MARKET BUZZ
Commodity Boom Is So Over
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It's hard to believe that one could ever go wrong by investing in things that people eat, put in their gas tank and use to build things.
But a gloomy report from the World Bank last week summed it up like this: The global commodity boom is over.
Commodities, you'll remember, are products that are used to make other products -- natural gas, crude oil, metals, grains, cattle and so on. They are roughly equal in quality regardless of where they come from, so Russia can be just as big of an oil player as Saudi Arabia.
For the past decade of global growth, commodities were the place to be. Here in the United States and in other developed countries, people enthusiastically bought things made of commodities.
But more important, less-developed, heavy-manufacturing countries -- China, India and Brazil, chiefly -- ate up commodities at rates never before seen, sending their economies surging. For the past decade, the Great Chinese Dragon has been the world's commodity factory: devouring oil, coal and metals on one end and cranking out clothing, televisions and furniture on the other.
As a result of record demand, prices of commodities -- specifically, commodity futures -- soared. They became a terrific investment, assuming you got in early.
But the World Bank says that's over, at least for now.
A global financial crisis has sent the economies of developed nations lurching into recession, so they're buying less of what China and other manufacturing countries make. As a result, nations such as China are buying fewer commodities, such as oil. And this is hammering the economies of nations such as Russia, whose gross domestic product depends on oil production -- the Russian stock market is down 70 percent over the past year. (By rough comparison, the Dow is down 35 percent so far this year.)
Some say the commodities boom will never return, even if this recession forces demand to sync up with supply.
Others are a little more bullish. A little.
"From an investor standpoint, it's clear that the world is very pessimistic right now," said Tim Hanson, an analyst at Alexandria's Motley Fool. "And while there aren't many reasons to be optimistic, I still find it hard to believe that the Indian, Brazilian and Chinese economies are just going to stop growing and stop sucking up resources for the next 10 years or so."
-- Frank Ahrens
