Has the Bull Market in Commodities Run Its Course?
- Jim Rogers: Commodity Investor
- How long can the bull run last?
- What’s cheap right now
I have to admit: I’m something of a Jim Rogers fan. I’ve read all of his books. I watch every one of his appearances on TV, and I study his career and investments extremely closely.
In a world where talking heads and b-school economists blather on in flowery finance-speak that doesn’t make a lick of sense, Jim Rogers seems to always speak in a clear, simple and easy to understand manner.
He speaks the language of
commodities.
And while I always do my own due-diligence, I put a lot of stock in what he says – sometimes literally.
Even though I know the commodity train is still running, sometimes it’s nice to put my ear to the tracks and hear Jim Rogers saying the bull-market is going to roll on - the same things I’ve independently verified for myself.
For instance, I hear lots of people saying that while commodities have had a nice run, the bull market in “stuff” is nearing its end. That begs the question: how long can a commodity bull market last?
It’s a valid and important question.
I’m a commodity investor, but not for sentimental reasons. As much as I value gold as a hedge against inflation, or oil’s ability to make my car go vroom – I invest in commodities for fundamental reasons – largely because I believe they are still cheap and undervalued from a historical perspective.
So, back to the question at hand. How long can a commodity run last?
Jim Rogers answers that very question in his 2004 book “Hot Commodities.” Specifically, he references a study by Legg Mason - which found that the average commodity bull-run lasts between 17 and 18 years. The study also revealed that every commodity bull market in the last 130 years has coincided with a bear market in stocks.
In the chart below, you can see this trend at work.
The chart also shows that we’ve only been in a commodity bull market for 10 years at most. The shortest bull market in commodities was between 1969 and 1981, a 12 year period. The longest was between 1930 and 1950, or 20 years. By historical standards we should have at least 2 years to go before the gravy train slows..
Will this commodity bull-run be the shortest in history? I doubt it. Most commodities I follow are still cheap. Some nominally so, but most are historically below their inflation-adjusted highs. At the end of every other commodity bull run, prices for most commodities were above their inflation adjusted highs.
For instance, the inflation adjusted high for gasoline is $3.57 a gallon. Gas is still selling in the high $2 range. That’s ridiculously cheap, considering we’re running out of cheap oil. No one has discovered a significant reservoir of cheap oil for over 30 years. Simply put, there’s no way gasoline at $2.95 is in bubble territory.
Gold’s inflation adjusted high is over $2,200 an ounce. Compare that to today’s prices of just over $1,100 an ounce.
But it’s not just gold and oil that are still cheap. Natural gas (as I’ve been saying for the past week) isn’t just cheap – it’s almost impossibly cheap. I don’t know how natural gas companies can stay in business with prices this low. Natural gas currently sells for just over $4 per thousand cubic feet. That’s the equivalent of gasoline at 50 cents a gallon. The strongest of these companies are still a screaming deal right now. (Click here to find out more information about my favorite natural gas company.)
Coal companies, like BHP Billiton (NYSE: BBL) just raised benchmark coal prices by nearly 80%, but coal prices are STILL below inflation adjusted highs of just a few years ago. As I said yesterday, the United States, China and much of the rest of the world is slated to use more coal than ever over the next 20 years. Buying coal companies today is almost a no-brainer.
The list goes on. Silver is even cheaper than gold right now. It’s not even close to its nominal highs of $50 an ounce in the early 1980s. Copper has nearly doubled in the past year from $2 to $3.50 per pound, but it’s 75% cheaper than inflation adjusted highs of over $14 a pound in the mid 1970s.
Okay – you get the idea. My point is: commodities are still undervalued. It’s a long-term trend that’s still unwinding. The numbers don’t lie. And neither does Jim Rogers.
If you think like Jim Rogers and I do, that the commodity bull run still has plenty of steam, I encourage you to click here to sign up for a trial subscription to Energy World Profits. It’s filled with today’s best commodity investments – and it’s entirely risk-free. If after the 90-day trial you’re not completely blown away by the research, you’ll get a full refund. No questions asked.
By the way, there’s one big sector of commodities I haven’t talked about: food.
It’s the same story there too. Nearly everything is phenomenally cheap. But I've run out of room today. I’ll talk about my favorite food-commodity investments in an upcoming issue of Resource Prospector.
Good investing,
Kevin McElroy
Editor
Resource Prospector
