Tuesday, August 30, 2011
On the longer-term doom
I'm all for gold hitting $5000 an ounce and me becoming a multi-millionaire with a Bay-Bloor condo and a beautiful young Ukrainian wife who loves me and stuff.
At the same time, I know that the "demographic trend" behind the commodity bull market does have to end sometime. This ain't the first era in history that some cruddy third-world countries have begun to shine, giving hope for a future of limitless economic growth. The other times all ended badly, and so should this one.
I stopped reading him a long time ago, but just today stumbled across Michael Pettis again - I think he was linked to in a FT Alphaville post. His article, "Some Predictions for the Rest of the Decade", is definitely worth a read. This is all way-down-the-road stuff here, nothing immediately actionable; but if you feel, like me, that we can't make money forever, and if you also feel that Jim Rogers eventually has to be proven right and the commodity boom must crash horribly by around 2016 (and Rogers is after all the guy who owns the commodity market), then Pettis' article might just be the first thing you need to assemble a long-term plan.
It puts forward a good number of theories on 1) how exactly China can collapse, 2) how exactly the world economy will get out of this particular situation and into its next one, and even 3) how the American economy will blossom again. And as for (3), Rogers' theory does hold that after 16 years of commodity boom, you get a commodity crash - and then a 16-year bull market in equities. How the fuck do we accomplish THAT? Well, read Pettis.
After you read that, you might also want to read Automatic Earth's "Et tu, Commodities?". Now Automatic Earth is an extreme gold bear, and has lost quite a lot of credibility with me by calling the recent gold bull run over and the bubble already popped. But still, just like with that worthless twit Hussman, I still leave myself open to the idea that Automatic Earth will eventually be proven right - just with the caveat that no broken-record doomsayer has ever provided anyone with truly actionable information ever.