Wed 07 Jun, 2006
Casey. By that, Doug means that you should befriend the
things likely to go up in price in a terror-worried
world. Gold, for example.
But the quip has a deeper meaning too.
"There is more than one kind of strife," wrote Hesiod,
around 700 BC. There are two, he goes on to explain. One
is destructive; wars, cruelty, "her no man loves," says
Hesiod. But the other form of strife stirs man to
action. "Even a rich man hastens to plough and plant and
put his house in order...this strife is wholesome for
men." The trick is to make strife your friend, to let it
stir the brain and body to new efforts and better
insights.
We don’t have anything particular in mind. But we came
across Hesiod in a new book, just published by us! The
Essential Classics by Les Belles Lettres contains the
critical works of the Classical period that you always
meant to read but never got around to doing so.
Available now at Amazon.com.
Meanwhile, another 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 for turning strife to his
advantage. 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. That was at the tail end of the dot.com
boom, when things were taken for granted and strife was
thought to have disappeared.
But that New Era ended and soon people wanted things
again. The Chinese were making more things than ever
before. But they needed things to make them with. And
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.
Prices of the things Asians make have remained mostly
steady, because they are able to make them in greater
volume and with lower labour costs. But the prices of
the things that people use to make things has gone way
up. When no one cared about oil, or gas, or cotton, or
copper nobody bothered to dig new mines, or drill new
wells, or plant new fields. Now, with demand much
higher, it takes a while for production to catch up.
This is the classic model for a boom in prices.
"Commodities are notoriously, unbelievably,
treacherously cyclical," we recall another old friend,
Rick Rule, telling us recently. "They are much more
cyclical than anything else in the marketplace and much
more cyclical than the average investor realizes. 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 realize 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
aren’t making money, not when they are. By the time the
general public comes into the commodity market you can
be sure that the cycle is ready to turn down."
We were on our third glass of shiraz in the Tattersall
Pub (a cosy little establishment with plenty of rubbish
on the floor) before we got to the critical question:
where are we in the cycle?
Oil has already risen from $10 to $72. Silver has
tripled. In 2006, alone, copper practically doubled. But
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 over? Is it too late to buy silver
or other commodities? What about gold?
As for gold, we have our own thoughts which we pass
along, below. For the rest of the commodities, we’ll let
Jim do the talking:
"Looking at the previous bull market in commodities, the
shortest lasted 15 years and the longest lasted 23
years. This one just got started in 1999. We’re only
about a third of the way.
"This isn’t exactly like a boom in dot.com stocks. You
can create a dot.com company in about 20 minutes. But it
takes a long time to get a copper mine up and running.
If people think the price of copper is going to go down,
they must think that the supply is going to go up. I’d
like to know where all this new copper is going to come
from. Where are the mines? Where is the ore? Where is
the oil? Nobody can give me an answer. So, what’s going
to drive down prices?
"And when you look at today’s prices adjusted for
inflation, these things are still cheap. Silver is 75%
below its all-time high. And after the last two weeks,
it’s 20% cheaper still.
"But if you really want to make some money, you’ll
invest in food. Agricultural commodities are cheaper
than the minerals. Sugar is 80% below it all-time high.
Corn is 60% below its all-time high – so is cotton. In
the last five years the world has consumed more food
than it has produced. As far as I know that has never
happened before in human history. And the amount of land
used to grow these things – wheat, for instance – has
been declining for 30 years. If people think these
prices are now on the way down, I want to know where
they think they are going to get more food.
"No, this bull market has a long way to go. And
somewhere along the way we’re going to have a drought –
like we did in the 1960s and 1970s – and then you’re
going to see some of these prices really take off. It
happened in the 1960s and ‘70s, when the price of sugar
went up 47 times in an 8-year period."
Regards,
Bill Bonner
The Daily Reckoning
about its nuclear program, according to the .....................................BBC ????.
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