Billionaire investor George Soros said Thursday that the boom in commodities is still in a "growth phase" despite the fact that prices for oil, wheat, rice, and gold have risen to records in 2008, Bloomberg News reported Thursday.
Soros said the relative stock market slump, combined with favorable, long-commodities demand, has prompted institutions to direct money to commodities, creating a "commodity as asset class" phenomenon, Bloomberg News reported. He added that increasing institutional involvement was creating a generalized commodity bubble.
Relative shortages
Moreover, demand for selected commodities (oil, rice, wheat) is so great, it's creating relative shortages, Soros added, which is only heightening the return on equity potential of commodities, Bloomberg News reported.
Economist Glen Langan, whose second Ph.D. field was agricultural economics, told BloggingStocks Thursday he agreed with Soros' assessment that the commodity price run-up is being aided by institutional investors, but that the primary price driver remains increasing demand for commodities in emerging markets, primarily Asia and Latin America.
"China's demand itself would be enough to start an upward trend line in oil, wheat, copper, coal, fertilizer, and other commodities, but with globalization, we have, essentially, the whole world implementing capitalism, with a few exceptions, such as Cuba, North Korea, and Iran," Langan said. "And the initial growing pains are obvious enough. We have had large price increases, with selected shortages of some commodities, such as rice."
The UBS Bloomberg Constant Maturity Commodity Index of 26 commodities is up more than 20% this year and has more than tripled in the last six years.
Further, Langan expects foodstuff commodity prices -- for wheat, rice, and soybeans, among others -- to continue to rise at double-digit rates this year, then moderate to single-digit price increases in 2009, as farmers increase production to capture those high prices. In the developed world, such as the United States, food prices will increase about 8-10% in 2008 and 5-7% in 2009, he said.
I went to a garden party
Longer-term, after 2009, Langan expects both commodity and food price increases to moderate even more, as people/societies find substitutes for expensive items, and as an increased percentage of citizens in developed and developing countries grow more of the food they consume.
"Back yard vegetable gardens are going to become even more popular in the United States and in other countries in the years ahead, I can guarantee you that," Langan said.
Soros says 'commodity bubble' is still in growth stage
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Reader Comments (Page 1 of 1)
4-17-2008 @ 6:28PM
Kent said...
George Soros is an interesting character. A foreign-born American from Hungary taking advantage on the miseries of the common folk in the States. More credit to him for taking advantage of this situation.
4-18-2008 @ 4:02AM
B. Harrison said...
Yes, the bubble is bursting . . . the "bubble" in which people have complacently felt that the government or someone else was "taking care of their interests", that they could blindly "follow the crowd" and that everything would work out just fine.
People have to "think for themselves", use "common sense", and look out for their own best interests. The reaity is that there isn't some type of magical government backup that is going to bail them out of their irresponsible financial actions; "personal accountability" is being forced upon them. The old adage "Let the buyer beware" has come home to roost. The basic economic principles still apply; and the profits and/or the losses go to the risk takers.
Unfortunately, there isn't a balanced competitive market any more (and hasn't been for a long time). The market is controlled and manipulated by the large players (see Jim Cramer's blogs); and they now hold an advantage with 15% - 20% discounts off the market pricing. The commodities market is the only competitively priced market at this time.
4-18-2008 @ 7:23AM
al coholic said...
Even if all the industrialized nations went into recession food costs would still be on the rise.
Our resources are being spread thinner each day as the population of the earth grows too fast and turns what just a few years ago were food surpluses into shortages. Same with oil.
Which is why our government should end the charade of not counting food and energy into the inflation figures. It's time to admit that the prices of these essentials is only heading one way....up. The old arguement of temporary volatility is an insult to our intelligence.
4-18-2008 @ 8:21AM
william lindblad said...
amen al. I agree 100% and it only going to get worse. The inflationary yardstick is a contrived instrument, a shell game of sort. Inflation is easy to control - just remove any item that is on the rise. Consumer electronics, washer, fridges, etc. are all down so they are non-inflationary. You and I only buy these type of items on a need basis and they are infrequent purchases. The staples are all up, you know, the items that are regular purchase, but they are not inflationary.
Someone needs their head examined! The whole economy has been consumer driven for at least ten years and now the consumer is heavy in debt and default abounds. Corporate America has shipped has shipped as many jobs as they could overseas and is now going on a layoff binge on the domestic front. What is going to support the economy?
4-18-2008 @ 9:04AM
brian said...
Im buying a gun
4-18-2008 @ 3:25PM
Dinesh said...
the comodities bubble wont last specialy those which have risen because of inflation as this year the dollar is going to be strong and phycical demand is going to be weak.(Gold And Silver).
4-27-2008 @ 12:11PM
Terry said...
I think many foreign govs are quietely decreasing their dollar reserves and increasing their gold. That's a lot of worldwide demand for gold at least.
6-08-2008 @ 2:00PM
Bobby said...
I agree Kent that Soros is a skum quesadilla but he's flanked by the wealthy in every new generation capitolistic country on the rise. India & Mexico have 3 of the top 5 richest men in the world now according to Forbes & I would hardly call those countries as having average median global incomes. I can't even begin to explain how I feel about the imbalance of wealth in the world especially when I read about already impoverished countries rioting in the streets over higher rice prices taking a half days wages to buy a 2lb bag of rice. I believe there is a God, I wish he would take control...
6-23-2008 @ 4:48PM
Bill Meyer said...
For many commodities there is clearly more demand than supply. Do we see demand for oil going anywhere? While some commodities may be slightly overvalued, in general commodities aren't going to be bursting anytime soon.
Another reference article on this: http://www.commoditynewscenter.com/articles/Insight/Bursting_the_Commodities_Bubble