From Socially Aware to Socially Attentive Investing

By Peter Atwater  AUG 14, 2012 12:00 PM

In the zero sum economy, how and in what investors generate returns matters.

 


MINYANVILLE ORIGINAL On Friday, Reuters reported that Commerzbank had removed agricultural products from a commodity index fund “after accusations that speculation has pushed up food prices and fuelled unrest in some poor countries.”  According to Reuters, the fund, the ComStage ETF CB Commodity EW Index TR, has assets of $145.1 million, and was restructured on July 30 to now contain 12 metals and energy commodities.

As someone who has been openly looking for signs of “capitulation” in the corn space, I was not surprised at all by the news. Still, I couldn’t help but wonder whether Commerzbank’s action was indicative of a broader shift in investment manager priorities driven by deteriorating social mood.

During periods of rising social mood and rising markets, there is an overriding sense of collective success in which the potential “pie” is viewed as unlimited.  And when everyone is making money, how you make money goes unnoticed. Unfortunately, during periods of falling social mood, such as the one we are now experiencing, it feels like a zero sum game, where my win is your loss or the vice versa.  The pie is not just finite, but shrinking.

With food and energy prices rising, and wages flat, commodity investing is clearly a very politically sensitive “zero sum” situation. Earlier this year, the Obama administration proposed new measures to limit speculation in the oil markets, and Federal Reserve officials have spent considerable effort assuaging concerns that the central bank’s “extreme” monetary policy actions have been contributing to higher food prices.

But food and energy are not the only investment areas where I see the “zero sum” investment sentiment today. European policymakers have clearly taken a very dim view of investors shorting sovereign debt, equities and even the euro itself, and here at home there is a rising view that the current mortgage oligopoly is not lowering rates on new mortgages enough and credit card interchange fees are too high. And I suspect that if things get worse in the municipal credit space, trying to undertake a new “Big Short” in local and regional public sector debt will be more than frowned upon.

For investors, these new socionomics-driven rules are not to be underestimated. Going forward, how and in what investors earn returns will matter, particularly for institutional investors with funds from large public sector participants.  And, once again, I would not discount the inverse correlation of prosperity and scrutiny.

Given the recent rise in the equity market, now would be a good time for many investors to look again at their asset allocation. But in addition to portfolio rebalancing, they would be wise to consider how well their portfolios take into account the current delicate social balance, particularly as lower markets are all but certain to redefine what good and bad investments are.

Peter Atwater's groundbreaking book "Moods and Markets" is now available for pre-order on Amazon and Barnes & Noble.
 
“Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the ‘me, here, and now’ behavioral tendencies of the post-crash world.”  —Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation


Twitter: @Peter_Atwater
Position in SH and JPM.

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