Yesterday, Bloomberg published an article calling a bottom in the commodities correction which repeated the endless demand from China/India rationale:
Supply constraints come at a time of sustained demand in China and India, home to a third of the world’s population.
China may spend as much as 400 billion yuan ($58 billion) to stimulate the economy and ease monetary policy, said Frank Gong, head of China research at JPMorgan Chase & Co.
The nation’s factory and property spending accelerated through July, fueled by rebuilding after the Sichuan earthquake, the statistics bureau said Aug. 15. Exports surged and retail- sales growth was the most since 1999. Chinese demand may also increase as factories shuttered for the Olympics reopen. The economy expanded 10.1 percent in the three months through June.
India, which could emulate China in demand for raw materials, will grow 7.7 percent in the year to March, a government panel said Aug. 13.
In addition, the article served up plenty of market opinions…
Alan Heap, global commodity analyst at Citigroup Inc. in Sydney:
Supply constraints are “coming more and more to the fore” and that “will separate the performance of individual commodities. We’re still looking for higher prices next year and in some cases the year after.”
Jim Rogers, 65, chairman of Rogers Holdings:
“Over the course of time, it’s a bull market.” While oil could fall to $75 or rise to $175, prices will appreciate during the next 10 years.
Malcolm Southwood, a Melbourne-based commodities analyst with Goldman Sachs JBWere Pty:
“I don’t think the commodity boom has ended at all. We’ve got a little bit of a cyclical downturn in a longer-term bull market, and the structural fundamentals are very much intact.”
Clark McKinley, a spokesman for the California Public Employees’ Retirement System (Calpers), the largest U.S. pension fund, which oversees $239 billion:
“We’re in for the long term. Short-term market moves are not of great importance to us.”
Michael Aronstein, chief investment strategist at Oscar Gruss & Son Inc. in New York, who returned 15 percent a year in the 1990s managing commodity investments:
“The whole cycle that began around the turn of this century ended. Human ingenuity creates productivity, and the real price of almost everything that’s extracted or manufactured goes down over time. That’s the nature of human progress.”
Nicholas Sargen, chief investment officer of Fort Washington Investment Advisors Inc. in Cincinnati:
“We’ve seen the end to the upward trend” for commodities. “The global economy is weakening, not just the U.S. economy. All the evidence coming out of Europe is that the economy now is stagnating. Japan and parts of Asia are weakening as well. That’s just too powerful to be overcome.”
- Such optimism indicates the bear market in commodities is likely still in the early innings.
- We find the arguments of the minority skeptics much more convincing, particularly a) real commodity prices decline over time due to human ingenuity and b) a global recession will sap demand already weakened by high prices.
- This is reminiscent of an article on Bloomberg almost exactly a year ago that claimed stocks were at their lowest valuations in 12 years. (We posted on this here.) We don’t expect the consensus to fare much better this time.
- Note to self: short Goldman Sachs.