(Roughly) Daily

On the subject of things– things that matter, whether we are active investors or not– that we might (to our peril) take for granted…

There are plenty of expensive assets in the world today. The past decade of loose monetary policy and central bank money dumps have created the infamous “bubble in everything”. This is one reason we now have the bizarrely yo-yoing investment environment that we do, in which everything from risky stocks to safe gold is rising at the same time.

But one thing has remained reliably cheap — commodities. While the US equity market, which keeps ratcheting up to new highs, is almost as expensive as in the past 150 years, commodities are about as cheap relative to stocks as they’ve been in the past century.

Part of this is natural — and structural…

And yet, having watched the last big demand-driven oil spike in 2008, as well as the more financially driven price spike in 2011-12, which eventually came undone when central bankers pulled back on quantitative easing, I think it’s unwise to assume that we have entered a permanent bear market in commodities — at least not yet…

… if commodity prices did rise, there would be myriad ramifications. You would start to see the heads of petro states further emboldened, and populist nationalism increase globally — inflation in food and fuel prices hits the poor hardest, encouraging political volatility. That could, in turn, create new trade turmoil and the sort of disruption that the markets are currently discounting.

On the upside, though, demand for commodities is price elastic — once prices go too high, demand always falls. The cycle of replacing one source of energy with another has been playing out for hundreds of years, and continues. In an ideal world, the next commodities bubble, whenever it comes, could help us make what might be the final shift — away from fossil fuels and towards renewables.

The estimable Rana Foroohar explains there are many reasons for the US dollar to weaken, which would (among other drivers) cause commodity prices to rise: “Commodities may not stay cheap forever.”

* legendary investor Jim Rogers

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As we contemplate cycles, we might rejoice that it was on this date in 1605 that El Ingenioso Hidalgo Don Quijote de la Mancha ( or The Ingenious Hidalgo Don Quixote of La Mancha— aka Don Quixote), the masterwork of Miguel de Cervantes (and of the Spanish Golden Age) was first published.

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