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Commodities Are Never an Investment

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.

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