The blogosphere is heating up with comment on a provocative research report by SoGen analyst Dylan Grice blasting commodities investing.
Gotta give Grice credit for taking on today’s most cherished wisdom.
Gold and crude oil are up 22% year to date. The broader Dow Jones-UBS commodity index handily beats the S&P 500 by two percentage points, and over the past three years, about 15 percentage points separate the Philadelphia Stock Exchange gold and silver index and the S&P 500.
But in a report published Wednesday Grice asks: “Commodities aren’t productive assets, so how can they create wealth over time?”
He then produces charts showing even the real (i.e., inflation-adjusted) returns of T-bills have trumped commodities over the past 140 years.
(Those without access to SoGen research will find a detailed summary of the report on the Pragmatic Capitalism blogsite; and a shorter summary can be found on the Wall Street Journal’s MarketBeat blog and several other blogsites, like StraightStocks.
Grice’s argument is important and worth hearing. Its most succinct statement is probably contained in these lines:
“A bushel of wheat, a lump of iron-ore or an ingot of silver today is identical to a bushel of wheat, lump of iron-ore or ingot of silver produced one thousand years ago. The only difference is that they’re generally cheaper to produce because over time, human innovation has lowered the cost of production. When you buy commodities, you’re selling human ingenuity.”
He’s doing great so far, in my judgment, and it’s this clever line about selling human ingenuity that seems to be getting the most attention. But the money shot, in my opinion, are his very next lines, which are honest and correct but take a little wind off the sails that carry Grice’s gripe against commodities.