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Why Commodities - Part 2

Why Commodities?

Why not invest in real estate? Why not invest in inflation secured bonds? Why not mutual funds? Why not equities? Why not international securities? Why not cash?

Equities, Real estate, commercial papers, mutual funds are the beasts of perceptions. They do not have intrinsic value to their full extent. For example, in case of equities, the book value of the share is the only redeemable part of the security. the actual price of the share does not reflect the true intrinsic value. The share price is the value perception of the market - all things being equal. All these are speculative in nature. By that I mean, the financial speculation is an important part in realizing and discovering the prices. As long as the money flow is high and the "spiral" is in full flow, the prices will rise as the large amount of money chase few 'assets". Once when the party is over, and the time for the redemption arrives, it is stunning to see the about-turn in the perceptions of investors. The investors are left holding a property at prices far higher than the market is willing to value it at the moment.

During the harsh times, no body can blame the government if it skips a payment or two to the bondholders or inflation-secured bonds, in the name of social welfare. The possibility highly likely in tough times.

Cash and bank deposits are complete NO-NO. Cash is the most worthless asset. Especially so in the times of high inflation. It will loose value every moment. The Bank deposits are a bit better, but there is no guarantee that your money will be returned as the history has shown disadvantages of fractional banking system time and again.

International securities?? We live in times of global village. One family cannot party when his neighbor is in despair. The financial contagion will surely affect the world economy as a whole. It will affect international security, presumably in varying degrees. Again, it is hard to estimate, which country will be least affected and which highly affected.

This is not to mean the commodities are not speculative. They are speculative and therefore subject to the same ups and downs as any other asset class. But they offer something that other assets do not offer. The high intrinsic value and stable real market for the goods. Therefore the caution of not intending to "make" money in the commodities as primary objective, but preservation of capital as the important objective.

We expect the commodity investors to come out safe and victorious in the end of the tunnel.

:) Falkor

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