Hedging the different types of inflation

It’s not your Grandpa’s inflation, and managing it takes effort

Thanks to subscriber MM for sending a link to this interview.

I found it quite interesting because in commodities, buying a tracker to the actual commodity can be disgustingly poor as a strategy. For example, I hold USO. But I only hold it because of its 2 year long track record in relation to WTI. The ratio between them will not remain in an uptrend forever.

The manager interviewed knows the ins and outs of Contango and Backwardation in commodities and they keep track of these conditions.

Yet, not to rain on their parade, but the all-weather inflation ETF has under-performed a simple investment in CRB tracker DBC since inception, which admittedly was not long ago. So even among commodity pros (and these guys are more astute about commodity markets than yours truly) the returns can be tricky in any given time period.

What I found most interesting in the entire interview, however, were the primary signals they use to delineate between different commodity/inflation environments. In this they are not wrong. Conspiracy minded gold bugs especially, should pay attention. They use the Copper/Gold ratio and the shape of the Yield Curve in order to define the inflation environment.

Sort of like a certain market report and associated website that are always talking about cyclical inflation not being a positive for gold, eh? Why again do I track Copper/Gold and the YC? They well explain why in the interview linked above. Among other considerations, there are different types of inflation environments.

Even beyond those indicators we have opened up a discussion about the global supply/demand complexities in commodities and resources causing a mutated inflation. But at some point simple indicators like Copper/Gold and the Yield Curve will matter.

Anyway, check out the interview if you’ve got 30 minutes.

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