Wednesday, September 03, 2008
It it at times like this that you realize how difficult it would have been to just follow the simple investment advice of buying commodities in the '70s, then buying Japanese stocks in the '80s, then U.S. stocks in the '90s, and commodities again in the '00s.
We are probably only about half-way through the current secular bull market in commodities, yet with news of a high profile commodity hedge fund shutting down and twitchy traders exiting the natural resource sector en masse, you'd think it's the end of the world.
And the funny part about the recent slide in commodity prices is that much of the big move down is being attributed to a stronger dollar. The recent revelation that, during the summer of 2008, the U.S. dollar is not the worst paper money in the world has caused traders to salivate like Pavlov's dogs, pushing the sell button on all sorts of natural resource investments with no knowledge or care that underlying supply and demand fundamentals are still out-of-whack.
Of course, the current conventional wisdom is that the underlying imbalances are being corrected by "demand destruction" of biblical proportions. Despite the conventional wisdom of just a few months ago, emerging economies around the world aren't going to need all that extra energy, metal, and food after all.
They'll just go back to what they were doing in the 1980s.
That's a relief.
It used to be that new supply coming onto the market would end commodity bull markets, but apparently, this time it's different.
We've all had about enough of that $4 a gallon gasoline!
But, by far, the funniest part about the latest conventional wisdom that "a global economic recession will lead to $50 oil" is the underlying assumption that governments around the world, who have already proven to be quite adept at printing up more paper money as the need arises, are going to just sit idly by and watch things deteriorate into a 1930s style jobless rate and bread lines photographed in black-and-white to better capture the mood.
With the power to print as much money as they want to in order to try to solve as many economic problems as they can, governments around the world will simply watch as the entire planet (and nearby solar systems) slides into an economic abyss.
Now that's really funny...