Jim Rogers thinks Warren Buffett is wrong about commodities

[blazespinnaker]

Good article, ChessMan.

[aa]

Looking at the gold charts from 1975 to 1985 and using the rough inflation adjustment that's been used here (2.5?), the current chart looks very similar to the middle of 1979 when the price started to take off vertically (around 300 or so).

Yes, at that moment gold was cheap compared to it's eventual top of 850 (2000 today) but that whole run up and peak was very fast and very short lived. Just like any bubble (the internet bubble included), it is very difficult to pick the peak and get out at the very top.
After the peak, it immediately dropped back to 600 and then there were 5 years of falling prices, and the price was back to $300 in 1985.

Perhaps gold is not expensive at the moment and perhaps it will go much higher in the near or far future, but history also shows that it could also be back to the current price in 5 or 10 years time. You can still lose if you get the timing wrong - and getting the timing right is very difficult.

Oh, and doesn't the copper chart look just like an internet stock back in 2000 ?

[jk]

i think the fundamentals are different now than they were in 1980. for example, how likley do you think that bernanke will follow in volcker's footsteps instead of greenspan's? volcker broke the back of the inflation in the 70's. i think the fed now is petrified by the idea of housing values plunging and kicking off deflation. bernanke's famous helicopter speech during the deflation scare of 2003 made clear what the real worries are at the fed.

as for copper and internet stocks- i'm sure there is a great deal of speculative piling on by hedge funds and proprietary traders, in copper and in the gold and silver too. so a sharp correction is inevitable. but not a bear market anytime soon. the fundamentals support the metals. the internet stocks were mere dreams, hypothetical businesses, not real ones. on the other hand copper appears in everything that has electronics or electricity, houses, automobiles, motors, etc. and as long as the world's central banks keep producing a flood of liquidity, precious metals will increasingly return to their role as money, especially money as a store of value.

[mytaxman]

I think the farm commdity price increase (sugar, wheat, corn, etc) will come from a "rob Peter to pay Paul" or substitution effect. The rise in the price of oil makes the use of corn and sugar for ethanol the highest use. Brazil uses almost all of its sugar for ethanol. We will end up using the bulk of our corn. Anybody that can afford to build an ethanol plant will be crazy to feed the corn to animals or to make sugar. So wheat will become an animal feed to replace corn.

mytaxman

[EJ]

I think the farm commdity price increase (sugar, wheat, corn, etc) will come from a rob Peter to pay Paul or substitution effect. The rise in the price of oil makes the use of corn and sugar for ethanol the highest use. Brazil uses almost all of its sugar for ethanol. We will end up using the bulk of our corn. Anybody that can afford to build an ethanol plant will be crazy to feed the corn to animals or to make sugar. So wheat will become an animal feed to replace corn.

mytaxman

Ethanol is about politics not about energy.

If you believe ethanol advocates, ethanol is the savior of our rural economy and environment and is a vanguard in the war on terror. However, a hard look at the facts shows that the purported benefits of ethanol are an illusion. It's not cost-effective, requires massive subsidies, has negligible environmental and economic impacts, and doesn't enhance energy security. When it all comes down to it, ethanol amounts to nothing more than 'subsidized food burning' as Cornell University's David Pimentel puts it.

http://www.pureenergysystems.com/new..._Subsidies.doc

...ethanol is an inefficient, expensive fuel. Just look at the 3- to 5-cent-per-gallon increase in gasoline prices during the winter months in the Washington, D.C. area when ethanol is required to be added to the fuel.

Finally, let me quote Stephen Moore, of the CATO Institute, who puts it very succinctly in a recent paper:

...[V]irtually every independent assessment--by the U.S. Department of Agriculture, the General Accounting Office, the Congressional Budget Office, NBC News and several academic journals--has concluded that ethanol subsidies have been a costly boondoggle with almost no public benefit.

So why do we continue to subsidize the ethanol industry? I think James Bovard of the CATO Institute put it best in a 1995 policy paper:

...[O]ne would be hard-pressed to find another industry as artificially sustained as the ethanol industry. The economics of ethanol are such that, for the industry to survive at all, massive trade protection, tax loopholes, contrived mandates for use, and production subsidies are vitally necessary. Only by spooking the public with bogey-men such as foreign oil sheiks, toxic air pollution, and the threatened disappearance of the American farmer can attention be deflected from the real costs of the ethanol house of cards that consumes over a billion dollars annually.

http://mccain.senate.gov/index.cfm?f...Content_id=481

Current ethanol production in the U.S. is a waste of money and food and should be halted immediately to increase focus on more viable alternatives.

[jk]

re ethanol- yes, it's a government boondoggle. the u.s. subsidized corn to ethanol program must be distinguished from brazil's cane sugar based program. we'd have to lower our sugar price supports to make a program work - it will never happen as long as the iowa caucuses are the first round in the quadrennial presidential follies.

[Jim Nickerson]

it's interesting to note that Buffet is not bearish on wheat, but was more concerned about metals..

Perhaps it has to do with buy low, sell hight.

Jim

[memyselfandi]

okay.. so... other than buying individual futures contracts, how a little guy invest in commodities like corn/sugar/wheat/etc?

Are there mutual funds/ETFs/etc. that invest in commodity futures directly that a non-accredited, individual investor, can buy?

I know that PIMCO and others have funds that invest in structured notes, which I guess are linked to commodity prices derivatively. But is that (the structured note) riskier than investing directly in commodity futures?

Anyway, anyone with any suggestions?

[Jim Nickerson]

okay.. so... other than buying individual futures contracts, how a little guy invest in commodities like corn/sugar/wheat/etc?

Are there mutual funds/ETFs/etc. that invest in commodity futures directly that a non-accredited, individual investor, can buy?

I know that PIMCO and others have funds that invest in structured notes, which I guess are linked to commodity prices derivatively. But is that (the structured note) riskier than investing directly in commodity futures?

Anyway, anyone with any suggestions?

Recently Deustche Bank began a commodities ETF--DBC. It invests in light sweet crude oil, heating oil, corn wheat, gold and aluminum which I guess were picked because of their liquidity.

http://www.etfconnect.com/select/fun...sp?MFID=153467 may get your to some comments on the fund.

Jim