Michelle's Top Picks

With a newly elected U.S. president, commodity markets have seen major fluctuations recently and navigating commodities investing can sometimes be risky business. It’s important to take certain things into consideration when diving into these times in the world of commodities. First, Kurt Nelson, Chief Executive Officer at SummerHaven Index Management, breaks down whether or not commodities can generate a return similar to equities over time.

"So at SummerHaven, we've collected data that goes back more than a hundred years on commodity futures. And it's unfortunate that most allocators and investors don't have access to something more than say 20 or 30 years. And what you find when you look at 150 years of commodity returns is that they actually are very much in scale like equities, about five to 6% over the risk-free rate over 150 years on an annual basis. That's not something that most investors know, and they also offer additional benefits such as diversification with your other traditional assets. So the last thing I'd say is the volatility, which most people think of as the risk, is also comparable to equities. So a sharp ratio is when you take a return and divide it by the volatility and it gives you a risk-adjusted return. For equities that's about 0.4 over a long period of time. And for clients it's 0.39, it's almost the same."

Also, Kevin Baum, Chief Investment Officer at USCF Investments, talks about what the current geopolitical environment means for commodity supply .

"When we think about the countries and the region around the Middle East, these are very volatile times. We have disruptions taking place in Libya, Iraq remains unstable. We have the Houthis causing trouble in the Red Sea with shipping and tankers. But when we focus on the war with Israel, Hamas Hezbollah, and then ultimately here, Iran, this is a major oil-producing region. Iran produces about three and a half million barrels a day. Now, they export about half of that. So these may not sound like huge numbers in the context of a hundred million barrel a day market, but the price of oil prices on the margin. So any disruption to Iranian flows is going to matter. But Michelle, what I think people need to keep in mind is more broadly in the Persian Gulf Middle East region, you have Saudi Arabia, you have the UAE, you have Qatar, major producing region that's about 1/3 of daily production of oil. Now, with that, 20% of the daily oil flows in the world flow through the Persian Gulf, through the Strait of Hormuz. And this narrow waterway really matters. And we're not calling for a base case of a disruption to these flows, but all we have to do is go back to the Iran-Iraq war to find a time when Iran laid mines in the Strait of Hormuz. Now, it's pretty easy to think about what would happen to the price of oil, what that would mean to the economy, to inflation, and ultimately to financial markets if that waterway were disrupted again. So we need to keep a close eye on the situation because we know Israel has promised to attack Iran that could include their oil infrastructure. And then what's Iran's response going to be? Are they going to retaliate against other oil infrastructure in the region? Are they going to cause problems with shipping? These are very serious times, and we really need to be mindful of this."

And finally, Alan Howard, principal analyst in cloud and data center research practice at Omdia tells us how energy and tech’s infusion is a powerful force to keep an eye on in the digital economy.

"There's probably a dozen different market dynamics that play into the whole thing, but generally speaking, the evolution of a digital economy has occurred over the last couple of decades. That's both on the business side and the consumer side. I think one of the things is that if you're not really in tune with what a data center is, if you think about your phone, everything you do on your phone touches data centers. When you transact something, make a phone call, or send a text, it all seems like it goes to a cell tower, and then, I don't know. What happens at the cell towers, generally speaking, is that the signal gets converted into a digital signal. It goes across fiber optic cables and traverses several data centers. Whether it's on your computer or your phone, these data centers process and make all those things happen. You can imagine how it's grown over time, but I'll throw in two other things that I think are specifically pivotal in evolution. One is that cloud services began to take off. Cloud services started roughly a dozen years ago. You can argue that in different ways, but demand drove up quite a bit as they caught on with the business world. It was probably about 2018, roughly, when the wheels came off in terms of expanding data center capacity to handle this digital economy. Then, when the pandemic hit, another big catalyst was that people found themselves sheltering in place and needed new services. If you're an analyst studying this market, it's been a wild ride."