Super Cycle

What goes up must come down
Spinning wheel got to go round
Talking 'bout your troubles it's a crying sin
Ride a painted pony
Let the spinning wheel spin
--Blood, Sweat & Tears

While engulfed in the moving process over the past week, I've been fairly active with my book. Primarily, I've unloaded most of my commodity ETF/ETN exposure. I've had a love/hate relationship with these vehicles over the years and currently I'm biased toward the darkside.

Most of these funds invest in commodity futures. As such, you're subject to tracking error over time if (when) the funds roll their front month contracts into out month paper. When out month prices are higher than front month prices (a.k.a. 'contango') by a lot, then you can really get nicked by the 'negative roll yield.' Check out, for example, a ratio chart of USO to crude oil over the last 2-3 years to see what I mean.

Exchange traded notes (ETNs) carry an additional risk. An ETN is a security meant to reflect the price of the underlying commodity or group of commodities. The issuer invests in futures, but what you own is the issuer's promise to pay the underlying asset value. As such, this derivative carries counter party risk. If the issuer goes belly up, then you could be out of luck (and capital). Recent concerns with the Roger Commodity Index series of ETNs (funds I have been involved with), reminded me of this risk.

As such, I've unwound most of my 'paper' commodity exposure into the most recent lift higher, save for token positions in silver and energy. Should prices continue higher, I may let the rest of it fly as well.

I remain bullish on commodities, but primarily in the stuff I can touch and feel--not the paper derivatives. Perhaps I need to build a warehouse so I can take delivery of the physical commodities themselves.

Will worry about that once I get the new house in order. And with that, I'm off to clean some bathrooms.

positions in DBE, RJN, SLV