Book review - Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market
Hot Commodities
By Jim Rogers
Jim Rogers retired in 1980 at age 37. Rogers made his money investing in commodities. He believes that stocks & commodities alternate in their bull markets, which last 18 years each. He thinks the last bull run in stocks ended in 1998 and that the bull market for commodities will go until 2015. He claims that when commodities go up, stocks go down. Commodities are driven by WORLD supply and demand, so China, India and other emerging growth markets are very important.
- NOTE: This theory differs from Rich Dad, Poor Dad: Who Stole My Money, which says there is a 20-10-5 cycle. RDPD says the commodity bull would be 2000 through 2010. He thinks stocks should pick up in 2008 and continue until 2016 because baby boomers would be forced to remove it from their IRA's and 401K's because they have reached the mandatory withdrawal age of 70 1/2. In either case, 2000-2010 are bull market for commodities according to both authors.
Rogers created his own commodities index called the Rogers International Commodities Index (RICI), which he invests in. He believes commodities are just as safe a investment vehicle as stocks. In fact, more commodities are traded all day than all US stocks combined. Rogers analyzes each investment vehicle and concludes that commodities are the choice vehicle right now.
NOTE: Oil & Gas make up the two highest portions of the commodities trading. So, I'm already heavily invested in commodities. Rogers says the US had approved 25 LNG ports in Gulf of Mexico and East Coast, but environmentalists have blocked them.
- Commodities included in this book include: oil, natural gas, metals, and sugar.
- Rogers believes commodities are the best hedge against a declining or sideways stock market. In fact, commodities have been a better hedge against inflation than stocks or bonds for the past 45 years.
- The US can no longer control the world economy. China is representing the largest growth and will soon be the largest purchaser of commodities. NOTE: This is what kills many of Dent's boomer theories. The economy is driven by world supply & demand, not US alone. Therefore, the US baby boomers cannot be overly influential. For example, there are 300 million Chinese who are under 20 years old. That's more than all the people in the US combined.
- Investing in commodity companies (like oil companies) is NOT a substitute for investing in the commodity directly. The cumulative performance of futures is triple the cumulative performance of matching equities, according to a Yale study. The stock market can influence the price of a commodity-based company, but the commodity itself is influenced directly by the world supply & demand.
- Another way to play commodities is to invest in markets that are exporting commodities. Brazil is the largest producer of sugar. Venezuela is oil. Chile is copper.
- Rogers is not bullish on Russia or Africa. There's way to many political instabilities with those nations.
- Rogers invests in commodities through his RICI index fund. I'm not sure how he does this yet. He does not play the futures option market. Futures can be purchased on huge leverage (5% margin accounts). He talks a lot about the futures market and how it is traded. However, this is NOT a trading manual. It's an introduction to commodities and a motivational guide at best.
- Rogers has traveled the world 6 times. He is extremely bullish on China and believes they will become the economic superpower within 15 years. He is so bullish that his granddaughter is learning Chinese. He believes they will be the number one purchaser of commodities within a few years. That means, the US is competing with China for resources. China is a creditor nation, while US is the biggest debtor nation.
- India is no match for China. Not even close. Huge infrastructure issues like roads, and phones, for example. Education isn't nearly as good.
- We are in a secular bull market for oil. The issue is supply & demand. Russia and Venezuela cannot get the oil to market fast enough to make a significant impact.
- "As much of a fan of commodities as I am right now, gold is not my favorite. I own some gold personally, as does my baby girl, and gold also makes up 3 percent of the RICI. But other commodities will do much better in this bull market."
- The commodities investor must try to look at gold as just one more commodity among many whose prices might rise and fall, depending on the forces of supply and demand.
- Rogers also discusses lead, sugar, coffee.
- The commodity bull market will show signs of ending when all cars are small and wind farms are dotting the landscape. In other words, we're reeling from the high price of energy.
