The rising food and energy consumption of emerging economies, most notably China and India, outstrips supply. Making things worse is disruptive weather due to global warming, made worse by rising energy consumption. We have yet to put into the equation emerging economies such as Vietnam, Cambodia, and even Cuba, which are poised to, sooner or later, disrupt the equilibrium even further.
Do we have the capacity to increase the supply of commodities to restore some balance? Well, we should not underestimate human ingenuity in coming up with lasting solutions to this current fuel crisis. One such solution is ethanol that, despite noble objectives, may have triggered a tug of war between the need for energy and the need for food. How this struggle plays out depends on government policies and private sector initiatives.
As for oil, it seems that prices correct for a few days only to come back, rising to new heights. It is starting to look like a recurring nightmare—very much like a horror, slasher B-movie, where the villain dies only to come back towards the end credits to allow for a sequel.
If rising commodity prices are inversely linked to falling interest rates and a weakening US dollar, will an interest rate hike (to control rising inflation and the US dollar bottoming out) reverse rising prices? Or will it merely offer a respite and a buying opportunity for latecomers?
The outcome will spell the difference between market recovery and being sent to the doghouse for a longer period. As commodity prices reach new heights, expect a lifestyle shift. More people will be using mass transport systems and bicycles. There will be migration to condominiums near schools or places of work, which will boosts sales or rentals of live-work-play concept developments that cut travel costs.
All of us can make fearless commodity forecasts. We will agree on one direction, upward, varying only in duration and degree. Clue: If the commodity boom cycle started in 1999, will it end 14 years later in 2013? Or 17 years later in 2016? Or 20 years later in 2019?
I can share one forecast with you that is 100% accurate: The one who holds the answer to the preceding questions is going to reap a windfall. Those who move recklessly without safety nets will gnash their teeth at the bottom of the abyss.
Periods of uncertainty are marked by both opportunity and danger. During these periods, markets move in the most drastic fashion, turning paupers into princes and vice versa.
All I can say to a daring investor is to have fun and enjoy the roller-coaster ride—but fasten your seat belt.
print ed: 07/08