Another Bullish Argument for Commodities: Demographics

Today I see another reason for the bullish argument for commodities: worldwide demographics. An article recounts analysts from Macquarie describing the demographics of rising demand from consumer in the emerging markets:

They may earn only about £2,000 a year but they are 400 million-strong, scattered across the globe and have just bought themselves a fridge.

 Meet Generation A, who soon could become the most important economic force on Earth.

All those consumers will need more stuff, which will create enormous demands on commodities. This means that not only consumer non-durables (e.g. soap) will be areas of growth, but non-durables (furniture, cars) as well as services (telecom) in the emerging market countries. Jeremy Grantham of GMO also comments on this in his essay The Emerging Emerging Bubble(see page 9).

Key risk:

Continued growth in the emerging markets depend continued open markets. If the developed trading blocs (US, EU) start to close their markets to the emerging market economies, then investors would have to re-assess the longevity of growth story in the emerging markets.

Put it another way, there is a joke in our household that Santa Claus comes from China as everything he brings is stamped with “Made in China”. Look at your shirts, your toys and your electronics. If they continue to be made in China, India, Turkey, Vietnam, Guatemala, etc. then the emerging markets should continue their long-term growth, which will also be bullish for commodities.

Comments

[Roadstar Biker]

I'm wondering, if American consumers continue to see their real wages erode, their home values plummet, their available credit max'ing-out and the cost of living increasing - how will they be able to afford all these imported goods?

Emerging markets are going to need to depend on their own domestic demand, if they're going to continue to grow. US demand will continue to be under a lot of pressure for the foreseeable future.

[BxCapricorn]

It doesn't matter if they sell these foreign goods and services here in the US. Welcome to the new world. That's what we cannot get our heads wrapped around. We aren't holding petro-dollars. Indonesia said, and I'm paraphrasing..."l... us out of OPEC because we don't want to sell oil to the US for $135" What? They need their own oil for themselves? The world will soon want to buy US exported good and services with their strong currencies, because we will start to produce goods, export wheat, export corn, etc. to those with money. You think we can adjust accordingly and become self-sufficient by drilling offshore FL, CA, AK etc.? Build coal and nuclear power plants? Not a chance. We have ideologically pigeon-holed ourselves out of the world's new competitive market.

[Sophisse]

It is a fine line the developed world walks. If we close off emerging markets, the stockings will be empty on Christmas. If we keep it open, then inflation and currency decline steals money from everyone.

I think they'll talk up protectionism, but won't actually do much.

[Alex_G]

Cam,

When you speak of demographics, you are looking at a long term outlook. Unless you are talking about commodities with limited supply, the increased supply will meet the demand. If it is profitable to mine or grow, new supplies will emerge. Remember semiconductors in the early '90s, houses in '03-'07ish? Capital will flow and produce the commodities, just like any other "shortage" where money was the only barrier to entry.

Another assumption you are making is that the emerging markets will continue to grow without pause. Big mistake. Look at the Asian stock markets, they are telling you something.

That leaves you with gold and oil.

Gold is more about fear (dollar and financial crisis) than it is about demand. Yes, i am told that Asians prize the metal, but at what cost? A house? A business?

Oil is another ballgame. The oil negative countries have been caught with their pants down by a confluence of events partially explained by BxCap above. Oil is up over 10x in the last 8 years. This price increase will have a larger effect on manufacturing based economies (eg. emerging markets) than on service based economies. This lofty price also makes the transformation to electricity that much easier and swifter. If oil prices stay up over $100 per barrel, you will see the developed countries sell more electric cars than gas or diesel by 2015.

[pachanguero]

the greens have trashed America with their religion

[bearfund]

The big theme for the next 50 years is going to be aquifer depletion. If you think oil is expensive today, wait until you experience "peak water". Global climate change could affect this in either direction, but the odds are staked toward the negative and in any case the die is already cast. You might pay $20 to get to work but how much will you pay to live another day?

[aoxomoxoa]

Buy GLD, PHO, XLE, MOO, and PBD........and hide for fifteen years.

[buyitcheap]

I'd like to find a source for inter regional trade ex-US that might be a barometer for how the world's economy is really growing. I'd like to see what regions are really exporting the most to non US destinations, i.e. Poland to Russia. Australia to Japan, etc. Are there indicators out there that show that kind of non US market dependency.

Otherwise, I think I'm tilting toward aoxo's approach. :-)

[surgcare]

RoadstarBiker is a perfect example why the US is headed for disaster . He or she is buying cheap stuff from china etc and complaining about it . So I guess RoadstarBiker will be happier buying more expensive american made products . If that makes sense to you ,well.........