ebook essays pieces of the puzzle
Thursday, April 7th, 2011
old news

Pictured above in the top panel are the cumulative total returns on the S&P 500 and the Dow Jones/UBS Commodity Index (DJP is an ETF based upon it) since the end of 1999.  At the bottom is the correlation between the movements in the two over that time (using the trailing 120 days).

It seems old news now.  Commodities have vastly outperformed stocks (although the gap is very dependent on the indexes that are used for each asset class), but the correlation of late is quite amazing in its magnitude and persistence — at least in comparison to the history shown here and further back.

Perhaps the trends will continue as is and the best thing to do is to ride them.  But if you are an investment manager with a fundamental mandate — almost no matter what kind of money that you run — a substantive change in this picture will cause great ripple effects for you.  When it will come we don’t know, but considering the why, how, and subsequent what seems like a good use of a few minutes each day.  (Chart:  Bloomberg terminal.)