Owning stocks and grains

Published on: 13:19PM Nov 18, 2010

The chart below shows the daily prices of the S&P 500 on top, then corn, beans and wheat. According to the assumptions made both by economists and portfolio managers, the sort of correlation we see for beans, corn and stocks can't happen over such a "long" time frame. What should alarm the individual is the price action of the past 10 days. Fear of default in Ireland, fear of the European Common Market accords coming undone, and a pinch of fear that the Chinese were going to raise rates sent everything, including wheat, down. Diversification doesn't afford protection against the vicissitudes of the market unless one knows when the dollar (which went up as quickly as stocks et al. went down) is going with the general market and when it is going to go against it. If one knows that, one has no need of knowing anything else, no?

What does this chart prove? I suppose it proves that life isn't so simple as economists like to tell us it is, and it suggests that in a few years Wall Street will be coming back to Main Street for yet another bail out. One of Obama's failures (shared by most members of congress) was not breaking up the big banks. Worse, the big banks have been made larger by being asked to absorb smaller banks that didn't get bail out funds.

ES 12 10 (Daily)   ZC 03 11 (Daily)   ZS 03 11 (Daily)   ZW 03 11 (Daily)  8 13 2010   11 18 2010ES 12 10 (Daily)   ZC 03 11 (Daily)   ZS 03 11 (Daily)   ZW 03 11 (Daily)  8 13 2010   11 18 2010