Commodities & Inflation

Because of inflation, both stocks and bonds are down year-to-date, and suddenly, a lot of portfolios are without a hedge. Commodities can be the answer, but what sets them apart also makes them complicated. We’re joined by Goldman Sachs Commodity Specialist Callum Bruce to discuss the power, precariousness and possibility of the commodity.

Show Notes

One of the most common portfolio constructions is a blend of stocks and bonds. The stocks power growth during times of economic expansion and bonds act as a hedge, since bond prices tend to rise when the economy is in recession. If one goes down, the other goes up. Except for right now. 

Since the start of 2022, both stocks and bonds are down. It’s the first time that’s happened since the late 1960s. The culprit? Our old friend, inflation. The Federal Reserve’s aggressive response to inflation has the market worried about a recession. Investors have responded by selling, driving stock prices down. But higher interest rates decrease the value of bonds as well. Suddenly, a lot of portfolios are without a hedge. So how do you protect your investments in this unique, uncertain time?

One answer is commodities: everything from oil, wheat, copper and cattle. They’re one of the most powerful hedges against inflation–but it’s also a different kind of asset class, subject to all sorts of unique risks. To operate with confidence, you need to learn the language of commodities. Fortunately, we know someone who’s fluent: Callum Bruce, Commodities Specialist at Goldman Sachs.

With Callum’s help, we’ll delve into the power, precariousness and possibility of the commodity; everything from what they are and how they work, to why Callum thinks they’re undervalued. Plus, the commodity constraints coming down the road and the surprisingly strong link between certain commodities and the value of the dollar.     

So come with us as we explore the cutting hedge, where the oddities are good and the goods are commodities.

Highlights:

• Definition & types of commodities  (3:19)
• The benefits of trading commodities–for producers and consumers  (5:16)
• Cost of carry & contango (6:12)
• Convenience shield & Backwardation (7:07)
• Why volatility makes commodities a powerful hedge (9:16)
• How commodities might theoretically fit into a portfolio (11:03)
• Why Callum sees opportunity in commodities (12:08)
• Commodity-constraint (13:31)
• Dollar-oil correlation (16:13)
• The future of energy commodities (19:20)
• Metal markets: Double bullish (22:11)
• Don’t go it alone: the complexity of commodities (23:26)

Links:

• Cadence Bank Website
• Cadence Bank Twitter
• Cadence Bank LinkedIn
• Goldman Sachs Website
• Goldman Sachs Insights - Commodities
• Callum Bruce LinkedIn
• Vanguard - How commodities stand apart as an inflation hedge
• CME Group - Commodities as Inflation Hedge
• Goldman Sachs - How to overhaul the tried-and-tested investment portfolio when inflation soars

Feedback:

If you have questions about the show or topics you'd like discussed in future episodes, email our producers, [e-mail] or [e-mail].

What is In Good Companies?

Starting and running a business or managing one isn’t for the faint of heart. You’re balancing internal and external forces in a continually changing landscape. This is where Cadence Bank’s In Good Companies comes in. We share our wealth of knowledge–and insights from noted industry experts–to guide you through the forces shaping business today.

It’s hosted by Patrick Pacheco, an EVP and President of Cadence Asset Management and Trust, who has more than 25 years’ experience and is a self-proclaimed lifelong learner. He leads discussions with business owners and subject matter experts about how they’re tackling business challenges like:

● What are ways to grow my business without growing my debt?
● How can I turn my data into meaningful information?
● Why is company culture more important than ever?

It’s information you need, in one place, in under 30 minutes. More than 250,000 listeners tune in each week. Shouldn’t you?

ABOUT OUR HOST
With more than 25 years’ experience in wealth management for business clients and a penchant for hosting, Patrick Pacheco is an EVP and president of Cadence Asset Management and Trust, and presenter of the bank’s In Good Companies podcast, now in its fourth season.
His background features years of legal practice and multiple degrees, including a Master of Taxation from University of Houston, a law degree from Southern Methodist University, and both a Master of Business Administration and Bachelor of Science in Economics from University of Texas at Arlington.
Pacheco describes himself as a lifelong learner and someone who loves asking questions–probably the ones you’re thinking about too. He’s especially excited about season four because of the diversity of topics and guests who will not only share their wealth of knowledge, but listeners will also get tips and tricks they can use in their own businesses, careers and professional lives.