Which is more likely, or “less unlikely”, A or B? (Or C?)
A) Agriculture commodity prices run up way more strongly than every other asset class, including precious metals.
B) Royal Bank of Scotland defaults on the Agriculture ETN that they issued (RBS Rogers Enhanced Agriculture ETN).
C) Roughly comparable in likeliness or unlikeliness.
I have no idea but I plan to buy a timber company as a hedge against inflation. It’s called Plum Creek Timber (PCL) and I’m hoping to get in at 40.
The RBS ETN is an index that consists of 20 physicals. There’s nothing for RBS to default on. It would be like asking, “What if Goldman defaulted on the GSCI?”. There’s nothing to default on as they can but are not required to make a market and be a buyer at NAV.
'…run up way more strongly…". Who designed this question, a 3rd grader? Which agricultural commodities? How are they weighted?
[quote]Dr. Pangloss wrote:
The RBS ETN is an index that consists of 20 physicals. There’s nothing for RBS to default on. It would be like asking, “What if Goldman defaulted on the GSCI?”. There’s nothing to default on as they can but are not required to make a market and be a buyer at NAV.
[/quote]
I thought a commodities ETN, as opposed to an ETF that buys futures contracts, was at least theoretically vulnerable to default by the issuing and guaranteeing entities. Maybe not exactly like a bond, but somewhat analogous to a bond that promises to pay based on the value of an index at the time of maturity.
My mistake. I read up on them a bit more and they are senior unsecured notes. Their CDS is currently around 190.