There are very few guarantees in the world of investment, especially at a time when so many national economies are in a current state of flux and seizure, which in turn, “muddies up the water” when it comes to asserting confident prognoses regarding the foreseeable global economy in general.
However, one fairly accepted “rule of thumb” to be found in this wonderful field of global economics states clearly that: “Following every substantial financial crash, comes an equally robust and vital commodity boom!”
So are investment gurus beginning to rub their hands together in preparation of the size Commodity Boom that is expected to follow a historically cataclysmic Financial Crash?
The answer, in the minds of many fund managers is a definitive YES!
One such expert is renowned financial guru, Mr. Jim Rogers of “Rogers Group Financial.” According to Rogers, this commodity boom is already in the works and on its way.
Speaking from Singapore in an interview with the UK Daily Telegraph on October 8th, Mr. Rogers predicted a sustained commodities boom just on the horizon that will be able to last a good twenty years.
Rogers explained that "Commodities are the best place to be, if you ask me, based on supply and demand". Mr. Rogers is one of a group of popular prognosticators who does believe that “unless something happens,” crude oil could possibly run out in within the next 15 or 20 years, despite several quite large recent discoveries and progressive slowing of the growth of global demand.
According to Rogers’ perspective,” The supply of everything continues to decline." He continued by explaining that "If the world economy recovers, commodities will outperform most other asset classes, because supply is being restricted.” Then he brought the point home full circle by reminding us that “If the world economy does not recover, commodities will still be the best place to be, due to the fact that governments are printing huge amounts of money."
However some financial gurus don’t see the commodities boom as being as certain as Jim Rogers. They remind us that, very much in the same way that the strength and duration of a significant “equities bounce” is dependent on a virile economic recovery continuing to send upbeat and encouraging signals of reassurance to investors and the public at large, a commodities boom could be diminished or hindered by yet another slump in the economy.
So anything as perceptively viral in nature, such as national currencies coming under sever attack on FX markets, or any significant recessionary dip or further economic collapse or even moderate contraction of economies from Russia to Spain, or further strains and stresses on the IMF’s resources and ability to bail out increasingly large and unmanageable national deficits could quite possible knock some of the air out of the big, bouncy balloon.
Well established economic “nay-sayers,” such as Former Chief Policy Analyst, of the European Commission Andrew McKillop, who is now the Project Director of GSO Consulting Associates, simply doesn’t see the same potential for a world wide commodities swell that Rogers predicts.
Those who oppose Rogers’ optimism regarding commodities, try to remind us all that everything from unmanageable public debt in numerous countries, a potential run against the US dollar and a series of “defensive interest rate hikes” inflicted in hopes of trying to protect the global economy from returning inflation, could serve to pour water over the flame of hope envisioned by Rogers and others!
Continued high OECD unemployment, budget deficits, political instability and conflict in the Mid East and West Asia, along with the effects of carbon tariffs and “protectionism” could prove perilously destructive to such a boom. A vivid reminder that a mere 3.5% decline in world oil demand in early 2009, led to a fall of around 75% in the price of oil, and just like dominos, the value of all other commodities, hard and soft, were hit by a wave of selling and faltering of economic recovery, the rise in interest rates and a sharp spike of inflation.
However, CEO and Chief Investment Officer at “U.S. Global Investor,” Frank Holmes most definitely sees huge potential in the commodities market. When discussing China, who is quickly becoming a major player on the world-wide economic front, he explains that “You're not seeing the Chinese dump dollars to go and buy copper or gold, etc.”
“What we're seeing,” Holmes continues to explain, “is rather than rolling dollars over and buying new notes where the yields are so much cheaper, they're going and buying other commodities. And that's a much different statement than saying "I don't like American dollars." They're just saying that they prefer at this stage to own commodities rather than a note that's paying 10 basis points.”
”I think it's important to take a look at seasonal patterns. You can see the relationship between infrastructure spending and demand. And one should always take a look at China and ask whether or not they are a net exporter of a specific commodity. If they are, then they've stockpiled that commodity.” Holmes explained. “Then prices exploded and all of a sudden China became a net exporter instead of a net importer. That's the tipping point.”
Holmes then asserted a perceptional “wake-up call” to all investors, reminding them that “As far as commodities demand, China is the 800-pound gorilla. After that it's India, and also Japan. Even if North America's economic growth is slow and Europe's growth is slow, it will have an impact on demand for oil and other commodities.”
Mark Borkowski also looks to the east with a confident smile, reassuring us with this gentle reminder “Let’s not forget that more than 3 billion people in China and across Asia are consuming natural resources like never before!”
Borkowski continues by mentioning that "China’s crude oil imports alone have just soared a whopping 18% to over 3.6 million barrels per day. In fact, China is the third-largest importer of oil in the world• Coal, which supplies nearly two-thirds of China’s energy, rocketed to 2.5 billion tons of oil equivalent in 2006.”
“Personal consumption is exploding on the mainland’ Borkowski continues to share, with us, informing us that “Among the four most basic commodities, grains meat, coal and steel, Chinese consumption has already eclipsed the United States. “Steel use in China is also now more than double that of the United States” and “China's grain consumption hit a record 517 million tons in 2007.’
Of course, fast on China’s heels when it comes to commodity usage is India, who’s once third world economy has quickly grown to now be the world’s third-largest economy, in terms of purchasing power parity. Retail sales in India are exploding, at $350 billion and expected to double by 2015.Meanwhile, India's purchases of passenger vehicles are expected to double to 2 million a year by 2010.
So if you honestly have a legitimate question in your mind about whether this predicted Commodity Boom is a figure of some wild imagination or the REAL THING, simply consider these facts. “India's rapidly growing economy will drive energy demand to a projected annual growth rate of 4.6% through 2010, the highest growth rate of any major country on the planet, even higher than China's.”
So as Nico Isaac playfully attests to as he prepares us for the coming commodity trading season, “Halloween is fast approaching, but trick-or-treating for traders starts right now.”
Isaac credits “Futures Junctures Service” and EWI's Chief Commodity Analyst and long-time Editor, Jeffrey Kennedy with the assertion that “the powerful run up in hard assets is set to continue.”The commodities boom is not over and the bull market has several years to go!"
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