Emerging Markets are about to overtake Developed Markets in demand for just about everything. Consumers are awakening in the rest of the world and soon leading economists will stop being so US-centric or even West-centric. On top of that, this is one of the main reasons we are experiencing a huge multi decade secular bull market in commodities which started in 2000. No matter what crisis sells commodities off, like the Crude Oil crash of 2008 or Cotton crash in 2011, all of these these commodities recover quickly and majority of the time all make new record highs. This is because the underlying demand is extremely strong, while the supplies are boarding historical shortages.
It seems that every man and his dog blames the commodity rally on excess liquidity, speculation and money printing; and constantly calls it a bubble (because calling anything a bubble is so cool since 2007). While those points do play a role, this multi-decade commodity bull market is built on strong fundamentals. In other words two decade long neglected supplies mixed together with surging demand as the rest of the world (5 billion people) is slowly awakening into urbanisation and consumerism.
Emerging Market wages are growing slowly but surely, and unlike in the West, these boys and girls do not have any debts. Majority of the countries citizens have no credit cards or even bank accounts, let alone mortgage or car loans. All they want to do is live like us in the West and they are willing to work twice as hard and save much more than we do, to do so. It is only a matter of time until the Chinese start consuming as much Oil or Coffee as the US, or as much Cocoa or Natural Gas as the Europeans, or as much Sugar or Wheat as the Middle East. Chinese are already leaders in consumption for majority of other commodities and until the world starts producing much more raw materials than the 7 billion people are using, the commodity bull market is here to stay.
Deflationists can argue all they want, but the price of everything in this world is rising - apart from assets Helicopter Ben inflated into a bubble like TMT stocks in 2000 and Real Estate in 2006. I am pretty sure majority of the 7 billion people in the world do not have any exposure to US or EU real estate or TMT stocks in the year 2000, while their CPI or cost of living has been rising dramatically over the last 10 years. For majority of the people on this planet, the world is definitely not in deflation, and all one needs to look at is the chart below.
As we stand right now, the world is once again experiencing debt problems, similar to the episode played out in 2008. Both commodities and equities are in a downtrend or a cyclical bear market. When it comes to commodities, this is forced liquidation and fear by majority of investors, and has nothing to do with fundamentals. Therefore, once the recovery comes and it will come eventually, commodity prices will continue to make new highs while the stock market rally will once again be false.
In other words, for longer term investors, even when the market rallied 100% from March 09 lows, one would still not have made any returns since the year 2000. As a matter of fact one would be down 15% while the commodities are up 173%. Adjust that 15% return for inflation with phoney US CPI and you are down 30%. Adjust it by the CRB Index rise and you are down 60%. Adjust it for Gold and you are down 80% (the chart above is a bit out dated). You get the point... so as the bear market draws closer to the end sometime in 2012 and we approach the low, stick with commodities, because they are going places in the new upturn!