Why We Are in Secular Bull Market in Commodities

Demand Drivers:\r\n1. Global “synchronicity” of economies\r\n2. Asia’s strong GDP & IP (industrial production) growth rate\r\n3. Global population +6 billion people\r\n\r\nSupply Drivers (Restrictions):\r\n1. Higher barriers to entry due to global environmental and governmental regulations\r\n2. Long lead time from exploration to production, two decades of underinvestment\r\n3. Geopolitical events
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Bubble Bursting?\r\n\r\n“Worry about a collapse in a country with a balance of payments surplus and an undervalued currency seems a bit odd. The big collapse of recent decades came in countries with grossly overvalued currencies”\r\n(Don Coxe, Chief Strategist, Harris Investment Management)\r\n\r\nResiliency – Survived SARS, Asian Crisis, Western Recession\r\n\r\nNo Overheating\r\n\r\nPolitical Strife – The Most Likely\r\n\r\nInertia – Industrialization, Increased Investment\r\n\r\nRural Reform for 800 million Chinese consumers
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Jim Rogers: "In all the commodity bull markets I''ve studied, the shortest lasted 15 years and the longest 23 years." "If supply and demand get back into balance, then the bull market will end, but I don''t see any significant new supply coming into the market for any commodity and I certainly don''t see demand slowing down." "There''s no doubt China is going to be the great country of the 21st century," he said. "The last time we had a bull market in the 1970s, Asia was not involved. This time around we''ve got three billion people in Asia who want to live like we do. Whether this bull market lasts 15 years I don''t know, but I know it''s got a long way to go."
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China’s Impact on Growth\r\n\r\nChina is 4% of Global GDP\r\n\r\nChina is 13% of Global GDP on PPP Basis\r\n\r\nChina Accounts for 35% of Global Economic Growth\r\n\r\n1980-1992: China was a net petroleum exporter; 1993-now: Net petroleum importer, China''s need for oil imports keeps on rising, soaring demand and stagnant production… no choice but to import oil.\r\n\r\nIn mid 2003 Warren Buffett accumulated a 7% position in PetroChina.\r\n\r\n“Asia will revolutionize the geopolitics surrounding the oil producing regions of the world” (Dr. Marc Faber)\r\n\r\nAsia consumes 19 million barrels of oil daily with a population of about 3 billion. By contrast 285 million Americans consume 22 million barrels a day - a per capita consumption more than 10 times higher.
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The Shanghai Gold Exchange and liberalization of citizens to freely buy gold and a cultural affinity towards gold, makes gold an attractive asset class. http://www.geocities.com/klub_saham/ChinaGold.jpg
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Reform for 800 Million Rural Chinese\r\n\r\nChina has embarked on a series of significant policy and legal reforms involving rural land rights and reduced taxes on agricultural products.\r\n\r\nAnalysts at CLSA believe this coming boom will dwarf earlier government programs.\r\n\r\nWill potentially create broad-based, grass-roots economic growth for 1/7 of the world’s population.\r\n\r\nIs a catalyst for renewed rural productivity and consumption for 800 million Chinese people. This is a massive number of consumers.\r\n\r\n210 million farm households will be earning the ownership rights to 130 million hectares of arable land. A land transfer valued at an estimated $500 billion.\r\n\r\nThis wealth transfer will create numerous positive impacts on rural economic growth.\r\n\r\nThis stimulus can drive a cycle of broadening the consumer base and demand.
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History of Oil Prices 1946-2006 http://www.geocities.com/klub_saham/OilPrice.jpg
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History of Real Commodity Prices http://www.geocities.com/klub_saham/CommoPrice.jpg
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