A Question about Commodities, and a Kind Word to so-called "Goldbugs"

[Mike03]

This post was inspired by a recent thread advising people not to buy Commodities or be taken in by anyone advocating the purchase of them at this time. Most of the discussion focused on gold.

I consider petroleum, coal, natural gas, and oil sands/shales to be commodities, but for the purpose of this discussion, I'm eliminating most references to the oil companies, drilling companies, processing companies, etc...

I still would like an answer to my more general question about what fellow economists/investors/people interested in the subject of the Commodities Market think of the commodities OTHER than gold, since there are so many of them.

Although I'm unconvinced, the argument for remaining invested in tangible assets such as copper, aluminum, steel, nickel, mining stocks, uranium stocks, titanium, timber and paper, water utilities, water purification and water management, as well as the heavy machinery corporations necessary to produce these commodities, and the corporations that use these metals and resources to build infrastructure in countries that are not economically crippled, such as China, India, Indonesia, emerging countries in Asia, and Eastern Europe, and Latin America seems to me to be quite strong, and I never could get an answer on another anti-commodity thread about why anyone should give up on these highly-sought and diminishing resources in this market. Is it because this is a global rather than domestic downturn?

And in defense of so-called "goldbugs": I don't think people who allocated a rational percentage of their portfolio to purchase gold, gold funds, ETFs, and mining stocks four or five years ago when gold was in the $430 an ounce range and who got out when it hit $1000 qualify as "morons," as was claimed on another thread.

There was a rational reason to buy gold at that time; the dollar was overvalued considerably. Petroleum was obviously rising rapidly. And there was also a worthy concern that many of the nations we trade with would not revalue their currencies or would switch from the U.S. dollar to the Euro.

The crash of the dollar is not some mysterious disaster that just happened out of the blue. It was inevitable, and has been since at least 2004 (author Richard Duncan saw it as inevitable in 2002). I don't even think this statement is controversial for anyone who was reading analysis by Stanley Roach at Morgan Stanely and analysis by Prudent Bear, commentaries by Bill Gross at Pimco, or editorials by Paul Krugman (or his books "The Return of Depression Economics" or "The Great Unraveling"), or the book "Tomorrow's Gold" by Marc Faber or his participating discussion in Barron's annual "Round Table", or listened to Jeremy Grantham or any of the more respected petroleum analysts, or read any of the best-selling books on this matter that appeared mid decade, including cheasey ones like "Day of Reckoning" or whatever it was called (I skimmed that one and threw it out).

For me personally, the preeminent book on this topic is still Richard Duncan's "The Dollar Crisis: Causes, Consequences and Cures", published in 2003.

So, to folks who saw this coming and acted in time to benefit from Part I of the crash, I don't think you are morons at all, and just keep your eyes open for pullback signals and rational buy signals.

Then, my main question: What of the other tangible assets/commodities? What is to slow down the consumption of them by all the countries that are not like us, and are not huge bankrupt creditor nations?

They are in a much healthier economic position to shore-up their future supplies of diminishing and valuable resources, and that is exactly what they are doing. This is why China, Russia, France and many other nations, including our Latin American neighbors, have lucrative deals with Iran and oppose our threats to attack it.

[lapfog_1]

1. If there is a global recession

the theory is that those projects that use commodity resources will also slow down (they need capital to continue to build infrastructure items and the capital markets are drying up - dried up actually).

So there won't be the demand. That's the theory.

Reality is that we are about to enter another phase of overpopulation, which is the exhaustion of land and water needed to maintain the population and grow it again. More money will be targeted at buying food and producing clean water. So, for commodities that are used in the production of food items, demand will NOT decrease, despite a global recession. Wheat has already nearly doubled in price, indeed, there will be shortages in all the major grains soon. Gold is going through a "profit taking" dip right now, but it's still an attractive alternative to land/housing as a hedge against inflation. Investors have to put their money somewhere, and there aren't that many attractive alternatives. If investors DON'T invest, they have to play currency games (moving from dollars to euros to whatever, trying to stay ahead of inflation... however, if the sub-prime/mortgage/banking/investment crises gets worse (and there is no reason to believe that we've seen the worst yet), currencies will not be a safe haven either. Which leaves commodities and precious metals.

[Zynx]

2. The referenced post is my original thread in which I outlined why a U.S. recession is bad for

commodities and emerging market economies in general. Also, my argument was that even with good fundamental demand, price increases have far outstripped fundamentals.

[Zynx]

3. Because the growth of the "non-bankrupt' nations is dependent on the U.S., Europe, and Japan

more than it is on each other. Also, a dirty little secret about the emerging marke economies is that they are largely dependent on the investment flows from developed economies. This is largely financed by credit. They cannot and will not escape our problems. They didn't six years ago. They won't now.

Also, I never doubted the increase in global demand. My point is that like with all bubbles, the prices have exceeded their fundamentals by a mile.

[lumberjack_jeff]

4. The problem with mining and manufacturing

Is that bulldozer manufacturers are tied more closely to the economy than gold (which is sort of countercyclical)

I've been really lucky that my IRA was significantly in VGPMX for several years. They can laugh if they want. Given the gains, I may be a little overexposed now - I may have to reevaluate.

The dollar is not done dropping, imho. This isn't good for industrial metals because usage of those metals will drop. Any inflation of the value of the material (in dollars) is offset by its reduced use.

I can see why other commodities are appreciating though. The local farmers are getting nearly double per ton for their crops this year.

I don't think there is such a thing as a recession isolated to the US economy.

Given my belief in a continued weak dollar, I need to look into government bonds issued in other countries.

[Warpy]

5. People buying commodities futures are betting on inflation

and that's a pretty safe bet right now. Unfortunately, big money started to drift out of the stock market and into commodities after the crash in SIVs that turned out to be nothing but bum loans in California and Florida and move into commodities. The futures prices of oil, gas, metals, and many foodstuffs started to rise and the "have a littles" (HALs) followed the big money into the market. We're on the downslope of the bubble they caused right now, with the big money out and the HALs holding an empty bag.

I have a feeling the big money will be back after all the HALs have been shaken out.

[ConcernedCanuk]

6. I think many are missing the big picture, the United States of America has lost World trust.

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And not just financially.

Picture yourself sitting on the moon looking at Earth

What the Fu*k is this one country doing with all it's weapons and wars all over the globe?

USSA coulda been a nice country

But it ain't.