CORRELATION

You hear a lot of talk today about correlation.

Many believe things now are more correlated than ever. In other words, what happens in Asia doesn't just stay there. That's just one of the concerns with all the QE Japan's doing.

Think emerging markets and growth. More developed, industrialized nations want to capitalize on that growth. It's a two way street. Correlation doesn't just apply to markets, however. There's something called asset correlation.

And that brings us to commodities. Recently they've taken a hit while equities have climbed, not historically unusual between the two asset classes, notwithstanding the last few years when they've somewhat surprisingly shown more correlation.

In simple terms commodities and equities are usually believed to be negatively correlated. They don't both tend to rise or fall at the same time. With bonds and commodities even more so.

When people think about emerging markets hunger comes up. And that's correct. But it's not all nutritional hunger.  The so-called experts estimate there are now seven billion people inhabiting the Good Ship Planet Earth with another two billion projected in the next 20 years.

More hunger, again not all the nutritional kind. In 1929 when the stock market crashed there were 120 million people in the US. Today in California alone there are 34 million and those are the ones we presumably know about.

 So here are a few reasons you want to own some commodities.

1. Commodities are historically negatively correlated to equities and bonds while throwing off decent returns. It's called diversification.
2. Inflation protection. Commodity prices tend to rise with inflation.
3. Growth is usually correlated with industrialization. And that brings us full circle to emerging markets and how to play them.

Welcome what the market gives you. Just make sure you do your homework.