Commodities
Diamond Rated - Best Financial Markets Analysis ArticlePeter Krauth writes: There has never been a better time to invest in commodities.
That’s a very simple statement, but it’s backed by three powerful points:
* Commodities tend to do well when more-popular investments (with retail investors) are doing poorly, and when economic conditions are less than ideal.
* When the typical economic underpinnings are at play, a “Secular Bull Market” for commodities tends to last for about 17 years. And right now, the underpinnings are far from typical - and may even be exemplary, meaning this bull-market run could last a lot longer than the norm.
* And last, but not least, we’re only about nine years into this commodities bull market, meaning there’s probably a lot more room to run - probably eight years, and very like even more.
Amazingly, this powerful notion of the “Secular Market Cycle” - despite its tremendous profit potential - is largely unknown to the investment masses, and is rarely discussed by the mainstream business news media. Indeed, it’s so taken for granted that it almost a market secret.If you’re a long-term investor, however, you’ll ultimately realize it’s one of the most lucrative strategies you have in your investing arsenal. And most amazing of all is that it’s easy to understand, easy to deploy, and easy to profit from.
Let me explain.
The Secret of the Secular Market Cycle
Why is it so special? Well, with a finite time to invest for your retirement, it’s crucial to recognize and understand what we like to refer to as the “Secular Market Cycle,” or “Secular Cycle,” for short. As the chart shows, a Secular Cycle, from peak to trough, typically lasts about 17-20 years on average (the period depicted by the chart ends in 2004, but still perfectly illustrates our concept). And there are essentially two types of cycles:
* The “Secular Bull Cycle,” during which regular stocks increase in value, and have their Price/Earnings (P/E) ratios (earnings multiples) expand. That means that stocks get more expensive.
* And the “Secular Bear Cycle,” during which stocks tend to experience a decline in both price and valuation, with P/Es that contract. At best, stock prices move sideways over an extended period, but still see their P/E multiples shrink, since corporate earnings are growing at a time when stock prices are stagnant.
For investors, one key problem is that an overall “Secular Cycle,” from trough to peak, and back to trough, can take 35 years. That’s a big chunk of a person’s wage-earning years, meaning there’s little room for missteps.
The Three Catalysts for Major Commodity Profits
We now know that a typical Secular Bull or Bear market will last 17-20 years. We also now know that the last Secular Commodity Bull was launched roughly around 2000. That allows us to conclude that we’ve easily got between eight and 11 years to go before supply catches up with the burgeoning global demand that we’re seeing right now.
Yet according to such renowned market experts as author and investing icon Jim Rogers, a number of “wild cards” are in place this time around, meaning this bull market in commodities may have a lot more room to run than its more-typical predecessors. Three factors in particular are extremely bullish for commodities investors:
* Global Infrastructure Spending: The Organization for Economic Cooperation and Development (OECD) last year estimated that worldwide investments in power-generation, water and transportation infrastructure projects would exceed $40 trillion by 2030 - and that was before countries around the world enacted hundreds of billions of dollars in stimulus-spending programs.
* Improving Worldwide Living Standards: About half the world’s 6.7 billion inhabitants are simultaneously pushing to improve their living standards, a fact that by itself stands to create a commodities demand shock never before seen - enough by itself, in fact, to extend the secular commodities bull by five additional years.
* Modernization Efforts in Major Markets: The modernization initiatives in China, India, Brazil, Eastern Europe and other portions of Asia are extremely bullish for commodities prices.
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