Commodities: not so hot in the long run?
Getting into the commodity game for the long run seems to have a lot of proponents here on WSO. I know I'm one, our friendly neighborhood Dutch Calvinist Mr. Illiniprogrammer seems to be one as well, and if Midas Mulligan Magoo has his way, he'd make you drop those pitchbooks and hand each one of you a ho.
Voices of dissent are creeping up again though:
But there's a case against commodities, too: the human tendency to feed our appetites ever more efficiently, which periodically undercuts commodity prices and in extreme cases has even wiped out entire markets. That's a danger for long-term investors, particularly those inclined to sock commodity investments away untouched in retirement accounts for years, as many do with stock funds. The risk is that inventors and innovators will respond to rising commodity prices or scarcity by discovering other ways to meet market needs. In this view, betting on rising commodity prices over time is essentially betting that innovation won't triumph."I would rather back human ingenuity," says Dylan Grice, a London-based global strategist for Société Generale and a self-proclaimed skeptic about investing in commodities. "If there's no copper, we will find something else."
To be completely fair, belief in mans ingenuity is very noble, romantic even. Those who aren’t wishing on a star however will recognize that the chances of something groundbreaking coming along in our lifetime are very little, and even if it did, its implementation is another story.
Ag for example is practically a sure thing, innovations or otherwise. Metals will get hurt if/when the Chinese bubble pops but the sucky, antiquated infrastructure in the EM and N11 markets will make up for that in the long run.
Oil? I doubt we’ll all be turning in our fossil-fueled cars for something else in our lifetimes.
And besides:
as Nicholas Johnson, co-manager of the multibillion-dollar Pimco Commodity Real Return Strategy, says prices of heavily desired commodities often rocket before substitutes are found. "I want to own crude oil on the way to that happening".
What do you think monkeys? Am I completely wrong in thinking this? Or does the guy who gets paid in Greek debt know something I don't?
Have a good one WSO.
Nobody "invests" in commodities. We just trade. Besides, whats human ingenuity got to do with commodities?
I think Jeremy Grantham's treatment of the subject in his last two letters is the best I've seen so far. Human ingenuity or not, there's a lot of progress to be made to ease some of the pricing pressures we're currently seeing. Moving past the hydrocarbon complex in order to meet our energy needs is crucial, not only for energy prices but for creating more benign weather for food production. It'll be a bumpy ride but I don't think the commodities supercycle is close to being over. Current energy prices are pricing in a low-growth environment but are way higher than they were 15 years ago.
Not sure about other commodities, but precious metals like Silver and Gold are poised to explode, for lack of better terms. I have Silver Coins on the Christmas List!
Bernanke and other Central Banks (BOE this morning) Are printing more money, which is devaluating their currency. I think Silver and Gold, which have been used as ''money'' for a few millenia now, are the safest of them all. Sure, lots of volatility right now, but the only ones being burnt are the ones who are deeply leveraged. I'm in it for the long term!
Goodluck!
I'm a huge fan of commodities for short term trading profit, but I can't see stockpiling them for more than a couple of years, they're just too prone to the market collapsing.
Remember when Ghandi went to the ocean and picked up salt? The reason this pissed off the British Empire is that they liked to think they had a monopoly on that commodity in that region of the world, but in fact a people's liberation movement killed that business plan in one moment. China is now facing a similar illusary monopoly with the REE market, but alternative sources and alternative chemicals are already in development.
Certain things like gold and silver are always good to have in a portfolio, but I'd look at different products for anything with a holding time of 1+ years. Even with gold and silver, it's impossible to tell what they will be in five years, there's just no way to plan around it. I can't imagine anyone building a retirement account around copper.
Voluptatem mollitia esse modi ipsa rerum. Blanditiis aut praesentium et accusantium molestias. Ex illo nobis molestiae mollitia. Ut et fugiat ipsa delectus perspiciatis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...