THE COMMODITIES CYCLE HAS A LONG WAY TO RUN
As I sit to write this memo, I would like to share one simple thought. This is a period of rising inflation, and rising commodity demand and we must keep our eye on the ball. There will be times when the press and the public loudly proclaim that the commodities cycle is over-done.
We have been hearing this over and over for 6 years. All the while, we have been bullish on energy and precious metals. We have been bullish on base metals for the past 4 years and for the past 2 years we have been bullish on foods and food related investments.
We will continue to hear this drumbeat, we must realize that many people believe that commodities must revert to the mean, and since prior to the last few years such reversions took place every few years, many people were expecting commodities to flame out long ago.
THE POINT THAT MANY INVESTORS HAVE BEEN MISSING
The point that naysayer’s miss on the commodity cycle is that the forces driving commodities are not the typical cyclical forces. They are secular…… once in a century [or longer] forces which will not easily be eliminated. India, China, Brazil, Vietnam, and many other countries are growing because there is a realization by politicians everywhere that they must provide a better, wealthier, and happier life for their constituents or be tossed out. The former Soviet Union proved this and other leaders took heed. Countries decided to grow and include more of their citizens in a better life. The current surge in the prices of commodities is one of the results.
THIS DOES NOT MEAN THAT COMMODITY PRICES CANNOT FALL IN THE SHORT RUN…….. BUT OVER THE NEXT FEW YEARS THEY WILL RISE MUCH HIGHER
There will be normal corrections in price for all of the above mentioned areas. Just remember that we remain in a long term period of high and rising demand and there is no reason for the demand to dissipate.
WE CONTINUE TO INVEST IN THE SAME THEMES ……… WE HOPE YOU KNOW THEM BY NOW:
FAST GROWING COUNTRIES
NON – US CURRENCIES (Especially the Chinese Yuan)
[For more specifics see our archives at
THE NEW ORDER……. A MULTI-POLAR WORLD……..COMING SOON TO A WORLD NEAR YOU
One of our jobs is to look ahead. We saw the current rise in inflation and the current demand for commodities years ago, because part of our focus is looking at how the world will be in coming years. Currently, we have a uni-polar world where the U.S. has been the dominant political and economic power.
This period is ending, and we believe the next world order will be a multi-polar world where many countries, maybe 12 to 14, will have power in regional or global issues. In addition, states within countries, like California or Uttar Pradesh will have power, non national groups like foundations , non profit organizations, and multinational organizations [like the Arab league, the African Union, the South Asian Association for Regional Cooperation the Shanghai Cooperation Organization, OPEC, The World Health Organization, the United Nations, NATO, the EU, The Organization of American States]. We might see alliances between differing parties on different issues and opposition by non-traditional allies in other areas. In other words, a much more complex, confusing, and hard to dominate world with declining U.S. power and declining European power.
WHY WOULD I SAY THAT THE U.S. AND EUROPE ARE DECLINING?
It’s easy, economic power brings political power and the decline of first European and now U.S. economic power first brought a decline in Europe’s power, and now we are seeing a decline in U.S. power. The U.S. is spending beyond its means, it is borrowing from others to do so and this cannot last. When it ends, U.S. political power will end, just like the political power of all of the over spending and over ambitious groups before it.
In short, the U.S. is making the same traditional mistakes that have been made by numerous empires throughout recorded history.
Most thinkers believe that the U.S. centric world is in its final decades, and we agree.
THE BIG QUESTION
To us the question is how do we invest to take advantage of the inevitable change?
We continue to evaluate the situation and we will discuss it more in the coming notes. Our first suggestion is to stick with the investment themes that we have outlined and buy on dips.
Thanks for listening.
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