arawak

Why I Don't Own Commodities

Dan,
Once again you pass judgment on commodities based on "price levels." Sure, there is some element of fad investing in commodities right now but this is not like the "tech and telecom names of the late 90s." Those were entirely artificial bubbles based on wild speculation and collective insanity. Put away the chart for a second and look outside. There's not enough oil in the world to meet demand (hence willingness to find oil in 6,000 feet of water)!

The U.S. Energy Information Administration showed in 2008 a production peak in May 2005. Please explain away how oil is going to become cheaper given this fact?

On the food side, the hungry masses of India and China want more meat -- and now they can start to afford it! The world's population continues to swell but arable land is on the decline! See: www.tranquileye.com/cl.../

For the last couple decades the market has been a playpen for ideas to go boom and bust in, hence the temptation to consider this current boom to be a bust waiting to happen. Commodities prices, however, are much more closely tied to "real world" events and the real world is starting to look mighty crowded.

Couple all of the above with the inflationary pressure of a declining dollar (thanks to the US being an enormously irresponsible debtor nation) and the commodity boom is looking just fine.

Why I Don't Own Commodities

Assessing the health of a sector based only on past performance is a dangerous and foolhardy way to invest. There's a reality out there that shines like the sun -- the days of the Westerner eating the lion's share of the pie are soon to be a thing of the past. Europe and America have enjoyed consuming the bulk of the world's resources for decades but that indulgence, my little piggies, is coming to an end. As the delta in living standards between West and the billions elsewhere (India, China) narrows, even ever so slightly, we're going to find that the world just isn't big enough.

I remember even 15 years ago in school it was quoted that "if everyone lived with the per capita resource consumption of the US, we would need 3.5 Earths." Barring huge breakthroughs in science (rapid development of fusion reactors), living standards in the US are going to decline as everyone else rightfully comes to the table for a bite.

A previous poster mentioned offshore oil and the tar sands of Canada. We wouldn't even be CONSIDERING these oil sources if we were not desperate for every last drop of the black petro we can find. Tar sands are what they sound like -- several steps below the worst crap crude that comes out of Venezuela. Turning it into gasoline is going to require many more refining steps and extra energy resulting in ... higher oil prices!

Commodities may flap around here and there but the sky is the limit for the next several decades.