Schweser summary of LOS 49.3 - “Commodity prices tend to be…inversely correlated with inflation over the long term.” Schweser explanation to concept checker #5 has a statement which the answer says is correct that “commodity prices tend to increase when inflation increases” What’s the deal???
Lol the deal is Schweser fu#^ing sucks! Second statement is correct. Commodities are late cyclicals that are priced in real terms and so they appreciate as inflation rises.
I would think the second statement is correct.
This is why the CFAI is the authoritative curriculum;)
I think what Schweser meant is that commodities are a class that increase with inflation but are negatively correlated with the stock market.
Yeps. Commodity prices increase with inflation, but they have an inverse relationship with the bond and stock markets, so a 10% mix has historically proven to be best diversification bet.
Wait, Swaption, you had me up until you said commodities are inverse with the bond market…aren’t stocks inverse with the bond market, so if commodities are inversely related with stocks, how could they be inversely related to bonds too?
I remember reading it in Schweser and that 10% number somewhere too. I’ll confirm later tonight.
I’d be careful labeling things as inversely related…commodities tend to increase in value along with inflation. Historically, they have shown negative correlation with equity and fixed income investments. The degree to which these are negatively correlated varies. bond coupons arent worth as much with higher inflation, bad for bonds equity earnings and dividends not worth as much with higher inflation, bad for equities prices of commodities increasing with higher inflation, good for commodities This is how I think of it whether its 100% spot on or not.
hold on…I remember reading that in periods of recessions and early recovery, stocks and commodities do well, so that means stocks and commodities are positively correlated, while those 2 asset classes are negatively correlated to bonds. Is this wrong?
Thats a good way to think about it, TV.
mp2438 Wrote: ------------------------------------------------------- > hold on…I remember reading that in periods of > recessions and early recovery, stocks and > commodities do well, so that means stocks and > commodities are positively correlated, while those > 2 asset classes are negatively correlated to > bonds. > > Is this wrong? may be in the short term but not in long
rellison Wrote: ------------------------------------------------------- > Wait, Swaption, you had me up until you said > commodities are inverse with the bond > market…aren’t stocks inverse with the bond > market, so if commodities are inversely related > with stocks, how could they be inversely related > to bonds too? Pg-436, Los-49e. 1st Para Last line. They specify in the brackets that bond market too is negatively related.