The Great Debate

Commodity indices and exchange-traded products (ETPs) should be regarded as short- to medium-term investments rather than long-term strategies, as a quick glance at performance over the last 10 years shows.

Their value lies in providing simplicity and liquidity for retail investors and institutions such as pension funds, which do not want the complexity of managing futures positions with their daily margin adjustments and rollovers.

They also permit institutions and retail investors forbidden from investing in derivatives to gain exposure indirectly by repackaging derivatives as swap transactions or embedding them in structured notes, which resemble debt or equity securities.

But they are really only suitable for implementing tactical and value-based views about the short-term direction of commodity prices over horizons ranging from intraday trading of a few hours to as much as six to 36 months to exploit the economic and commodity price cycle.

Their usefulness deteriorates over longer horizons as the cost of carrying the position outweighs eventual cyclical or secular price gains. "Buy and hold" strategies tend to lose money over the long term.

The following is a guest post by Bruce Yandle, distinguished adjunct professor of economics with the Mercatus Center at George Mason University and dean emeritus of the College of Business & Behavioral Science at Clemson University. The opinions expressed here are his own.

Last month’s report on U.S. employment growth brought no cheer to job-seekers with a high school education.

In June 2010, the unemployment rate for adults 25 or older with a high school diploma was 10 percent. Whereas unemployment among college educated adults was 4.4 percent. (Overall unemployment was 9.5 percent.)

Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.

First, there is the risk that U.S., t consumers won't increase spending. Dicks notes that the increase in U.S. consumption has been "extremely moderate" and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.

Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won't see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit.  It leaves the Barclays Wealth's euro zone GDP forecast at just 1 percent for next year.

- Laurence Copeland is a professor of finance at Cardiff Business School. The opinions expressed are his own.-

Worries about Europe’s banking system go back at least to 2007, but whereas the U.S. (and UK) banks appear to have weathered the storm, there are fears that for European banks the worst may lie ahead.  Concerns centre on four areas.

First, there are obvious worries about Greece and the other small countries facing debt problems, notably Portugal and Ireland, where the local banks have lent heavily to their governments and in addition may need to make provision for a substantial build-up in the level of bad debts in their respective corporate sectors as their economies struggle through the recession.

Join us for a live chat today at 1 p.m. ET with James, who will be taking questions about his piece.

Call me a default-ista.

For a huge number of borrowers, be they U.S. homeowners or the sovereign nation of Greece, a default or radical rescheduling of debt might just be the best, most practicable option.

More to the point, default in many of these situations may be not just in the best interests of the debtor but of the economy as a whole.

If you are trying to decide whether to fret about inflation or deflation, don’t bother: you may just get both.

Yes, in the spirit of these austere times, it is a two for one offer; deflation comes first, followed by an almighty inflation after central banks press the “go nuclear” button on the quantitative easing machine.

It seems clear that, at least in the near term, the stars are aligned for deflation. Rather than lancing a massive debt bubble, policy-makers have added to it and the intense pressure to clean balance sheets has spread from corporations and households to nations.

In its May economic outlook, the Organisation of Economic Cooperation and Development projected upward growth outlooks for BRIC countries Brazil, Russia, India and China -- the world's four largest emerging economies.

Strong growth in those economies is helping to pull other countries out of recession, the OECD said. The Paris-based organisation projects that China’s GDP growth will exceed 11 percent for 2010, and anticipates that India's real GDP growth will be 8.3 percent. Russia's GDP growth is expected to be 5.5 percent, and Brazil's is projected at 6.5 percent. By comparison, the OECD projects that the Euro area will see 1.5 percent real GDP growth, while the UK will see a 2.2 percent growth.

The "BRIC" acronym was created by Goldman Sachs economist Jim O'Neill in 2001 to mark a shift of economic power from the West. In June 2009, the BRIC leaders met in Yekaterinburg, Russia, for a summit, which was seen as the beginning of a geopolitical alliance, although their economies are very different: Brazil's economy is based on agriculture; Russia's on energy exports; India's on services and China's on manufacturing. At that time, the BRIC countries accounted for 40 percent of the world's population and about 15 percent of its economy.

The United States owes Latin American immigrants a debt of gratitude. And Latin American immigrants owe a debt of gratitude to lawmakers in Arizona. How so?

Thanks largely to immigration from Latin America (both legal and illegal) and the higher birth rates of Latin immigrants, the population of the U.S. has kept growing, a demographic trend that sets it apart from the rest of the industrialized world, where numbers are shrinking. That threatens economic growth and in the case of Russia (U.N. projections see a decline from 143 million now to 112 million by 2050) undermines Moscow’s claim to Great Power status.

A country’s population starts shrinking when fertility falls below the “replacement rate” of 2.1. births over the lifetime of a woman. For white American women, that rate is around 1.8 now. For Latin American immigrants, the rate is 2.8. According to the U.S. census bureau, nearly one in six people living in the U.S. are Hispanics. By 2050, they are projected to make up almost a third of the population.

Don’t count on the profitability of the financial services sector as a leading indicator of anything. Well, anything other than financial services compensation.

A stupendous recovery in profits is underway at U.S. banks, brokerages and insurance companies, but the big picture shows that for the rest of us that rebound may prove sterile.

Data from the U.S. Bureau of Economic Analysis shows the sector had an absolutely cracking 2009, with profits rising in the fourth quarter by 240 percent against the same period a year before.

It will take more than a recovery in housing to reignite inflation in the U.S. economy, a state of play that argues for the continued threat of deflation and a Federal Reserve that is pinned to the mat, unable, even if willing, to raise interest rates.

The strong disinflationary forces in the United States are deeper and wider than a simple, if bloody, aftermath of a housing bubble.

Many took encouragement from a report by Reis Inc that apartment rents in the United States rose in the first quarter for the first time in a year and a half even as the apartment vacancy rate stayed at an all-time high of 8 percent. Besides indicating a possible recovery in jobs and household formation, which tracks jobs, there is a hope that stabilization in housing values and rents would remove a powerful disinflationary force.