Ruchir Sharma, Head of Emerging Markets & Global Macro, Morgan Stanley Investment Management says the massive commodities boom of the past decade is at its tail end, given the slowdown in one of the largest consumers, China.
This clip makes some excellent points. It is not that there will be no growth, or no demand going forward, but most commodity investors today are suffering from recency effect and have unrealistic expectations extrapolating the hyper growth of the past decade into the post-credit bubble world of the future. Here is a direct link.
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This is not a prediction (because predictions are futile), but I would not be surprised if petroleum gets really cheap over the next few years. Contrary to common opinion, from what I see, the US is sitting on or near more oil than they will know what to do with (Alaska north slope, Bakken, Barnett, Gulf –where it can’t help but seep up to the surface all on its own–and other off-shore). Russia has lots of oil (perhaps even the abiotic kind). Brazil, Venezuela, Nigeria, Saudi, Israel (yes Israel), Caspian, Iran, Iraq, and of course Canada, not to mention the Arctic, etc. Plus, new technologies, such as fracking, are making extraction of previously untapped reserves possible. Just look at natural gas. Oil inventories are already high and the global economy is slowing. Plus, add to that conservation. Alternative energy. New technologies that reduce our need for oil. North Americans already consume far less oil per unit of economic output than we used to. This trend will likely continue.
I focus on oil because energy is the fundamental input for economy (and everything else). So if oil is cheap, almost everything can be cheaper (potentially), including other commodities that of course require energy to produce/extract and bring to market. Unless another round of reflation gooses the global economy enough, commodities may take a rest, for a little while at least.
Great piece, thanks!
Now with lower oil/natural gas prices and recession, that means gold-mining cost inputs will drop also. The gold seems to have put in a bottom May 16 and has been improving ever since. Pay attention to the chart. It may not at all be the bottom, but it was a bottom and that in itself is important. Always trust your charts.
Local Edward Jones office manager and I spoke yesterday. The usual spinmeisters at work: Think long-term, stay invested even on the declines or you will miss the big upmoves, no one can time the markets. 🙂 Yeah, right. When I told him cash looks pretty good, he said will zero percent last you until the 90’s? I said no, or course not.
Now the market is down 2%. Cash is king, for now. Feet up, hands behind head, thinking about where to place the stack. He was not happy. And I’m sure he is less happy today. He recommended MCD at 89. Wasn’t MCD just 105? He said it was 24 when he signed on in 1994. 24 to 48, nose dive on loss to 12, now….get it? Timing can be done, with a lot less need for ant-acids and CVD.