Should you buy what China Buys?
great Article by Faber
Please Read.
gloomboomdoom.com
But before jumping recklessly into commodity futures, and iron ore, steel, pulp and paper, nickel, aluminum, fertilizer and copper producers investors should be aware that some commodities such as copper and nickel have already had huge price gains, as the “China appetite for resource play” has become well recognized by speculators. Moreover, China’s economy is overheating and will, in my opinion, experience a severe slowdown in the near future, which will lead to a commodity inventory liquidation and depress prices temporarily. Moreover, whereas I am a strong believer that a long-term up-cycle for commodities began in 2001, investors should be aware that for individual commodities price cycles are of far shorter duration (see figure below).
I would also like to point out that since all asset classes including commodities, bonds, stocks and real estate rose in price in 2003, it is conceivable that everything will decline in 2004!
Still, the long term fundamentals of commodities, particularly of oil, are by far more compelling than the ones of US equities – this especially since according to several historians including Arnold Toynbee, rising commodity prices have always turned up the war cycle, as the drive to secure the supply of finite and scarce resources intensifies. This should be particularly true for China whose economic Archilles heel is lack of water, food, oil and other industrial commodities! |
