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KAOBOY MUSINGS and its associated podcast KAOS THEORY focus on the intersection of Financial Markets, Macroeconomics and Geopolitics.
I've spent 30+ years as a trader/hedge fund manager and now manage money for my family office across many asset classes.
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Re: Oil-Best Inflation Hedge?
JPM makes the case today that “Commodities returns, energy in particular, are strongly positively correlated with US CPI, making the asset class one of the preferred options for hedging inflation.”
From JP Morgan:
“Energy outperforms other sectors when US headline CPI is above 2% and rising. However, on a volatility-adjusted basis, returns from energy are largely comparable to the broader BCOM.”
“Taking into account current valuations and carry, the overall BCOM Index, Agriculture and Energy are among the best cross asset inflation hedges at the moment and offer a better hedge than base and precious metals.”
This chart is absolutely spot-on, given oil’s significant backwardation, or “roll/convenience yield.” Upper-left is best. Note where oil is.
Super interesting that energy dominates other commodities when CPI > 2%.
END OF ORIGINAL THREAD
Some updates appended to thread:
MbS just can’t wait to tell Biden “GFY.”