Jefferies

The latest funds from Jefferies are based upon the Thompson Reuters/Jefferies CRB-EQ series of indexes. The equity-based funds track the industrial metals and agriculture indexes, explains Ron Rowland for Seeking Alpha.

The ETFs are:

• Jefferies/TR/J  CRB Global Agriculture Index (NYSEArca: CRBA)
• Jefferies/TR/J  CRB Global Industrial Metals Equity Index Fund (NYSEArca: CRBI)
  

CRBA holds equity securities from global universe of listed companies engaged in the production and distribution of agricultural products, including grains, livestock, fertilizers, chemicals, seeds, traits (seed characteristics attained through genetic modification) and equipment. (Another Jefferies Commmodity ETF launched earlier this month).

CRBI offers investors access to shares of companies across the globe engaged in the production and distribution of base/industrial metals and base/industrial metal products, including copper, aluminum, iron ore, steel, nickel and others. (Where copper and steel prices are going).

Both funds come with a 0.65% expense ratio.

These funds will not be affected by regulations expected from the Commodity Futures Trading Commission (CFTC), because they hold equities and not futures. (How regulations could change commodity ETFs).

For more stories about new ETFs, visit our new ETF category.

September retail sales rose 0.6%, better than what analysts had expected. Retailers have been hurting for more than a year now as consumers have increasingly tightened the grip on their wallets, reports Kevin Kingsbury for The Wall Street Journal. Despite the increase, the bad news is that retail sales are at 2005 levels. SPDR S&P Retail (NYSEArca: XRT) is up more than 2% this morning. (Read more about the retail sector here).

Alcoa (NYSE: AA) notched a surprise profit after the market closed yesterday through a combination of cost-cutting steps and higher aluminum prices, reports Reuters. The report comes after three straight quarterly losses. Wall Street had expected another loss. iShares Dow Jones U.S. Basic Materials (NYSEArca: IYM) is up nearly 3% this morning. Alcoa is 3.7%.

The number of newly laid-off workers filing for unemployment has dropped to the lowest number since the  start of this year. It’s the fourth drop in new claims in five weeks, and is being taken as a sign that some healing in the job market is still taking place.

The European Central Bank and the Bank of England both opted to keep their interest rates unchanged, leaving them at record lows of 1% and 0.5%, respectively, report George Frey and Robert Barr for the Associated Press. While the eurozone’s two largest economies – France and Germany – are technically out of a recession, authorities want to keep growth moving in the right direction. The iShares MSCI EMU (NYSEArca: EZU) is up more than 2% this morning. You can read more about Europe’s recovery efforts here.

August wholesale inventories declined for a record 12th straight month in August. This indicates that companies are shrinking orders to factories. But more encouraging is that sales at the wholesale level rose by the largest amount in 14 months, reports Martin Crutsinger for the Associated Press.

Credit Suisse Group is planning to launch an aluminum-focused ETF. If the fund receives the green light, the merchant, Glencore, will need to buy aluminum as physical backing for the fund. The Swiss company has yet to make a regulatory filing, so it’s unclear as to when this fund would come to pass, explains Andrea Hotter for The Wall Street Journal.

So why is the timing of an aluminum ETF full of promise? Here are some reasons:

• The timing for this ETF would be optimal. Many aluminum companies were swift to cut production when prices more than halved as the economic downturn crimped demand. Now, that smelters have jumped back into action, the market has suffered.
• On the London Metal Exchange, aluminum is at around $1,800 a ton, up about 50% from seven-year lows in February. The supply push is threatening to send prices to lower, so an ETF would soak up the excess metal.
• One high-profile financing deal is between Russian aluminum producer United Co. Rusal and Glencore. The producer recently held talks with Glencore and other traders over the supply of surplus aluminum.
• If the ETF is successful,it could ease up the price depression. As an example, ETFs have become one of the biggest growth areas for gold demand.

For more stories about aluminum, visit our aluminum category.

Hard-asset ETFs can be used to both diversify a portfolio as well as protection from both inflation and broader market turmoil, comments Don Dion for TheStreet.

Some hard asset ETFs don’t hold futures or physical commodities. Instead, these funds track indexes made up of the stock of commodity producers. Some broad equity-based, hard-asset ETFs include:

• SPDR S&P Metals & Mining (NYSEArca: XME), currently up 66.8% year-to-date, includes U.S. metals and mining companies. The fund has an expense ratio of 0.35%.
• Market Vectors RVE Hard Assets Prod ETF (NYSEArca: HAP), currently up 29.9% year-to-date, this fund seeks to reflect the Rogers-Van Eck Hard Assets Producers Index, which is often quoted as the definitive commodity equities benchmark. HAP also holds water and renewable energy components in its portfolio.

iPath offers both broad and specific exposure to hard assets with a line of exchange traded notes (ETNs) that track the futures contracts and Treasuries. Potential investors in these ETNs should be aware of regulatory actions that the Commodity Futures Trading Commission (CFTC) may impose.

• iPath DJ AIG Ind Metals TR Sub-Idx ETN (NYSEArca: JJM): up 45.6% year-to-date; includes a basket of commodities.
• iPath DJ AIG Tin TR Sub-Idx ETN (NYSEArca: JJT): up 42.3% year-to-date
• iPath DJ AIG Platinum TR Sub-Idx ETN (NYSEArca: PGM): up 32.5% year-to-date
• iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD): up 114.7% year-to-date
• iPath DJ AIG Aluminum TR Sub-Idx ETN (NYSEArca: JJU): up 10.5% year-to-date

ETF Securities has successfully launched global physical-asset ETFs:

• ETFS Silver Trust (NYSEArca: SIVR): up 9.8% in the last month
• ETFS Gold Trust (NYSEArca: SGOL): down 1.3% in the last week

Larry Swedroe, principal and director at Research at BAM advisor Services and at Research for Buckingham Family of Financial Services, says that purchasing commodities is a way to protect against supply shocks and event risks that could negatively influence a portfolio of stocks and bonds, according to iStockAnalyst.

Swedroe also argues that position limits on commodity ETFs are “purely politically driven,” which could create conditions of more volatility. The ultimate outcome, he says, will result in the value of contracts being driven higher and people having to pay more for insurance.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

China’s cabinet is no longer approving new projects for energy-intensive aluminum production for three years. Chuin-Wei Yap and Juan Chen and Yue Li for Dow Jones Newswires report that the State Council, also issued new rules to contain excessive capacity in seven other sectors, including revisiting a years-long campaign to curb steel output.

The ban on new aluminum capacity, a popular metal, is primarily meant to rein in the energy-guzzling and hard-to-control industry. The markets have so far shrugged off the news.

The Chinese markets and the U.S. dollar weakness has helped prop the base metals market up, and the underlying demand is strong indicator that emerging markets have some resilience to the economic downturn, says Dorothy Kosich for MineWeb.

One analyst notes that base metals prices have hit “mid-cycle” levels, something that normally takes years after a global downturn. The analyst also predicts that copper will be the top performer among base metals, and forecasts China’s consumption to grow 20% this year.

Some related ETFs and exchange traded notes (ETNs):

• iPath Dow Jones AIG Copper TR Sub-Index ETN (NYSEArca: JJC): up 91.2% year-to-date

• iPath Dow Jones AIG Lead TR Sub-Index ETN (NYSEArca: LD): up 119.3% year-to-date

• Market Vectors Steel ETF (SLX): up 80% year-to-date

For more stories about base metals, visit our base metals category.

We wrote a report back then, which thoroughly covered the commodities area, from the broad-based funds to the single commodities. From that report, many commodities went on to hit record highs.

How things have changed. Oil, gold, gas and more all have corrected sharply. It’s a matter of great debate now what’s going to happen next. One thing that’s for certain is that the tanking of most commodities illustrates the importance of having an exit strategy. Our own is to exit when a fund is 8% off the recent high or below its 200-day moving average – and most commodities are off their highs by double digits.

Right now, there’s a looming threat of inflation. The government is printing new money by the truckload, which could lead to an inflationary situation down the road. Commodities are often high first, which is why they’re still worth keeping an eye on despite the correction.

Some, like Jim Rogers, say not to count out commodities, now or ever. That’s because the credit crisis is creating an inability for farmers to get loans, which means they can’t grow. This will lead to supply shortages, after which high prices ultimately will follow. Food demand is expected to increase, as populations in emerging markets boom and many of those areas adopt a more western diet. Staple commodities, such as corn, soybeans, wheat and sugar could very well continue to see historic levels of demand. And the assets flowing into such ETFs don’t seem to have slowed much, either.

This fascinating chart from U.S. Global Investors shows how commodities over time might have price swings, but eventually revert to their long-term averages, also known as “mean reversion.” Not one category in this chart has shown any consistency in the nine-year period it tracks. By allocating your assets and remaining diversified, investors can gain some volatility protection.

Oil has been holding steady for a few weeks, around the $40 a barrel mark. There’s a big fight going on now: declining consumer demand that remains far below production, and OPEC can’t seem to cut production enough at this point.

Gas prices are moving up, however. In the last month, the cost of a gallon of gas in Orange County has risen 27 cents. The disconnect between the two can be blamed on refineries, which are operating at their lowest capacity since 1992.

The outlook for gold is mixed. While there’s agreement that prices will probably stay put for now, the question is how high will they go? Some call for $1,500 an ounce, others are expecting as high as $2,000 an ounce.

No one can say for certain where commodities are headed, which is why we so firmly adhere to the trend-following strategy instead of relying on predictions that are often at odds with one another. Many hours have been spent by experts, trying to call which way commodities will go and when. For now, we’re going to wait for the trend to appear. At the moment, it’s simply not there.

• PowerShares DB Agriculture (DBA) is an ETF that contracts on some of the most liquid and widely traded agricultural commodities — corn, wheat, soybeans and sugar. DBA hit a high on Feb. 26, 2008, and has fallen 41.3% since then.

• Market Vectors Global Agribusiness (MOO) tracks the stock-based DAXglobal Agribusiness Index and provides exposure to 40 worldwide companies in five segments: agricultural chemicals, agriproduct operations, agricultural equipment, livestock operations and ethanol/biodiesel production. The top five components, by market weight, include: Mosaic Co. (MOS), Potash Corp. (POT), Monsanto Corp. (MON), Deere & Co. (DE) and Archer-Daniels-Midland (ADM). MOO’s high was on June 17, 2008; it has since declined 54.3%.

MOO made a distribution on Dec. 26 that is not reflected in the chart above.

• ELEMENTS Rogers International Commodity Agriculture ETN (RJA) seeks to replicate an index that represents the value of 20 agricultural commodity futures contracts. RJA’s high was hit on Feb. 26, 2008, and the ETN has declined 44.2% since then.

• For a more diversified energy play, the PowerShares DB Energy Fund (DBE) replicates an index tracking the prices of two different grades of crude oil, heating oil, gasoline and natural gas. The high was reached on July 3, 2008; since then, DBE has lost 64.9%.

• United States Gasoline (UGA) tries to match the percentage increase in the unleaded gasoline futures that trade on the New York Mercantile Exchange. In concept, this fund increases in value by the same amount that gas rises in price at the pump. UGA reached a high on July 2, 2008, but has fallen 64.9% since then.

• iShares Dow Jones U.S. Energy Sector Index Fund (IYE) is as pure a play on energy as you can get with 10 top holdings including: Chevron (CVX), ConocoPhillips (COP), Exxon Mobil (XOM) and Transocean (RIG). IYE has fallen 43.3% since its May 20, 2008, high.

IYE made a distribution on Dec. 23 that isn’t reflected in the chart above.

• iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is an unleveraged path to investment in Nymex West Texas intermediate crude oil futures. It takes a fixed-weight approach to determining asset allocation of its portfolio. OIL has lost 78.5% since its July 11, 2008, high.

• The SPDR Gold Shares Fund (GLD) and iShares COMEX Gold Trust (IAU) hold gold bullion. GLD and IAU have both lost 10.9% and 11.1% respectively since their highs on March 17, 2008.

• The PowerShares DB Gold Fund (DGL) is based on the Deutsche Bank Liquid Commodity Index and is composed of futures contracts on gold and is intended to reflect the performance of the yellow metal. DGL has lost 12.6% since its March 17, 2008, high.

• Market Vectors Steel (SLX), which launched in October 2006, holds companies involved in the production of steel. Among the top holdings are Rio Tinto (RTP), Arcelor Mittal (MT.AS) and Companhia Vale ADS (RIO). SLX reached a high on May 16, 2008, but has since dropped 69.9%. On the other hand, there are high hopes for steel if President Barack Obama’s stimulus plan goes through. In the last month, it’s advanced 5.4% and moved above its short-term trend line.

SLX made a dividend on Dec. 26 that is not reflected in this chart.

• The iShares Silver Trust (SLV) holds silver bullion. Silver has a wide range of industrial applications, making it particularly attractive when there’s a boom in construction activity, but sensitive to dowturns. SLV has lost 38.3% since its March 5, 2008, high.

• PowerShares DB Base Metals (DBB) is based on an index composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper (grade A). DBB has lost 56.8% since its May 4 , 2007, high.

• iShares S&P GSCI Commodity Indexed Trust (GSG) tracks a broad index of 24 commodities weighted according to the proportion of the commodity flowing through the economy. Almost half of the index reflects crude oil, and the balance is split between other energy products such as natural gas as well as agricultural commodities, industrial and precious metals, and livestock. It hit a high on July 2, 2008, and has fallen 66.4% since then.

• An even more diversified commodity play is the iPath Dow Jones-AIG Commodity Index Fund ETN (DJP), which tracks an index that comprises 30% energy, 30% agricultural, 20% industrial metals, 10% livestock and 10% precious metals. DJP’s high was reached on July 2, 2008, but has lost 53.4% since then.

• PowerShares DB Commodity Index Tracking Fund (DBC) tracks the futures for a simplified index of just six commodities: corn, crude oil, gold, heating oil, aluminum and wheat. It hit a high on July 2, 2008, and has fallen 56.5%.

DJP made a distribution on Dec. 15 that is not reflected in this chart.

For full disclosure, some of Tom Lydon’s clients own shares of SLX, SLV and GLD and is a board member of U.S. Global Investors.

Businesses from Alcoa (AA) to Intel Corp. (INTC) have suffered losses up to 11%, and have experienced a worsening profit outlook for the time being. Alcoa, the world’s largest aluminum producer, is set to cut their workforce by 13,500 while Intel Corp., the world’s largest chipmaker, has reported a fourth quarter sales drop of 23%, reports Lynn Thomasson for Bloomberg.

Energy has taken a lesson in volatility, as U.S. oil reserves have been reported higher than expected, indicating demand will keep falling. Across the board, energy prices have tumbled, and sweet crude for February delivery plummeted to $44.54 a barrel on the New York Mercantile Exchange, reports Dirk Lammers for Associated Press.

• United States Oil (USO): down 48% over past three months, but up 24.2% in the last two weeks

Alcoa has announced plans to cut their output by 18% this year, with plant closings and workforce reduction a part of the plan. They plan to cut their work force by 13%, or 13,500 employees, while eliminating 1,700 contractor positions, reports Julie Creswell for The New York Times.

Similar to other materials producers, Alcoa has tried to cope with the dropoff in demand for manufactured goods. Aluminum consumption in crucial areas such as automotive and consumer sectors has dropped sharply.

• iShares Dow Jones US Basic Materials (IYM): down 16.1% over past three months; Alcoa is 3.8%

The metal hit record highs this week after producers in China agreed to cut output by as much as 10%, reducing concerns over an abundance of inventories, reports Rob Wherry for SmartMoney.

Aluminum Corp. in China has agreed to curb supply by 5% to 10%, which will help alleviate a sixth year of power shortages in China, reports Xiao Yu for Bloomberg. The energy used by aluminum smelters every week is enough to provide power to more than two million people for a year. China’s aluminum producers are the largest in the world.

Alcoa (AA) also reported earnings that surpassed expectations this week, but they’re still below last year’s level. The company is still awaiting an economy whose demand level is expected to grow around 6% this year, reports David Lee Smith of The Motley Fool.

Aluminum benefits from its versatile uses, and is prized for its lightweight properties as well as its ability to resist corrosion. Among its applications is in foil, soda cans, cooking equipment, golf clubs, airplanes, electricity and in buildings.

Among the funds that hold the metal are:

• PowerShares DB Base Metals (DBB): up 14.9% year-to-date; holds 37.7% in aluminum, so expect a shiny outlook
• iPath Dow Jones-AIG Aluminum ETN (JJU): launched on July 8