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Yesterday, thousands more readers logged on to our blog to give their thoughts on my latest question: “Do you see any evidence whatsoever that the powerful forces pushing commodities higher will CHANGE?”
Most of the answers basically boil down to two categories:
• No, nothing will change: The powerful forces will CONTINUE pushing commodity prices higher.
• Yes! Something will change: The forces will get even STRONGER, pushing commodities up at a FASTER pace.
Jim W. writes: “I do see the forces forcing commodities higher, changing them, but not for the better. Governments are going to create more debt, central banks are going to print more magic money, demand is going to keep going up and supplies are going to keep going down.”
John E. says that energy prices in particular are primed for more inflation, and he offers some statistics to back it up: “In the U.S., the per-capita consumption of oil is about 27 barrels per person per year. In South Korea and Japan, it is around 17 barrels per person. In China and India, it is 1.8 and 0.8 barrels per person, respectively. Just think of what happens when millions of bicycles are replaced by scooters!”
Geri M. is one of the few dissenters. He sees big profit opportunities in the short term, but worries about what comes after. “Wall Street’s big investment houses are bidding up the price of commodities, creating a bubble that will certainly burst.”
My view: Eventually, maybe. But at this juncture, there’s no evidence whatsoever of a bubble. Quite to the contrary, commodities are being driven almost entirely by long-term changes in supply and demand!
Why This Commodity Bull Market
Has a Long Way to Go
On average, bull markets in commodities last 17 to 21 years. This one is in its 11th year, and anything but “average.”
Instead, it has all the earmarks of being far more a commodity supercycle, a rare and powerful period in which prices go to higher levels — and for more years — than many people believe possible.
There have been only two supercycles in the last 150 years:
- Commodities Supercycle #1 saw the Industrial Revolution create powerful and sustainable demand for raw materials for 33 years between 1885 and 1918.
- Commodities Supercycle #2 started after World War II and ran for 29 years between 1946 and 1975 as the reconstruction of Europe and Japan helped set off a global commodity price explosion.
- Commodities Supercycle #3 is here! This is it. We’re in it right now!
Why?
Because China, Russia, the Middle East, India, Brazil and others are devouring raw materials as they build up their economies. In fact, Merrill Lynch forecasts that more than $6 trillion will be spent on infrastructure improvements through 2013 — with 80% being invested in the BRIC countries (Brazil, Russia, India, China).
Because long-term weather cycles are wreaking havoc in the grain belts of the world … and because we’re seeing a long-term depletion of many of the world’s vital commodities.
And because a falling dollar could make commodities even more expensive as major corporate investors (not just speculators!) rush to shift their money to alternatives!
These are all the ingredients of a commodity supercycle, and all three are converging in one time and place: Now!
So here’s today’s question for you:
Which Commodity Will Lead the Way Higher?
Do you think grains will be the biggest winners? Is oil about to explode to the upside? Will precious metals put the pedal to the metal? What about other commodities that most people pay less attention to?
Just click this link to jump over to our blog and join the discussion!
Good luck to us all, and my best wishes to you!
Sean
