Protection from Inflation - Commodities Indexes?

With the printing presses of the worlds major economies on overdrive, I've become concerned about Inflation over the next 3 or four years at least.

The equities market is bedlam at present, and Im trying to work out the safest avenue for cash in between what little trading Im doing at present.

Speaking with an investment banker I chanced to meet last night, his advice was get all my cash into commodities indexes. As he was quite drunk at the time I didnt push him for further details. However his advice has made me curious to find out more.

I understand what commodities are (basically anything you can order in meters or litres to make stuff with) I am completely ignorant on trading commodities indexes.

Id appreciate some input or at least a referral to threads/website that are authoritative sources of information on the following if anyone can help me-

• Is this sound advice? Would bank interest not rise with inflation (remember the 80's?) and keep me safer than commodities?
• What commodities are looking the most recession & inflation proof?
• Are ETF's the right way to go, or are there other alternatives? Im after high liquidity so I can move money in and out on demand.
• I understand you can buy into an index for a specific commodity (eg gold) but are there higher level indexes - eg catch-all "general hard commodities index fund" "general energy index fund" "general soft commodities index fund" or similar?

Thanks in advance!

Re: Protection from Inflation - Commodities Inexes?

Well there's a small problem with your plan to start with - getting investment advise from a drunken investment banker? Does he/she still have a job?

I had a similar train of thought here

https://www.aussiestockforums.com/forums/showthread.php?t=14523

but not from an inflation viewpoint, just getting in on the ground floor for the next commodities bubble?. Althopugh I don't think time is of the essence as there could be another down leg generally when the next round of price negotiations come up ie expecting some big cut's in prices, which don't seem to be factored in to share prices yet, as bad as they already are?

As much as I don't like managed funds, there appears to be a few that specialise in this area so I will look further here. Other than that it looks like rolling over futures contracts for a few years?

Re: Protection from Inflation - Commodities Inexes?

Thanks Uncle,

Uncle Festivus said:

Well there's a small problem with your plan to start with - getting investment advise from a drunken investment banker? Does he/she still have a job?

Click to expand...

:LoL: No! Thats why he was drunk!

I normally wouldnt pay attention to anyone advising under the influence, however it echoed the sentiments of a number of other, sober people who've been very right in the past, including some guys who worked in the same building as me to "get right out of the stock market now, theres going to be one hell of a drop soon" in Feb 2007. (Did I listen? Nooooo. Am I listenting now? you bet!)

From my perspective (and Im not an economist), every major economy injecting trillions into the global economy by printing the stuff will lead to one sure thing- inflation.

With all the extra cash sloshing about, I'm guessing this will fuel the inflationary cycle as all the countries launch into projects to get the money moving - demand for hard commodities will increase and the price with it. This then will have knock on effects. Im interested in your comment:

Uncle Festivus said:

Although I don't think time is of the essence as there could be another down leg generally when the next round of price negotiations come up ie expecting some big cut's in prices, which don't seem to be factored in to share prices yet, as bad as they already are?

Click to expand...

How far off are these negotiations? Do you think they will happen before or after this new cash injection starts pumping into the economy? If before, then your're dead right. If after, up goes the balloon!

Im googling away like mad trying to find info on commodity index ETF's in Australia (the currency risk is way too high at the moment to move cash out of $AUD), so if anyone can come up with some suggestions to review Id be really greatful!

OK....there dont appear to be any commodity index EFTs trading on the ASX.

So short of buying truckloads of coking coal, is there a way I can get exposure in AUD to commodity indexes?

If you want direct exposure to inflation rates, you can go short on any government bond including the Aus 30-day. Of course by this method your investment might get hurt on having to pay interest rate to hold.

They are generally the first instrument to price in inflation it seems. I am assuming this is thanks to the bond vigilantes entering and exiting the market.

I made a post about RYDEX, a US ETF which is "double short US 30y", and am pretty sure there is no interest charged to use this instrument. Nobody really seemed interested though!

https://www.aussiestockforums.com/forums/showthread.php?p=402232

Here is the full list of "Commodity Codes" for the (ex) Sydney Futures Exchange:

http://www.sfe.com.au/site/commoditycodes.aspx

You should have no trouble finding exposure to inflation in there How about Broad Wool and Wheat Futures?

Thanks Sinner! I looked at Rydex, only prob being the USD exposure....AUD is way undervalued at the moment so I want to avoid forex risk. Interesting post though, Ill make a note to review it when the currency turns around.

I guess Im off to learn about Futures investing........good lord I never thought Id be saying that!

Anyone got any other suggestions on how to protect against inflation (short of buying a big illiquid house?)

Cash positions among professional investors have hit the highest level since the peak of the Covid-19 stock market crisis in April 2020.
17 March 2022