Alternative Investments

Commodities, natural resources stocks, and foreign real estate stocks all enjoyed strong gains in May. Like stocks, commodities are benefiting from economic optimism. Commodities are also benefiting from the "reflation trade," where rising inflation expectations stimulate the purchases of "anti-dollar" asset classes such as commodities, gold, resource/materials stocks, and foreign stocks. The U.S. dollar index dropped 4.9% in May, and, along with Treasury Bonds, has been one of the weakest asset classes in 2009. The U.S. dollar index is approaching key support levels in the 76-78 range (versus a current value of 79.2).

Accordingly, we would be surprised if the US$ had much additional downside risk relative to most other major currencies with respect to either the short- or the intermediate-term. The U.S. Dollar Index did spend nearly six months below the 76 level between March and September of 2008, but that period coincided with an extreme "blow-off" move in the price of oil, which exerted extraordinary downward pressure on the U.S. dollar. A rebound in the U.S. dollar would likely coincide with a pullback in commodity-oriented investments, foreign stocks and bonds, and risk assets generally.

U.S. REIT Dividend Yield (NAREIT All-REIT Index)

1/98 - 5/09

Following the recent rebound in REIT prices, and also owing to dividend cuts and dilution from new stock sales, the yield on the NAREIT All-REIT index has dropped to 7.4%, only 1% above the long-term average. This level of yield is uninspiring, given the negative fundamentals of the asset class. Other areas of the equity markets are more attractively valued, which argues for an underweight allocation to U.S. REITs.

J.D. Steinhilber is president of Agile Investments, a Nashville, Tenn.-based adviser. He can be contacted at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

1 | 2 | 3 | 4 |