Friday, October 17, 2008


Few people realize how big this turn will ultimately be. No matter how many times I say that commodities fall in price over time, the feedback always seems to be the question of how low oil will go before it turns up again. I am reminded of Dr. Efird, professor at Duke Divinity School, who often says that you don't normally find the right answer if you are asking the wrong question.

In a couple of recent postings, I have written about how the price of copper has fallen dramatically. The move has just started. Copper sold for 20 cents a pound in the late 1990's and in the early 2000s. In 2006, the price soared to $3.75 per pound. The price went up more than 1,800% in 5 years. The recent drop from $3.75 to the $2.00 range was big but not in the grand scheme of things. The recent drop is a start to lower inflation rates. But, before this move is over, copper will once again sell for 20 cents per pound (in 2001 dollars).

The copper story is about the same as the aluminum story, the steel story and most importantly the same as the corn and the wheat story. The real price of commodities goes down, down and down. People still think that inflation is ready to soar. They don't take into account the possibility that copper and other commodities could fall 90% in price from current levels.

Billions of people in the world do not own microwave ovens. Billions still burn wood, peat or coal for heat. Much can be done to reduce the consumption of natural resources. Much will be done. Supplies of goods are abundant. Prices will fall. Consumers will benefit.

Conservatives elected George Bush and expected change. Liberals are about to elect Obama on the expectation of change. The change in government policy will not be great, but the next 20 years will be a time of great change. The biggest changes will be the fields of genetics. Life expectancy is going to increase beyond most expectations. You are likely to live to see an economic boom like none that has been before. In the near term, the economic turn will be bigger than you think.