Commodity prices plunged the most they have since 2009 yesterday, and everyone seems to be losing their minds over it. A quick search for “commodities” in Google news brings up headlines about investors running away from commodities as fast as they can, and how they have lost their luster as an investment opportunity.
Ok, time for some real talk.
- People forget- managed futures can make money on dropping prices by going short. This is not the end of the world for the asset class. This is not a reason to abandon commodities- it’s a reason that long-only commodity ETFs are not a smart way to get exposure to commodities.
- As we’ve mentioned on many occasions (here, here, and here- just for examples), this was not a crash- it was a correction. The Wall Street Journal had a great article on the subject today. Commodity prices had gone up too high at too fast a rate, and it was only a matter of time before they came down.
That being said, some of these drops were pretty fascinating- in particular, oil. Black gold dropped 8.6% by the time the day was over, and after receiving a slight boost from better than expected non-farms payrolls, has continued down today. While that may be music to the ears of consumers feeling the pain at the pump, the drop doesn’t even register when looking at the top drops in history.
