Liam Denning, former Wall St Journal good guy, now a Bloomberg Gadfly, has posted a story overnight looking at the performance of metals relative to equities.
Liam used the chart in the feature image to illustrate his point. “If you bought metals at the end of 1995, your total return to the end of last month was 45 percent, versus almost 400 percent for the S&P 500. If you bought at the end of 2004, as the commodities supercycle was really ramping up, your total return on metals is 22 percent, versus 140 percent for the S&P 500.”
That’s not really hot news to anyone in the metals business, whether it be copper, aluminium or most other base metals. It’s also not news regardless whether you are a producer, a trader, or a hedge fund manager. Liam’s article arose from news that some hedge funds are exiting the metals business for exactly this reason.
The gap between S&P performance and metals would be a little wider too, if metals companies weren’t in the S&P mix. That poor performance in metals isn’t just true for the metal, it’s also true for company profits. Although it isn’t the bellwether that it used to be, Alcoa is a case in point. It’s fortunes rise and fall with the price of aluminium. If you bet on either the company or the metal, it’s not a great bet compared to the S&P.
The other point that Liam makes is that this chart shows the cyclic nature over the longer term.
Acknowledgement to Bloomberg for the chart.
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