China’s stimulus spending will help its economy overcome the global recession sooner than the U.S. and other countries, investor Jim Rogers said.
China’s reserves allow the government to spend on projects that will make the nation more efficient and competitive as the global economy recovers, said Rogers, the author of “A Bull in China: Investing Profitably in the World’s Greatest Market.” Signs China is taking steps to liberalize its currency will also benefit the country, he added.
“I certainly expect China to come out of it sooner than the U.S.,” Rogers, chairman of Singapore-based Rogers Holdings, said in a Bloomberg TV interview in the city-state. “They seem to be spending the money on the right things. China is doing a far better job than the others.”
Premier Wen Jiabao reiterated last week the government’s pledge to “significantly increase” investment in 2009 to help counter the slowest growth in seven years. He didn’t specify new stimulus spending in addition to a 4 trillion yuan ($585 billion) plan announced in November.
The People’s Bank of China cut interest rates five times in the final four months of last year, including the biggest single reduction since the 1997-98 Asian financial crisis. The government is targeting growth of 8 percent in 2009, after the economy slowed to a 6.8 percent gain in the fourth quarter.
Yuan, Yen, Dollar
China will allow trade settlement in yuan with Hong Kong soon, central bank Governor Zhou Xiaochuan said at a briefing in Beijing on March 6. President Li Lihui of Bank of China Ltd., the nation’s largest foreign-exchange lender, said yesterday in Beijing the bank is already conducting trial international yuan settlements in Shanghai and Hong Kong.
“I’m glad to see they’re taking yet another step towards convertibility,” said Rogers, who in April 2006 accurately predicted oil would reach $100 a barrel and gold $1,000 an ounce. He said he owns Japanese yen as he expects more of the money to “come home.”
Rogers added he plans to sell his remaining U.S. dollar holdings later this year because the world’s largest economy isn’t a “safe haven” for investors.
“I plan later this year to get out of the rest of my U.S. dollars,” he said. “It’s had an artificial rally too but it’s a terribly flawed currency. The U.S. is printing money as fast as it can and that’s always throughout history led to currency problems down the road.”
Rogers on June 30 advised investors to avoid the dollar “at all costs” as the U.S. economy slows, and favored commodities. The dollar has risen against nine of the Group of 10 currencies since then, according to data tracked by Bloomberg.
Rogers added he remains bullish on agriculture and that commodities are “the only area of the world economy I know which is benefiting.” He said he owns “some” gold and silver, and regards silver as “cheaper.”
Water, power and other infrastructure companies’ shares are favored because their earnings are less vulnerable during the global slowdown, Rogers said.
It turns out that the Zell-Blackstone deal, as well as the Blackstone IPO, marked the exact top of their respective markets: http://www.nytimes.com/2009/02/07/business/07properties.html?_r=1&em=&pagewanted=all As a general rule, mega M&A deals always tend to mark the top of a market. We saw this in the 1980s with Merger Mania, culminating in the historic $30 billion RJR Nabisco LBO – right in front of the early 1990s recession. We saw it in early 2000, with the $164 billion AOL-Time Warner deal, one of the greatest value-destroying transactions of all time. The merger agreement was filed in February of 2000, the market's apex. By 2002, the value of AOL was written down by $100 billion. And, of course, the financials: MBNA and Bank of America in 2006; Bank of New York and Mellon in summer of 2007; and Bank of America buying Countrywide Financial in early 2008, to name a few. However, the worst may be RBS and Fortis' colossal $100 billion acquisition of ABN AMRO in October of 2007 – again the exact top of the market. Fortis is now defunct and RBS is being propped up by the British government. By contrast, heavy bankruptcies are a positive sign. And sharply-reduced capacity and inventories, especially when they have been depressed for long periods of time and demand appears to be improving, are signs of a market bottom. This is probably where agriculture markets are right now. It continues to appear that agriculture may well enter a bull market over the next few years.
Talk about an absolutely killer case of stagflation.
…
MENDOTA, Calif. — The country’s biggest agricultural engine, California’s sprawling Central Valley, is being battered by the recession like farmland most everywhere. But in an unlucky strike of nature, the downturn is being deepened by a severe drought that threatens to drive up joblessness, increase food prices and cripple farms and towns.
Across the valley, towns are already seeing some of the worst unemployment in the country, with rates three and four times the national average, as well as reported increases in all manner of social ills: drug use, excessive drinking and rises in hunger and domestic violence.
With fewer checks to cash, even check-cashing businesses have failed, as have thrift stores, ice cream parlors and hardware shops. The state has put the 2008 drought losses at more than $300 million, and economists predict that this year’s losses could swell past $2 billion, with as many as 80,000 jobs lost.
“People are saying, ‘Are you a third world country?’ ” said Robert Silva, the mayor of Mendota, which has a 35 percent unemployment rate, up from the more typical seasonal average of about 20 percent. “My community is dying on the vine.”
Even as rains have washed across some of the state this month, greening some arid rangeland, agriculture officials say the lack of rain and the prospect of minimal state and federal water supplies have already led many farmers to fallow fields and retreat into survival mode with low-maintenance and low-labor crops.
Last year, during the second year of the drought, more than 100,000 acres of the 4.7 million in the valley were left unplanted, and experts predict that number could soar to nearly 850,000 acres this year.
All of which could mean shorter supplies and higher prices in produce aisles — California is the nation’s biggest producer of tomatoes, almonds, avocados, grapes, artichokes, onions, lettuce, olives and dozens of other crops — and increased desperation for people like Agustin Martinez, a 20-year veteran of the fields who generally makes $8 an hour picking fruit and pruning.
“If I don’t have work, I don’t live,” said Mr. Martinez, a 39-year-old father of three who was waiting in a food line in Selma, southeast of Fresno. “And all the work is gone.”
In Mendota, the self-described cantaloupe center of the world, a walk through town reveals young men in cowboy hats loitering, awaiting the vans that take workers to the fields. None arrive.
The city’s main drag has a few quiet businesses — a boxing gym, a liquor store — and tellingly, two busy pool halls. The owner of one hall, Joseph R. Riofrio, said that his family had also long owned a grocery and check-cashing business in town, but that he had just converted to renting movies, figuring that people would rather stay at home in hard times.
“We’re not going to give up,” Mr. Riofrio said. “But people are doing bad.”
Just down the highway in Firebaugh, José A. Ramírez, the city manager, said a half-dozen businesses in its commercial core had closed, decimating the tax base and leaving him to “tell the Little League they’d have to paint their own lines” on the local diamond.
The situation is particularly acute in towns along the valley’s western side, where farmers learned on Friday that federal officials anticipate a “zero allocation” of water from the Central Valley Project, the huge New Deal system of canals and reservoirs that irrigates three million acres of farmland. If the estimate holds and springtime remains dry, it would be first time ever that farmers faced a season-long cutoff from federal waters.
“Farmers are very resilient, we make things happen, but we’ve never had a zero allocation,” said Stephen Patricio, president of Westside Produce, a melon handler and harvester. “And I might not be very good at math, but zero means zero.”
While California has suffered severe dry spells before, including a three-year stint ending in 1977 and a five-year drought in the late ’80s and early ’90s, the ill effects now are compounded by the recession and other factors.
Federal, state and local officials paint a grim picture of a system taxed as it has never been before by a growing population, environmental concerns and a labyrinth of water supply contracts and agreements, some dating to the early 20th century. In addition to the federal water supplies, farmers can irrigate with water provided by the state authorities, drawn from wells and bought or transferred from other farmers. Such water may not always be the best quality, said Mark Borba, a fourth-generation farmer in Huron, Calif.
“But it’s wet,” he said.
Richard Howitt, the chairman of the agricultural and resource economics department at the University of California, Davis, estimates that 60,000 to 80,000 jobs could be lost — including in ancillary businesses — and that as much as $2.2 billion in crop and other losses could be caused by restrictions on water and the drought, which he called “hydrologically as bad as 1977 and economically as bad as 1991.”
“You’re talking about field workers, processing handlers, people packing melons, trucking hay, sprayers, people selling tractors, people selling lunches to people selling tractors,” Mr. Howitt said. “And in some of these small west-side towns, it’s going to hit the people who are least able to adapt to it.”
One of the hardest hit areas is the farmland served by the Westlands Water District, which receives water exclusively from the Central Valley Project and distributes it to 600,000 acres in Fresno and KingsCounties. Sarah Woolf, a spokeswoman for the district, said that her 700 members expected to leave 300,000 to 400,000 acres fallow and that some might not come back to farm at all.
“Everyone’s trying to go down fighting,” Ms. Woolf said. “But there will be significant companies that will go out of business, as well as families that have been farming for generations, if it doesn’t get better.”
The outlook for things getting better quickly is dim, despite forecasts of rain this week. Last month, California officials estimated the snowpack in the Sierra, a primary source of water for the state when it melts in the spring, at 61 percent of normal. On Friday, the State Department of Water Resources said it would deliver just 15 percent of its promised contracts, a level it was able to maintain only because of the recent spate of rain. “It’s pathetic,” said Lester A. Snow, the department’s director.
Lynette Wirth, a spokeswoman for the United States Bureau of Reclamation, said water levels in all federally managed reservoirs in California were well below normal, with “abysmal” carryover from the previous year.
“There’s been no meaningful precipitation since last March,” Ms. Wirth said.
Farmers, of course, are also dealing with issues unrelated to rain, including tight credit from banks and recent court decisions meant to protect fish that have limited the transfer of water through the Sacramento-San Joaquin Delta, which feeds snowmelt to farmbound canals. Many farmers refer to a “man-made drought” caused by restrictions.
At the same time, environmental groups say they also fear a range of potential problems, including depletion of the valley aquifer from well pumping, possible dust-bowl conditions in areas of large patches of fallow ground and concern about salmon and other species. “It’s a tough year for the environment, and people,” said Doug Obegi, a lawyer with the Natural Resources Defense Council.
George Soros’ $21 billion fund returned 8% last year, which is incredible not only in light of the global crisis, but also given his fund’s size. As you can see, Soros is now betting big on oil and agriculture, outside of the United States.
Soros Fund Management LLC bought 16 million shares of the Petrobras’ U.S. traded shares, bringing its stake to 1.45 percent, according to a filing yesterday with the U.S. Securities and Exchange Commission. The New York-based firm increased its holdings in Potash by 2.6 million shares to 2 percent in the fourth quarter. Petrobras and Potash are now the firm’s two biggest reported U.S. stocks.
“As long as you see through the current crisis there are a few compelling reasons to buy,” Hernan Ladeuix, the head of oil and gas research at CLSA Ltd. in Singapore, said in an e-mail. “Oil prices should go up, probably strongly in coming years. Petrobras is the only large international company where you can have confidence that production can grow 5 percent per annum.”
The purchases made Soros the second-biggest shareholder in the U.S.-traded shares of Petrobras, Brazil’s state-controlled oil company. Petrobras preferred shares fell 5.4 percent in Sao Paulo yesterday, the most since Jan. 12, driven by a drop in oil prices to below $35 a barrel.
Potash, the biggest maker of crop nutrients, also fell by the most since Jan. 12, declining 7.4 percent yesterday. Soros Fund is the eighth-biggest holder in shares of the Saskatoon, Saskatchewan-based company.
Best Buy, Wal-Mart
Soros Fund added 9 million shares of Best Buy Co., bringing its stake to 2.3 percent of the electronics retailer. The firm also started a new position in Desarrolladora Homex SA de C.V., the Mexican homebuilder, bringing its holdings to 4.9 percent of U.S.-traded shares, according to data compiled by Bloomberg. The firm bought 5 million shares of R.R. Donnelley & Sons Co.,North America’s largest printer, representing a 2.4 percent stake.
Soros’s hedge-fund firm sold 3 million shares of Wal-Mart Inc., bringing its stake in the discount retailer to 0.01 percent. The firm also sold all of its 2 million shares in Research In Motion Ltd., the maker of the Blackberry phone.
Money managers who oversee more than $100 million of equities or more must file, within 45 days of the end of each quarter, a Form 13F with the SEC that lists their U.S. exchange- traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.
Soros’s firm oversees $21 billion. Its Quantum Endowment Fund returned 8 percent last year. That compared with an average loss of 18 percent by hedge funds, according to data compiled by Hedge Fund Research Inc. of Chicago.
After thinking this morning about commodities and inflationary prospects, I watched a Jim Rogers interview from 1995, which I have included below. You will have to fast forward a bit, because he appears toward the end. Here are a few of his predictions from 1995:
“Next year and the year after, I don’t think we’re going to have good times in the American stock market.”
“Inflation is coming.”
“Commodity prices are going through the roof.”
Best country to invest in right now: “Iran.”
“Everything in life comes down to timing.”
Well, it looks as if Jim's timing was profoundly wrong.
In fact, much of this flies in the face of what he said in Hot Commodities, published a decade later, which was to the effect of “if you went through the 1990s and didn't touch shares in technology companies then you missed out on massive gains," essentially meaning that it was a mistake caused by not being open to new things.
But, as you can see, he was saying the exact same stuff back then as he is today. And he certainly wasn't talking about technology.
Anyone who continues saying that inflation will come or commodities will rise is bound to be proven right at some point. This not to single out Rogers as being wrong, but to emphasize my stance on how difficult it is to predict macro events – unless, that is, you only have one perennial prediction.
What history shows is that, aside from short-term macro shocks, the best asset class to own, by far, is stocks. And if you can buy those stocks at depressed prices or in periods of intense fear, then your total return can be magnified significantly.
Land, labor, capital and commodities are combined to create businesses that increase productivity. And while any one of those factors may become relatively attractive during a boom, owning excellent businesses – or fractional interests, called stocks – is the best investment over the long haul.
Keynes predicted that the great financial fortunes – paper fortunes, such as the Rothschilds in his day – would be destroyed by long-run inflation. Clearly, this has not happened.
Quite the contrary: the countries with the most developed financial systems have always been the most prosperous, whether the Medicis in Renaissance Italy, the Rothschilds in 19th-century London, or today's commanding skyscraper in Lower Manhattan that reads, simply: "85".
Thus, while the gloom and doom is persuasive nowadays, I remain highly skeptical that the world – financial or otherwise – is coming to an end. I lean more towards John Paulson's prediction that massive returns will accrue to buyers of solid, yet beaten-down financial stocks, as the smoke clears and we emerge from this crisis.
Here is a different side of the agricultural debate, by British writer Fred Pearce, in a journal at Yale University, which emphasizes water as another key element in our handful of global crises — energy, food, water and global warming, all of which are interlocked and self-reinforcing.
After decades in the doldrums, food prices have been soaring this year, causing more misery for the world’s poor than any credit crunch. The geopolitical shockwaves have spread round the world, with food riots in Haiti, strikes over rice shortages in Bangladesh, tortilla wars in Mexico, and protests over bread prices in Egypt.
The immediate cause is declining grain stocks, which have encouraged speculators, hoarders, and panic-buyers. But what are the underlying trends that have sown the seeds for this perfect food storm?
Biofuels are part of it, clearly. A quarter of U.S. corn is now converted to ethanol, powering vehicles rather than filling stomachs or fattening livestock. And the rising oil prices that encouraged the biofuels boom are also raising food prices by making fertilizer, pesticides, and transport more expensive.
But there is something else going on that has hardly been mentioned, and that some believe is the great slow-burning, and hopelessly underreported, resource crisis of the 21st century: water.
Climate change, overconsumption and the alarmingly inefficient use of this most basic raw material are all to blame. I wrote a book three years ago titled When The Rivers Run Dry. It probed why the Yellow River in China, the Rio Grande and Colorado in the United States, the Nile in Egypt, the Indus in Pakistan, the Amu Darya in Central Asia, and many others are all running on empty. The confident blue lines in a million atlases simply do not tell the truth about rivers sucked dry, for the most part, to irrigate food crops.
We are using these rivers to death. And we are also pumping out underground water reserves almost everywhere in the world. With two-thirds of the water abstracted from nature going to irrigate crops — a figure that rises above 90 percent in many arid countries — water shortages equal food shortages.
Consider the two underlying causes of the current crisis over world food prices: falling supplies from some of the major agricultural regions that supply world markets, and rising demand in booming economies like China and India.
Why falling supplies? Farm yields per hectare have been stagnating in many countries for a while now. The green revolution that caused yields to soar 20 years ago may be faltering. But the immediate trigger, according to most analysts, has been droughts, particularly in Australia, one of the world’s largest grain exporters, but also in some other major suppliers, like Ukraine. Australia’s wheat exports were 60 percent down last year; its rice exports were 90 percent down.
Why rising demand? China has received most of the blame here — its growing wealth is certainly raising demand, especially as richer citizens eat more meat. But China traditionally has always fed itself — what’s different now is that the world’s most populous country is no longer able to produce all its own food.
A few years ago, the American agronomist and environmentalist Lester Brown wrote a book called Who Will Feed China?: Wake Up Call for a Small Planet. It predicted just this. China can no longer feed itself largely because demand is rising sharply at a time when every last drop of water in the north of the country, its major breadbasket, is already taken. The Yellow River, which drains most of the region, now rarely reaches the sea, except for the short monsoon season.
China's once-great Yellow River often no longer reaches the sea, as much of it is drawn off for power and agriculture.
Some press reports have recently suggested that China is being sucked dry to provide water for the Beijing Olympics. Would that it were so simple. The Olympics will require only trivial amounts of water. China’s water shortages are deep-seated, escalating, and tied to agriculture. Even hugely expensive plans to bring water from the wetter south to the arid north will only provide marginal relief.
The same is true of India, the world’s second most populous country. Forty years ago, India was a basket case. Millions died in famines. The green revolution then turned India into a food exporter. Its neighbor Bangladesh came to rely on India for rice. But Indian food production has stagnated recently, even as demand from richer residents has soared. And the main reason is water.
Even this elaborate hand-dug well in the Indian state of Tamil Nadu is dry, a result of over-pumping the underground aquifers.
Underground water is pumped for irrigation in Bengal, India, a practice that is increasing as surface water dries up.
With river water fully used, Indian farmers have been trying to increase supplies by tapping underground reserves. In the last 15 years, they have bought a staggering 20 million Yamaha pumps to suck water from beneath their fields. Tushaar Shah, director of the International Water Management Institute’s groundwater research station in Gujarat, estimates those farmers are pumping annually to the surface 100 cubic kilometers more water than the monsoon rains replace. Water tables are plunging, and in many places water supplies are giving out.
“We are living hand-to-mouth,” says D.P. Singh, president of the All India Grain Exporters Association, who blames water shortages for faltering grain production. Last year India began to import rice, notably from Australia. This year, it stopped supplying its densely populated neighbor Bangladesh, triggering a crisis there too.
More and more countries are up against the limits of food production because they are up against the limits of water supply. Most of the Middle East reached this point years ago. In Egypt, where bread riots occurred this spring, the NileRiver no longer reaches the sea because all its water is taken for irrigation.
A map of world food trade increasingly looks like a map of the water haves and have-nots, because in recent years the global food trade has become almost a proxy trade in water — or rather, the water needed to grow food. “Virtual water,” some economists call it. The trade has kept the hungry in dry lands fed. But now that system is breaking down, because there are too many buyers and not enough sellers.
According to estimates by UNESCO’s hydrology institute, the world’s largest net supplier of virtual water until recently was Australia. It exported a staggering 70 cubic kilometers of water a year in the form of crops, mainly food. With the Murray-Darling Basin, Australia’s main farming zone, virtually dry for the past two years, that figure has been cut in half.
The largest gross exporter of virtual water is the United States, but its exports have also slumped as corn is diverted to domestic biofuels, and because of continuing drought in the American West.
The current water shortages should not mark an absolute limit to food production around the world. But it should do three things. It should encourage a rethinking of biofuels, which are themselves major water guzzlers. It should prompt an expanding trade in food exported from countries that remain in water surplus, such as Brazil. And it should trigger much greater efforts everywhere to use water more efficiently.
On a trip to Australia in the midst of the 2006 drought, I was staggered to see that farmers even in the most arid areas still irrigate their fields mostly by flooding them. Until the water runs out, that is. Few have adopted much more efficient drip irrigation systems, where water is delivered down pipes and discharged close to roots. And, while many farmers are expert at collecting any rain that falls on their land, they sometimes allow half of that water to evaporate from the surfaces of their farm reservoirs.
For too long, we have seen water as a cheap and unlimited resource. Those days are coming to an end — not just in dry places, but everywhere. For if the current world food crisis shows anything, it is that in an era of global trade in “virtual water,” local water shortages can reverberate throughout the world — creating higher food prices and food shortages everywhere.
This is far and away the best primer and concise presentation on the agricultural commodities market that I've seen, given at my alma mater, Cornell University. This is crucial viewing for anyone who is interested agricultural commodities investment; and in fact investment in any commodity, whether crude oil or even gold. The professor essentially breaks down the anatomy of a bull market. Absolutely fascinating.
One of the better books on stocks is called “Triumph of the Optimists,” which tracks global markets throughout the past century. In fact, the title itself aptly describes the investment experience.
While the current crisis has thrust the Gloom & Doomers into the spotlight, their fame will be fleeting, as it always is. Bets against increased growth or productivity – the essence of economics – never turn out well.
The shamans of the current crisis will be forgotten, just as few people today can remember promoters of the 1990s tech bubble, or the 1970s technical analysis traders, the “Nifty Fifty” stocks of the 1960s, or the South Sea Bubble of the 1720s.
As Harvard economist John Kenneth Galbraith wrote, “the financial memory should be assumed to last, at a maximum, no more than twenty years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to come on the scene, impressed, as had been its predecessors, with its own innovative genius.”
From here, investors must assess where they are on the curve – ahead of it, with the pack, or bringing up the rear. I discuss this issue in a previous article that I wrote for the Expert Voices archive of the National Science Digital Library, at a cyclical peak in the agricultural commodities market.
As you can see, the bulk of profits from the commodities boom has already been made, by savvy investors like Warren Buffett and Jim Rogers, who were involved before anyone even knew that a secular shift in commodity prices was underway.
Furthermore, investors who've read a wide range of energy industry 10-Ks over the past few years know that substantial profits have been reinvested to expand capacity, in response to skyrocketing prices. The energy industry has had almost a full decade to adjust to the constrained world oil balance; and prices in excess of $100 per barrel gave an tremendous incentive to supply the market, while destroying global demand.
This is not to say that the bull market in crude oil is over, because I do not believe that it is. But the large number of new investors in the energy sector are by definition “with the pack,” not ahead of the curve.
In most cases, these investors are operating on outdated information that was generated many years ago, before the huge run-up in prices altered the capacity and oil balance picture. This will probably create greater volatility going forward, not the relatively steady double-digit annualized returns that accrued from oil over the past decade.
With 98% of stocks in the United States and Europe having delivered negative returns in 2008, there is no doubt that tremendous bargains currently prevail. But just as generals tend to fight the last war, the mass of investors will always look to reap the gains of the last bull market.
However, for those investors who are ahead of the curve, vast fortunes will emerge from the financial wreckage.
For global-macro investors, the agricultural commodities market has been of keen interest lately, and even more so now that prices have declined. The general outline of macroeconomic factors that are at play can be found in this Bloomberg News article:
As the article states, there is a strong probability that we might see the biggest rally ever in agricultural commodities in the near future, due to a fragile supply-demand situation.
But, as always, it is important to have a healthy degree of skepticism in approaching the situation. For example, similar to their call on $200 per barrel oil, Goldman Sachs made lofty predictions on agriculture in the above article at the apex of the market.
Here is another interesting take on the issue, from today's New York Times:
"For 50 or 60 years, we have let ourselves believe that as long as we have money we will have food. That is a mistake. If we continue our offenses against the land and the labor by which we are fed, the food supply will decline, and we will have a problem far more complex than the failure of our paper economy. The government will bring forth no food by providing hundreds of billons of dollars to the agribusiness corporations."
For those who want to read more about agricultural commodities, here is a great overview with links to more extensive USDA reports:
When paired with the most pressing global issues such as water shortage, global warming, the energy crisis, population growth, low global food stocks, governments printing money and so on, investing in agricultural commodities, via futures contracts or ETFs (such as DBA or RJA), seems like a one-way bet.
But, before getting too giddy over such an investment, I refer you to one of my older posts:
The human record on lofty macro predictions ranges from abysmal to comical. Yet, with the many recent successes in global-macro speculation – short-selling financials and the dollar, riding the commodities and globalization boom – it becomes easy to forecast these trends far into the future. Lo and behold, the Bloomberg News article above quotes a commodities investor who makes the claim that "we are in the early stages of a rally that could last 20 years."
Maybe so.
But it is very easy right now to be fearful of a second Great Depression or sell stocks at deep losses. This is simply the mirror image of what people felt at the apex of the stock market.
Back then, they could have produced a list of reasons why stocks and the economy would continue humming along nicely. In fact, I recall that Robert Hormats of Goldman Sachs made such an erudite forecast – and it was precisely wrong, right at the top of the market.
Thus, while I do believe that agriculture is a very attractive investment, one caveat is that individual commodities will be highly volatile and spike up only for short periods of time, as they did in the 1970s and have throughout their history. Supply and demand can shift quickly, as producers respond to high prices; and the shortage scenarios simply might not materialize.
In other words, it strikes me that the best approach to commodities investment is a very conservative one. While the inflation-hedge characteristics are attractive, commodities might be more suited to short- and medium-term traders, not long-term index investors.
Land, labor, capital and commodities are combined to create businesses that increase productivity. And while any one of these factors may become relatively attractive during a boom, owning excellent businesses is the best investment over the long haul.
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