Commodities Outlook


Commodity prices are falling today, but don’t join the selling momentum.

Productivity is rising rapidly. Manufacturing techniques are being shared globally at a faster rate then ever before.

Almost 1/2 of the entire human population entered the global economy since 1990. Trade has opened up in previously closed economies. The new labor is bringing labor costs down globally, simultaneously raising per capita consumption by many multiples in many countries.

Low interest rates mean that debt is cheap. Equity investments are also readily available because taxes on capital are down.

To review: Productivity up, labor costs down, global demand up, and cost of capital down. The implication is a very large increase in commodity demand. Prices have already risen quite a bit in many commodities markets, but the causal factors are long-term, and we should expect the effect to be long-term as well.

Finally, if you are investing in commodities using US dollars (I know I am), then you should also consider the currency value. The dollar has fallen more against many major currencies than the commodity prices have risen. This implies that commodity prices have even further to rise.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s