Where are we in the commodities cycle?
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Our old friend Jim Rogers was in town last night. We caught up with him in a pub in Knightsbridge.
“Well, Jim, what do you think of the world economy?”
“I don’t know, but I’m making sure my little girl learns Chinese.”
Jim is three-times famous. First for having been a partner of George Soros in one of the earliest and most successful hedge funds, the Quantum fund.
He is famous, too, for taking his money off the table. At 37 years old, he retired and took a trip around the world on a motorcycle, writing a book about it, Investment Biker. Most recently, he is famous for having been right about commodities. “The next big thing is things,” he began saying in 1999. That was when things were the last thing anyone wanted.
The New Era of intangible dotcoms ended in sobs and soon people wanted real things again. The Chinese could make all the consumer goods you wanted, but they needed things to make them with. All over Asia, people were beginning to have enough money to buy things. And even in the West, people liked things so much they mortgaged their houses to buy them. When demand rises, especially for hard-to-get things like lead and copper, it takes a while for supplies to catch up, a classic model for a boom in prices. But “commodities are notoriously, unbelievably, treacherously cyclical”, warns another old friend, Rick Rule. “They are much more cyclical than the average investor realises. He sees a big increase in the price of copper and he assumes the time has come to buy a copper-mining stock. What he doesn’t realise is that the time to buy the company was when the price of copper was low, not when it is high. The time to buy the miners is when they are cryin’ the blues, not when they are buying Dom Perignon. By the time the general public comes into the commodity market, it’s too late.”
We were on our third glass of shiraz before we got to the critical question: where are we in the cycle? Oil already rose from $10 to $72. Silver tripled. In 2006, alone, copper practically doubled. Then came what Jim calls a “consolidation”. Others might call it a collapse. Silver fell 20%. Gold has lost $100. Copper is down nearly 20% too.
Does this mean it is too late to buy silver or other commodities? Doug Casey gives his answer in Silver is set to shine. Last night, Jim Rogers gave us his view: “Let me answer your question by asking one,” Jim began. “Do you have a section of MoneyWeek devoted to commodities? No, you don’t. Well, by the time this bull market is over – maybe ten years from now – you will. In the final stages, your readers will demand more coverage of commodities. Of course, that will be the worst time to buy them.”
For more on commodities, see Why Jim Rogers thinks the bull market will last till 2022
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