." This is the last line of item number 1 under section 5.3.1.1.


What gives? Which of these two completely contradicting lines is true? Unless commodity prices just ALWAYS go up no matter what. I'd say that perhaps one of the lines was merely a typo, but both lines are preceded by convincing arguments supporting them.

I hope they ask on the exam about how commodity prices react, because I can't lose!

A possible explanation is in Business cycle-related supply and demand paragraph: "First, commodities correlate positively with inflation...", historically high inflation is present during economic distress, while weak economy would decrease demand, but the inflation is moderate.

[Allacalander]

Whatever. You guys are deflating my outrage!