Commodities: How Anyone Can Invest Profitably in the World's Best Market
by Jim Rogers
272 pages, Random House, December 2004
List: $25.96; $17.13 at Amazon.com
Mainstream investors have noticed that the price of crude oil, copper, steel, iron ore, scrap metal, and other commodities have been moving sharply higher the last few years � and some of the best returns have been from stocks in these sectors. Like the 1970's when basic material and energy stocks performed well, history seems to repeat � at least according to Jim Rogers in his new book entitled �Hot Commodities.�
A New Bull Market is Obvious to Most
Rogers claims that a new bull market is under way in raw materials, natural resources, and hard assets � fed by expanding demand from China and other fast growing Asian countries. The lack of investment by companies in the sector over the last decade is also a factor. The forces of supply and demand set commodity prices, and Rogers claims we are seeing a structural shift in both that favors higher prices. Most of this is nothing new to investors.
But Something New...
What we found of interest is Rogers� discussion of historical market data, which indicates there has been a strong negative correlation between the price movement of stocks and the price movements of commodities. During periods when commodity prices are rising the stock markets have generally performed poorly. Conversely, the stock market does very well when commodity prices are stable of declining.
Over the last 130 years Rogers claims these alternating bull cycles in the stock market and commodities markets last on average around 18 years � so the current bull market in commodities has quite a way left to run should history repeat.
Historical data also indicates commodity prices can increase ten-fold during the bullish cycles, and commodity bull markets correlate positively with inflation, expected inflation, political uncertainty, and periods of war.
After discussing commodities and general financial trends, Rogers examines the supply and demand for certain specific commodities - sugar, coffee, gold, lead, crude oil and natural gas. While the book talks about buying specific commodity contracts, investors can buy the stock of firms in each commodity sector they find attractive if they are not comfortable with the risks in the commodities markets.
Goodbye, Cheap Oil
While most of the trends Rogers notes in the book are obvious, the main reason we think his book is worth reading is his discussion of the supply and demand trends becoming apparent in the energy sector. His chapter entitled �Goodbye, Cheap Oil� does a masterful job of examining the basic facts regarding supply and demand � it is very readable but filled with facts and technical details that few analysts on Wall Street seem to comprehend (or they would have been strongly recommending firms in the energy sector over the last few years).
© 2005 Joseph Dancy
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Web Note: Also hear Jim Puplava's interview with the author, Jim Rogers.