This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Commodities Are Never an Investment

Stocks in this article: GRU JJG

NEW YORK ( TheStreet) -- Global macro trading isn't just a fancy name to impress your friends -- it's the search for trading profits in indices versus individual securities.

While there are infinite variations on the classic approach, the primary reason for trading "macro" is finding non-correlating assets. Yes, all assets are correlated to some extent -- you expect me to believe Treasuries don't have anything to do with the price of tea in China? However, correlations break down, enabling traders to take advantage of multiple markets while staying diversified most of the time.

Until recently, the grain markets were strictly for those in the pits of the CBOT or traders from the Midwest. Electronic trading and low correlation to equity and debt opened the market. Add tradable ETNs -- exchange traded notes -- and we're ready to rumble.

Two main ETNs track grain, Elements MLCX Grains Index (GRU) and iPath Dow Jones-UBS Grains Subindex (JJG).

First, a clear warning for investors: don't.

That is, commodities -- by their nature -- are never an investment. They are meant to be traded. Commodities have no internal rate of return, pay no dividends and, in the case of grain, will eventually turn to dust in the wind.

Furthermore, there's a social cost when you invest in commodities. Grains are necessary for life on earth. Hoarding supply to make a buck is antisocial. These ETNs track specific future contracts that are rolled over several times a year. Grain futures are either providing liquidity for the farmer looking to lock in a sales price for the crop in the future or for the bread maker looking to lock in the cost of supply in the future. You may be competing with the farmer or bread maker for the same contracts.

While the futures trader will have little interest in ETNs, they're invaluable to investors who want easy, liquid access to cash-settlement markets using plain-vanilla brokerage accounts. Taking out the complexities of rolling out contracts and physical delivery allows the trader to focus on pure systems trading or technical analysis with less margin for trading errors. ETNs are, simply, debt -- issued, in this case, by Swedish Export Credit Corp. and Barclays Bank. They don't make interest payments or dividend payments, but a few ETNs do. Another interesting note: Due to the debt structure, the Commodity Futures Trading Commission doesn't register them.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs