Friday, June 27, 2008

The Money Magazine Indicator

Money magazine is the Time or Newsweek of the investment world. By the time an investment fad makes it to Money, it is probably nearing a top. A recent example would be their stories about real estate in June of 2005. Now, Money has a story on inflation and how to protect your assets, including an allocation to commodities (HT: Tim Iacono at TMTGM):

One way to beat inflation is to own the stuff that's going up in price. Between 1973 and 1981, when inflation averaged 9%, the Goldman Sachs Commodity Index, which tracks oil, metals and food futures, averaged a 13% annual return. In just the past five years, commodity-driven mutual funds have gained an annual average of 30% vs. 10% for Standard & Poor's 500-stock index.

As Tim points out, the allocation is small, so maybe this isn't the story that marks a top in commodities. It would be a clearer sign if commodities were featured on the cover of the magazine, but this is certainly not a good sign for commodity investors. Tim was very good at calling the bubble in housing and the rise in commodities but, hey Tim, you can't have it both ways. Back in 2005, you used the real estate mention in Money as a sign of a bubble. This time you use the Money indicator to reinforce your argument to own commodities. If it meant a real estate bubble in 2005, why isn't this a sign of a bubble in commodities?

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