Inefficient market: Commodities for the long run

Inefficient market: It is often said that the best way to make money from
stocks is to sell them for a living. Presumably the same applies to
commodities. At least Jim Rogers might think so. Six years ago, the former
partner of George Soros established a commodities index (the Rogers Raw
Material Index) and launched a commodities fund on its back. This fund rose
160% in its first six years. Rogers is also the author of a new book, Hot
Commodities (published by John Wiley). Many people will want to know whether
the three-year old bull market in commodities has legs. Rogers says yes. I
am inclined to believe him. At the outset of 2005, there are several reasons
to be bearish on commodities. Global economic growth is slowing. Interest
rates are rising and as they climb, the appetite of investors for risky
assets - including commodities - is likely to diminish. The
short-dollar/long commodities play is no longer a one-way bet. Last year,
the prices of several commodities, such as copper and oil, soared as supply
was tight and stock levels fell. According to James Gutman of Goldman Sachs,
high prices are bringing metals out of the woodwork (a novel extraction
process). Over the past year or so, says Gutman, miners have been restarting
shuttered facilities, turning back on disused smelters, re-opening closed
refineries and finding myriad other ways to increase capacity. As supply
rises, the commodities markets are increasingly vulnerable to any shortfall
in demand. And there are no prizes for guessing where the greatest risk
lies. In recent years, China has emerged as the world's leading consumer of
steel, copper, iron ore, and soybeans. The Red Dragon's thirst for oil has
been insatiable. Last year, China accounted for 30% of the growth in global
oil demand, in the process overtaking Japan as the world's second largest
oil consumer. The commodities bull story is inextricably linked with the
fate of the Chinese economy. As Rogers writes, "if every Chinese sipped just
one more teaspoon of soybean oil a year, the soybean oil trade would double
worldwide." Westerners have been contemplating a similar prospect ever since
Lord Macartney led his trade delegation to the Chinese imperial court in the
late 18th century. They have frequently been disappointed. China is once
again set to shatter dreams of opulence. Its economy has been growing at an
uncontrolled pace in recent years. Fuelled by low interest rates, set by the
Federal Reserve to accommodate the fall-out from the technology boom,
capital investment in China has been running at close to 50% of GDP. Much of
this investment will prove to have been misallocated. When this happens, the
China boom will turn to bust and a commodities glut will appear. In fact,
Gutman argues that a full-blown economic crisis in China is not necessary
for commodities to hit the wall: a mere slowdown will do the trick. Recent
volatility in the commodities markets reflects speculators' fears that such
a slowdown is already under way. Yet if one looks out beyond this likely
turbulence, the prospects for commodities are very bright. There are three
main reasons to be bullish. First, we must consider supply and demand.
Commodities have recently emerged from a twenty-year bear market which
towards its later stages was marked by industry consolidation and declining
levels of investment. Whatever the hiccups along the way, the integration of
China and India into the global economy creates to a fundamental shift in
the demand for commodities. Yet as Jim Rogers points out, it can take years,
even decades, for new commodities supply to reach the market. The failure of
supply to respond in a timely fashion to changes in demand explains, in
Rogers' view, why commodities bull markets tend to endure for long periods
(commodity bull markets of the 20th century averaged 18 years in length).
Secondly, the prospects for commodities are underpinned by both current and
prospective monetary policy. As the economist Harold Hotelling demonstrated
in a famous 1931 paper, when real interest rates are low and commodities
prices are rising, miners have little incentive to increase production. They
make more money by leaving the stuff in the ground. Commodities bull markets
often commence during periods of low or negative real interest rates (e.g.
in the early 1930s and early 1970s). Moreover, the Federal Reserve is likely
to respond to the collapse of the US mortgage finance boom by further
loosening monetary policy. As liquidity seeks out inflating rather than
deflating assets, commodities are likely to benefit from such a move.
Finally, the return of inflation is likely to alert investors to the
attractions of commodities. A recent paper by two Yale economists ("Facts
and Fantasies about Commodities Futures" by Gary Gorton and K. Geert
Rouwenhorst) demonstrates that commodities do not only provide a good
inflation hedge; their performance is inversely related to that of stocks
and bonds, while their long-term returns have been similar to equities with
slightly lower volatility. Prudent portfolio allocation suggests that
investment returns can be enhanced and risk reduced by increasing exposure
to commodities. Such views are not widely held today, but if the commodity
boom endures as long as Rogers expects they will become so. And when that
day finally arrives, it might be a good idea to sell commodities.




Author : Edward Chancellor



--------------------------------
Inviato via http://arianna.libero.it/usenet/

"l'allegro chirurgo"




> high prices are bringing metals out of the woodwork


woodwork? lavorazione in legno?

come tradurre?

Thanks

YEEEAAHHHHHHHHHHHHHHHHHHHHHHHH

Il 14 Gen 2005, 09:29, "Geronimo&Scalper®" <geronimoyeah@scalperes.biz> ha
scritto:

>
> woodwork? lavorazione in legno?
>
> come tradurre?

Prendila con beneficio d'inventario.

Il tipo di Goldman ritiene che i metalli non siano più protetti dalla bassa
offerta, infatti poi accenna a nuovi metodi di estrazione e ad un aumento
della capacità produttiva.

Letteralmente è oggetto in legno o lavorazione in legno, ma qui mi pare sia
sinonimo di "guscio", "scudo"...

Potrei sbagliarmi, ma il senso mi pare quello.

ciao

--------------------------------
Inviato via http://arianna.libero.it/usenet/