Commodities – In Money

Commodities may be down, but they are not out – and they shouldn’t be out of your portfolio, either. Even with oil prices down more than 75% from their record high set in July08, producers are operating near maximum capacity every day with 89.5 million barrels a day, and we are using 89 million barrels a day. That essentially means there is no excess capacity any where. If you factored in war, routine maintenance of pipelines or refining facilities, and diminishing supplies, we are probably already running at a deficit, even though current data does not reflect that. There is a very high probability that in the near future demand will outrun supply. I do think it is the investing opportunity of our lifetime.

There is a big different between being alarmist and being prepared and in this case, we are talking about the latter, especially when it comes to potential profits.

China, among other countries, is using its huge currency reserves – and the financial weakness of rivaling other global players – to lock up long-term supplies of commodities. The average American uses two times the amount of oil used by each European, four times the amount used by each Japanese consumers, 12 times their counterparts in China and 30 times the amount used by the typical consumer in India.

Even if substitutes were found tomorrow, we still have to replace trillions of dollars worth of manufacturing and infrastructure processes that have to be changed completely. Some studies that I have seen suggest that oil is used in more than 60,000 manufacturing processes and it is much the same with water, in particular.

It reminds me of comments made by Jim Rogers, not too long ago, when the legendary investor observed that ‘real commodity assets represent real wealth’. I agree, and I hope you will, too.