At this point in the economy, I don't think we can rule out a run-up in commodities. I believe it is a real possibility. There have been huge cutbacks in the supply of many commodities -- especially those in the agricultural sector. In fact, we have already seen supply problems (supply, demand, deflation) throughout the agricultural area.We will eventually have problems with oil supply. It is just a matter of time before demand picks up. I think one of the big sleepers in a commodity is coal. Coal has been pummeled in the last five years. I believe the surviving companies must be near the bottom. (More about that in my next alert.)
China, a major consumer of natural resources, has slowed down dramatically. The Chinese government has attempted to revive its economy through many types of stimuli -- mostly fiscal. Keep in mind that this has hit hard on the commodity front. There will be greater demand as emerging markets -- those that are now suffering -- begin to pick up. This has hurt supplies, especially in agricultural commodities. Remember the other issue with China is that their farmers have used their seed money to get into the markets. This will hurt some of the commodities coming out and staying in China; there has already been a dramatic increase in imports of commodities to China.
I think we will see a problem on several fronts as these things pick up. Oil reserves all over the world continue to be threatened by deflation and demand not coming close to keeping up with supply. But we have been consuming more oil than we have been finding, and frackers have gone out ofbusiness. This will obviously affect supply at some point. We have seen little industrial demand here in America since we made a major shift back to a 1977 labor participation rate in our new normal of 2015 economy. I have to believe this will change at some point and demand on commodities will begin to pick up. Of course, the question is "when"? We cannot know the precise time. If you are a long-term investor (particularly if you are a partner with me on the website), watch for some commodity alerts soon. There are some I think could do well for the long-term investor.