Why We Are in Secular Bull Market in Commodities

World Economic Growth Above Trend http://www.geocities.com/klub_saham/GDPGrowth.jpg
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GDP Growth Fuels Commodities. China and India are The Key Factors. http://www.geocities.com/klub_saham/Chindia.jpg
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The 200 Year Commodity Cycle is Up http://www.geocities.com/klub_saham/CommoCycle.jpg
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Pointers and charts are taken from: - US Global Investors'' presentation - Deutsche Bank''s presentation - Jim Rogers'' - Dr. Marc Faber''s
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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.\r\nChina to Boost 2007 Rural Income, Living Standards\r\n\r\nBy Allen T. Cheng and Josephine Lau\r\n\r\nMarch 3 (Bloomberg) – China will enact laws this year aimed at improving the living standards of its 800 million rural people and ensuring equitable public services, according to the chairman of a legislative body.\r\n\r\n``We will focus on ways to stimulate social development and solve problems concerning the people''s wellbeing,'''' Jia Qinglin, chairman of the Chinese People''s Political Consultative Conference, said at the start of the body''s annual meeting today in Beijing.\r\n\r\nPresident Hu Jintao and Premier Wen Jiabao have made the rural two-thirds of China''s population their policy focus, seeking to preserve public confidence in the ruling Communist Party and to prevent the widening income gap from causing social unrest. Economic growth has benefited eastern cities more than the countryside.\r\n\r\n``China must cater to the broader interests of the population and spread the wealth if it truly wants sustainable growth,'''' said Justin Lin Yifu, an economist at Peking University, and a delegate to today''s conference.\r\n\r\nThe Chinese economy has grown more than 10-fold since Deng Xiaoping ditched predecessor Mao Zedong''s hard-line communism in favor of market-oriented policies in the 1970s. Last year, the economy expanded 10.7 percent, the fastest pace in 11 years, and is now the world''s fourth-largest. Urban incomes are three times those in rural areas, a gap that doubled in the past 25 years.\r\n\r\n………………………………….\r\n\r\nhttp://www.bloomberg.com/apps/news?pid=20601080&sid=a5nBcLb6fqv0&refer=asia
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Rio Says China''s Demand for Metals, Materials to Rise By Tan Hwee Ann March 12 (Bloomberg) – Rio Tinto Group, the world''s third- largest mining company, said China''s demand for metals will likely rise, underpinning high prices for commodities this year. Mining companies globally have been hampered from expanding capacity to meet Chinese demand by shortages of labor and equipment, Paul Skinner, chairman of London-based Rio Tinto, said in its annual report filed today. A five-year commodity rally, fueled by China''s economic boom, has led to record profits at Rio Tinto and rival BHP Billiton Ltd. Rio expects China''s economic growth to average more than 8 percent a year over the next decade, it said. ``China''s strong, growing demand for metals and minerals, which has been a key driver of market strength, seems set to continue,'''' Skinner said. ``We expect prices in 2007 to continue at levels significantly above the long term trend. Stocks of most products have remained low, resulting in tight markets.'''' Rio posted a 43 percent increase in 2006 profit to a record $7.44 billion, as Chinese demand drove up prices of copper and iron ore. The Asian nation is the world''s largest consumer of coal, steel, iron ore, copper, aluminum and zinc. Shares in Rio Tinto, dual-listed in Australia and the U.K., rose 34 cents, or 0.5 percent, to A$74.84 at the 4:10 p.m. close in Sydney. They had risen 10 percent in the year before today, compared with a 15 percent gain in the Morgan Stanley Capital International World Index. China''s Growth Rio gets 16 percent of sales from China, whose economy has grown at least 10 percent annually from 2003. Prices of copper jumped to a record last year, helping Rio achieve an average price of 306 cents a pound ($6,746 a ton) during 2006, 84 percent above the 2005 average, the company said last month. Cash prices for copper, used in pipes and wires, have averaged $5754.50 a ton on the London Metal Exchange this year. Iron ore prices will rise 9.5 percent from April to a record. ``Because of previous under investment in exploration, the next generation of large, world-class deposits is only now being identified and evaluated,'''' Leigh Clifford, Rio''s chief executive officer, said in the report. ``These deposits are often in remote locations, present new technical challenges and will take some years to come into production.'''' Rio agreed last year to invest $303 million in Ivanhoe Mines Ltd., a Canadian company that plans to mine copper in Mongolia. Other copper projects Rio has under study include Resolution in the U.S., La Granja in Peru, and Pebble in Alaska, Clifford said, calling them ``world-class undeveloped copper mineral deposits.'''' Long Lead Times The Resolution project in Arizona may cost $2.5 billion to develop, Rio said in its annual report. Rio, which owns 55 percent of the project, said mining is unlikely to start until 2015, ``an indication of the long lead times for challenging projects,'''' Rio said. The study to develop the mine may cost as much as $700 million. The La Granja project won''t start production till for at least seven years and the Pebble project is ``still in its early stages,'''' the report said. Clifford said building a new project means the company knows what it will get compared with an acquisition in which ``you may find not all the assets are jewels.'''' Shares of Alcoa Inc., the world''s largest aluminum producer, rose the most in almost four years on Feb. 13 after The Times of London said Rio Tinto and BHP Billiton were planning bids. Rio also said the cost of its Madagascar titanium dioxide project has increased by less than 10 percent to $850 million because of higher raw materials costs and ``foreign exchange pressures.
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Schroders says commodities still in bull market Tue Mar 13, 2007 9:52AM GM HONG KONG (Reuters) - Commodities are in the early stages of an extended bull market, especially agriculture where price increases have only just begun, said an emerging markets specialist at Schroders on Tuesday. Christopher Wyke, emerging markets debt & commodities product manager at fund management firm Schroders, which managed about US$244.1 billion (126.6 billion pounds) worth of assets last year, said the bull run would last at least another 10 years, driven by constraints on new supplies and rapidly growing demand. "Over the last hundred years, commodity bull markets have lasted on average for about 20 years. And for a very simple reason, it''s only when prices rise that people invest in new production and that takes a long time to come onstream," he said. Speaking at a media briefing for the launch of the Schroder Alternative Solutions Commodity Fund and Agriculture Fund in Hong Kong, Wyke said commodities also provide diversification from assets like equities and bonds. He said what is typically bad for equities, including war, political uncertainty and rising inflation, have historically been positive for commodity prices, so they provide a good hedge. While prices of commodities such as oil have risen quite substantially over the last few years, Wyke said there are many commodities that have lagged. Compared with the U.S. equity benchmark S&P 500 Index over the last 51 years, the Reuters/Jefferies CRB index, which tracks futures of live cattle to gold, has barely kept pace. "Historically, commodities are still cheap," he said. The Commodity Fund was first launched in Luxembourg in October 2005, while the Agriculture Fund was launched a year later and they are both now being offered in Hong Kong following local regulatory approval. Since inception, the Commodity Fund has risen 11.86 percent, outperforming a 1.07 percent in the Rogers International Commodity Agriculture TR Index, while the Agriculture Fund has gained 8.48 percent, beating a 3.78 percent rise for its benchmark. The funds invest in exchange traded futures of commodities including barley, coffee, Brent crude oil, gasoline, base metals and precious metals, corn, oats, wheat and wool. For commodities with no futures market, the funds gain exposure by investing in stocks of small to mid-sized firms that produce those commodities.
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Commodities super cycle has further to go\r\n19.03.2007\r\n\r\nYou would have to have been living on a desert island for quite a long time now not to be aware that something has been going on in the world of commodities. Oil increased in price sevenfold between 1999 and 2006. Copper did almost the same in 4 ½ years from its low at the end of 2001. The precious metals have also soared in this new decade. Now it’s the turn of the grains, where wheat and particularly corn have exploded higher on the US futures exchanges.\r\n\r\nWhat is a super cycle?\r\n\r\nThis has all given rise to much loose talk in investment circles of a commodities super cycle which will stretch several years into the future. But what do people mean by a super cycle? Over the years some economists have observed that there are phases of economic activity, where waves of expansion and growth are followed by slowdown and recession, and that these phases can be quantified in terms of duration.\r\nKondratieff was probably the most famous exponent of this approach in the 1920s, while in the US Dewey and Dakin took up the theme in their book “Cycles – The Science of Predictions” published in 1947. In both cases, a long wave (or super cycle) is posited as lasting between fifty and sixty years in which we move from trough to peak to trough again. Within the long wave there are deemed to be smaller waves, in which activity ebbs and flows in briefer time periods. All of these studies focused as much on the historical analysis of commodity prices as on interest rates, trade, inflation and the rest of the available economic data.\r\n\r\nThe equivalent in the technical analysis of markets is to be found in the wave theory of R.N. Elliott, in which he breaks down the trends in bull and bear moves into cycles that last from minutes through to decades.\r\nOf course, the value of all these cycle studies lies in their supposed predictive power. And here is where the problems begin. Even as convinced a believer in the commodity bull cycle as Jim Rogers points out that the shortest boom lasted 15 years, while the longest lasted 23 years. His conclusion is that we have much further to go, but don’t expect a great deal more precision than that. Oh, and don’t forget that we’ll endure some huge corrections along the way.\r\n\r\nThe Chancellor, Gordon Brown, has of course famously had his own problems in this area: he laid great stress on balancing the books over the course of the economic cycle only to be forced to change the starting point of the current cycle from 1999 to 1997 in order to meet this “golden rule”.\r\n\r\nIn reality, all economic cycles and wave patterns are best identified with the benefit of hindsight and forcing current circumstances into some pre-ordained mould will usually prove to be a pretty unrewarding activity, and a dangerous forecasting mechanism.\r\n\r\nWhat we can say is that there clearly are long-term cycles and that they are driven by fundamental changes in the world around us. Global wars, the industrial revolution, major innovations in transport and communications are just some of the factors that can instigate long-lasting shifts in economic growth, that in turn stimulate demand for commodities. Increased demand drives prices higher while producers struggle to increase the capacity to meet that demand. Ultimately, prices peak when excess capacity has been developed – the cycle is then completed when demand abates and general surpluses force prices lower.\r\n\r\nChina''s role in the commodity super cycle\r\n\r\nThe big event of the moment is clearly China. I could run through endless statistics indicating the dramatic nature of the new industrial revolution that is taking place there – its double digit annual growth rates, its spectacular leap up the league tables to become the world’s fourth largest economy and so on. In focusing on China, we shouldn’t forget about India – it is the second fastest growing major economy in the world, with GDP growth up just under 10% - or Korea (up 5%) or countless other booming countries. It’s just that the sheer size and scale of everything Chinese makes it stand out and suits it to the role of representing the emerging market economic boom as a whole.\r\n\r\nThe staggering numbers on Chinese economic growth are matched by equally impressive figures in relation to its consumption of commodities. The International Monetary Fund reports that its share of the overall growth in global consumption of industrial commodities between 2002 and 2005 was massive – 51% for copper, 48% for aluminium, 110% for lead, 87% for nickel, 54% for steel, 86% for tin, 113% for zinc, and 30% for crude oil. On the subject of oil, the Energy Information Administration (the US government’s provider of official energy statistics) envisages a 47% increase in global demand from 2003 to 2030, and that non-OECD Asia (including China and India) will account for 43% of that increase.\r\n\r\nFrankly, all future projections are no more than sophisticated guesswork, but what we can assume is that unless the world economy really hits the buffers and we are plunged into a global depression, the relentless demand for industrial materials of all kinds from the likes of China is set to continue.\r\n\r\nWe are still at the stage where supply is struggling to match this huge increase in demand. If we take the example of copper, only 12% of supply is generated by recycling scrap, which means that 88% has to be mined from the ground. Commissioning new mining production inevitably takes years not months and in the lag we see copper stockpiles around the world run down. Total exchange inventories have fallen to under a quarter of what they were four years ago, although this is above the alarmingly low levels they reached in 2005. In fact, the inventories held on the London Metal Exchange and New York’s Comex market are as good a guide to ongoing tightness as you are likely to get, and until they rise significantly the current phase will not be over.\r\n\r\nCommodities super cycle: the outlook for base metals\r\n\r\nAlthough we are in a generally fundamentally benign environment for the base metals markets right now and will remain so for the next 3-4 years in all probability, this doesn’t of course mean that the prices of these commodities will inexorably rise from here. The dramatic rallies witnessed on futures markets over the past few years have already discounted much of the story.\r\n\r\nThe news is well and truly in the price in the case of copper: the steep parabolic rise, culminating in the final doubling in price in the six months to May 2006, has all the appearance of a speculative bubble. We have already fallen from over $4.00 per lb to a recent low of $2.40 on the Comex exchange. That said, what had previously been a multi-year price ceiling at around $1.60 per lb is still a long way off and will probably prove a floor for the foreseeable future.\r\n\r\nAs for the other base metals, aluminium peaked around the same time as copper last year, and zinc has also stalled for the time being; only lead, nickel and tin are continuing the immediate surge higher.\r\n\r\nCommodities super cycle: gold outshines them all\r\n\r\nBecause it began its recent long-term rally at the same time as copper and also peaked (for the moment) in May of last year, it is tempting to put gold in the same category as the base metal. Certainly the supply/demand picture is similarly tight: mining produces around 2,500 tonnes per annum, while demand is running at around 3,500 tonnes per annum. Scrap and central bank sales make up the shortfall. However, there is one crucial difference between the two metals, as the CEO of the World Gold Council reminded us in the Financial Times in early February: only 11% of gold demand comes from the industrial and dental sector. This means that 89% of gold demand represents discretionary spending.\r\n\r\nThe jewelery business accounts for the lion’s share of this, general investment demand the rest. Not surprisingly, the appetite for gold jewelery is strongest in those traditional regions – India, the Middle East and East Asia – which are currently booming. It shows no sign of abating and underpins the market. What will put the icing on the cake and push gold prices on through last year’s highs is the general investment demand side of things. Low real interest rates, persistent US dollar feebleness and the need for asset diversification will continue to create an attractive environment for speculation in the yellow metal, while new mechanisms such as ETFs will make it ever easier for the less sophisticated investor to access the market.\r\n\r\nAlthough gold has enjoyed a very good rally, nearly trebling in price off its 1999 lows, it has not matched the sevenfold move in copper, and the thing about these major cycles is that they always overshoot in value terms and end with a climactic bang, not a whimper.\r\n\r\nIn sum, unless the global economy hits the skids dramatically, it is likely to take another 3-4 years for supply to catch up with demand for industrial commodities. This should put a floor under the price of base metals and maintain a secular bullish environment, even if some - like copper - may have discounted much of this positive outlook already. Right now, the best opportunities are in the precious metals, where gold could easily top $1000 an ounce, and would need to reach around $1700 an ounce to match the recent performance of copper.\r\n\r\nhttp://www.moneyweek.com/file/26994/how-many-years-are-left-in-the-commodities-super-cycle-.html
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Beijing''s New Deal\r\nAlarmed by China''s growing income gap, Hu Jintao has introduced massive new programs to aid the rural poor.\r\n\r\nBy Melinda Liu\r\nNewsweek International\r\n\r\nMarch 26, 2007 issue - What a difference a mere $1.41 can make. To most residents of affluent countries, the figure is minuscule, small change. The same goes for most middle-class residents of China''s booming cities. But for rural Chinese farmers, whose $460 average income is less than a third what China''s city dwellers earn, it''s a very different story. One dollar and forty-one cents drove 20,000 residents of Zhushan Village in Hunan province into the streets last Monday, to violently protest a rise of that amount in bus fares; $1.41 meant life or death to one student, who was reportedly killed in the clash with 1,500 baton-wielding police. Several dozen more protesters were injured. As600 cops continued to patrol Zhushan last Wednesday, a farmer named Sun, who requested anonymity to avoid trouble with authorities, explained why she and others had risked their lives over so small a sum. Their village is remote and desperately poor, she said. "Some men go and work in construction in town, earning just $64 a month for a few months a year," she said. "But my family has no income to speak of. We raise just enough crops to feed ourselves, that''s all."\r\n\r\nMultiply that predicament by 800 million-plus—the number of rural Chinese—and you can begin to appreciate the problem facing Beijing. Even as the country charts spectacular growth—GDP spiked 10.7 percent last year—China''s country dwellers are falling further behind. The rich-poor gap is largely an urban-rural one, and the divide is widening. China''s Gini coefficient—a statistic economists use to gauge income inequality—has already reached 0.496, which is worse than in the United States. Anything above 0.40 is considered alarming.\r\n\r\nNow President Hu Jintao and Prime Minister Wen Jiabao are accelerating efforts to address imbalances that they inherited in 2003—and which could threaten the regime''s stability if unchecked. During the recent 12-day session of the National People''s Congress, which concluded last week, the country''s leaders made headlines by announcing new measures to protect private property. But equally important were a raft of programs aimed at helping the poor: a 15 percent boost in rural expenditures (to $50 billion) to bankroll guaranteed minimum living allowances for farmers; a waiver of tuition and school fees for all rural students up to ninth grade, and an 87 percent hike (to $4 billion) for the health-care budget. These measures, says Wen Tiejun, an economist at Renmin University, amount to a "total change in strategy , to focus on the people and the environment" instead of no-holds-barred economic growth.\r\n\r\nFor several years Hu and Wen Jiabao have extolled "a harmonious society"—namely, one not roiled by conflicts between haves and have-nots. Now they want to put their own stamp on economic policy before a crucial party congress this autumn. Without exaggerating, one could call the campaign China''s New Deal; after all, Communist Party strategists have started explicitly evoking President Franklin Roosevelt''s Depression-busting agenda, which created big federal programs to cushion the blows of the free market. "They''ve studied the New Deal and Lyndon Johnson''s Great Society enough to see parallels with their own ‘'harmonious society’'," observes one foreign diplomat in Beijing. More to the point, party strategists "have studied even more carefully the collapse of the Soviet Union" and how to avoid it, says a scholar with the Chinese Academy of Social Sciences.\r\n\r\nAll this represents a big change for China''s communist leadership, which for years has seemed to focus on one economic goal—rapid GDP growth—while ignoring the mounting social and environmental costs. Deng Xiaoping, the late architect of China''s market reforms, declared, "Let some get rich first," so that others can follow. The rest haven''t followed quickly enough, however, and explosive growth left an underclass of hundreds of millions of people earning less than $1 a day. Almost as soon as he became head of the Chinese Communist Party in 2002, Hu began laying the groundwork for a shift away from the get-rich-quick mind-set.\r\n\r\nOne of Hu''s early priorities was abolishing the 2,600-year-old tradition of agricultural taxes; the cut was implemented nationwide by late 2005 and is beginning to pay off. The official number of grass-roots protests in China, euphemistically called "mass incidents," fell from 26,000 in 2005 to 23,000 last year. More important, rural conflicts made up only 21 percent of the total "compared to 60 percent before 2005," says Wen Tiejun, who credits the removal of farmers'' heavy tax burden as a big factor in reducing rural unrest.\r\n\r\nStill, Hu and Wen Jiabao are racing against time. The longer China''s rural poor feel left behind by its economic miracle, the angrier they''ll become, as demonstrated by last week''s Hunan protesters, who shouted "Beat the government dogs to death!" as they set fire to five police cars. Beijing needs to find a way to create more employment in the countryside as well as in the cities; China will have 24 million job seekers this year—roughly equivalent to the entire population of Malaysia—and will be hard pressed to meet its target of generating 9 million new jobs, predicts Tian Chengping, minister of Labor and Security. "The country faces huge job pressure and a grim market in coming years."\r\n\r\nSome of the biggest budget hikes will help fix China''s tattered medical care and pension schemes. Prime Minister Wen promised that rural health cooperatives will expand this year to cover four fifths of the Chinese farmers; most still have no medical insurance and spend more than 80 percent of their cash on health care. Many farmers even prefer to die quietly at home rather than bankrupt their families by paying for expensive drugs and hospital stays.\r\n\r\nIn addition to the new central-government initiatives for the rural poor, authorities are trying to mobilize private-sector involvement as never before. In late 2005, for example, pilot microcredit companies were allowed to set up in the provinces of Shanxi, Guizhou, Sichuan, Shaanxi and Inner Mongolia, with the participation of wealthy local entrepreneurs. This experiment follows the virtual failure of commercial banks and state-run cooperatives to extend credit to farmers and other low-income groups with insufficient collateral for loans.\r\n\r\nThe new pilot projects aim to make it easier for poor individuals, as well as small and medium businesses, to get loans by allowing them to name a guarantor who agrees to make good on the loan in case of default, says Jiao Jinpu, the top microcredit expert at the People''s Bank of China. The new microcredit companies are still fledgling and are registered as commercial small-loan businesses (unlike the Grameen Bank model in Bangladesh, championed by Nobel Peace Prize winner Muhammad Yunus). But already they''re helping. In their first year''s operation, the two oldest projects, both in Shanxi, issued nearly $9 million in loans and reported zero defaults on interest payments. Wang Zhongfeng, a rough-hewn chicken farmer, returned to the Rishenglong Micro-Credit Co. last week to apply for a second loan, having already repaid last year''s 15,000-yuan credit. "It used to take five days of red tape to borrow money from a rural credit cooperative," he said, "but here it''s more convenient." For one thing, the company delivers cash to its borrowers.\r\n\r\nThe two Shanxi schemes are funded by local businessmen persuaded by authorities to use their capital to help the rural poor. "Because my coking plant is relatively pollution-heavy, I was looking for something new to invest in," admits Han Shigong, board director of Pingyao''s Jinyuantai Micro-Credit Co., Ltd. In a similar vein, a growing number of nongovernmental groups are tapping into the social conscience of private citizens to assist poor farmers. In Hebei province, the private Yanyang Rural Construction College, which has been teaching organic farming and "green" building techniques since 2003, is supported by donations and volunteers. "It''s the cities'' turn to support the peasantry," says Wang Chunguang of the Chinese Academy of Social Sciences (CASS), "since the peasants supported the cities for so many years in the past."\r\n\r\nBeijing also seems to have recently realized that alleviating poverty for rural residents can''t happen just down on the farm. More than 200 million Chinese born in the countryside have migrated to the cities to find work in the past decade and a half, and their numbers keep growing. Unfortunately, the supply of unskilled urban jobs hasn''t kept pace. Some NGOs have begun training migrant workers for city jobs such as waiting on tables or hairdressing.\r\n\r\nGovernment strategists have decided that the only lasting way to help most migrants is to allow them to become officially registered city dwellers, since arable land is too scarce to support the rural population through agriculture. A number of cities are experimenting with such schemes, but the vast majority of migrants are still compelled to maintain "household registration" back home—in part because the government hopes this will encourage them to return to farming if they can''t find city work. That''s one reason the highly controversial new law on private-property rights neglects to grant farmers the right to legally mortgage or sell their farmland.\r\n\r\nThe official fear is that if the rural poor are given the right to sell their plots, tens of millions of peasants could become landless overnight and head to metropolises such as Beijing and Shanghai, turning them into teeming, nightmare cities. The best way to help enliven China''s hinterland may be "to allow farmers to organize grass-roots cooperatives so that they can defend their interests in the face of land grabs by unscrupulous developers," says economist Wen Tiejun. Agrees CASS professor Wang, "If farmers'' land-use rights are protected, their situation will improve day by day." Empowering poor farmers like this is one way for Hu to show that creating what he calls "the new socialist countryside" really does represent a New Deal, and not just empty slogans.\r\n\r\nWith Jonathan Ansfield in Beijing\r\n© 2007 Newsweek, Inc.\r\n\r\nhttp://www.msnbc.msn.com/id/17659939/site/newsweek
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The stock is dead, long live commodities, says Rogers\r\nBy Howard Winn | 30 March 2007 \r\n\r\nInvestment guru Jim Rogers says the rise of China and the change in the status of the US dollar as a reserve currency is having a profound impact on global demand.\r\n\r\nInvestment guru Jim Rogers believes that the bull market for stock and bond markets is over and says investors should get into commodities. There is a long-term bull market in commodities which will extend to 2014-2022, he told the Credit Suisse Asian Investment Conference in a keynote speech yesterday.\r\n\r\nRogers started the Quantum Fund with George Soros in 1973 and went on to make a fortune by the age of 37 before giving it up to become a best-selling author, lecturer and commentator, while maintaining his interest in investing.\r\n\r\nHis research indicated that the shortest commodity bull market lasted for 15 years while the longest was 23 years.\r\n\r\nHis own commodity fund index which he set up on August 1, 1998 has increased by 243% since then, whereas the S&P index over the same period has risen 43%. Furthermore he asserted that whenever commodities were in the ascendancy stocks and bonds were in decline, and vice versa.\r\n\r\nHe reckoned that the big bull market for bonds in the 1980s and 1990s peaked out in 2003 and "has been in the process of making a big top ever since".\r\n\r\n"So I would urge all of you to go home and sell all your bonds. I know some of you are bond managers - I would go home and look for another job," he advised the audience.\r\n\r\nIt was the same for stocks, at least in the West. By all the classic valuations that had stood the test of time - price earnings ratios, dividend yields, price to book ratios – stock markets were overvalued. The current stock market environment is similar to that of the 1970s with big trading ranges, which some people were able to exploit successfully.\r\n\r\n"But most people are not very good at this. They need to have a secular bull market when markets are rising all the time to make a lot of money," he warned.\r\n\r\nThere is widespread ignorance of commodities, according to Rogers, which is reminiscent of attitudes towards stocks and mutual funds some 30 years ago, This is reflected in the 70,000 mutual funds available to the public to invest in stocks and bonds compared with fewer than 50 commodity funds.\r\n\r\nThe changes in global demand were taking place against a backdrop of the rise of China and the change in the status of the US dollar as the world’s reserve currency.\r\n\r\n"It is amazing how many people do not understand the rise of China - China is the next great country in the world," he said. \r\n\r\n"I know they tell you that they call themselves communists in China - but I tell you they are among the world’s best capitalists right now," he said.\r\n\r\nChina had come along way since Deng Xiaopings’s open door initiative in 1978, "but this has a long way to go," he said.\r\n\r\n"If you see problems in China – get on the phone and buy as much of it as you can," he urged his audience.\r\n\r\nAdding "it''s something we need to understand because it is going to affect demand for lots of things and change the world as we know it."\r\n\r\nThe growth in demand for commodities, particularly oil, was due to the demand from mainly China followed by India. "This is just the beginning. The demand by Asia hasn’t even started yet," he said noting that China’s per capita consumption of oil was a fourteenth of that of the US and one tenth that of South Korea and Japan.\r\n\r\nWith many of the world’s major oilfields in decline, supply was tightening. Faced with the potentially huge increase in demand from China and India prices were destined to rise.\r\n\r\n"If the price of oil goes to $150 they’ll be drilling for oil on the White House lawn," he quipped.\r\n\r\nThe shift in the US from being a creditor nation in 1987 to being the biggest debtor nation in history with debts of $13 trillion would also have major repercussions for global demand.\r\n\r\n"What is terrifying to me is that our foreign debt increases at the rate of one trillion every 15 months," Rogers said. The upheaval that would accompany the change in the dollar’s reserve status would be similar to that which accompanied sterling’s change in status some 60 years ago.\r\n\r\nRogers said that as it was US policy to debase the currency there would come a time when Asian countries, which were among the world’s biggest creditors, would start to get out of dollars and put them into real assets that stood to appreciate such as oil, gold and other commodities.\r\n\r\nThe US dollar was currently being propped up by Asian central banks, which continued their support partly because it was government policy to do so, and partly from bureaucratic inertia.\r\n\r\nhttp://www.financeasia.com/article.aspx?CIaNID=48819
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