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Let the revolution beginJohn Myers
All the press talks about these days is this "miraculous recovery" of the U.S. economy and Wall Street. But when you examine the numbers, there's no avoiding the fact that this so-called recovery is NOT happening. The economy is still off...and so is Wall Street. The greenback has plummeted, unemployment is still too strong, personal savings are down, but...commodities are soaring. As you know, gold just recently hit seven-year highs. But look at these other metals: lead is at its highest point in five years; aluminum is selling at two-year highs; copper is at levels last seen in December 2000. In fact, the CRB index, which represents a broad basket of commodities, is currently trading at 246, up from 190 at the beginning of 2002...a gain of 29.5%. There are two things, really, that are pushing commodities to all-time highs. In fact, I call this a double-barreled bull market...and it has only just begun. The first barrel is one readers of the Daily Reckoning will be well versed in: the downfall of the U.S. dollar. In the past year, the dollar has fallen 15.8% against the euro, and given the events of this past week, there appears to be little relief in sight. But this has been going on for some time. In late September the U.S. dollar took a heavy hit, dragging the bond market along with it. The dollar's latest comeuppance came on the heels of a Group of Seven meeting, where leaders called for a flexible exchange rate. Translation: Countries are rushing like mad to decouple their money from the greenback. According to Hughes Lajeunesse, a currency analyst with BNP Paribas, the gist of the G7 meeting was that "the U.S. wishes to see a weaker dollar." Given the lax monetary policies instrumented by the Federal Reserve and the humongous trade and budget deficits, the United States will not have much of a problem seeing its wish come true. Of course, the biggest beneficiaries of the dollar's fall are commodities and real assets - not to mention the companies that produce them. The move is well under way. This week, bullion pushed its way briefly past the vaunted $400 dollar mark. I strongly believe the Midas metal is heading towards $450 and above. The Gold Bugs index of mining shares is up a whopping 489% from its lows. The price of copper, meanwhile, has climbed from 62 cents per pound to 86 cents...its highest level since December 2000. During the same time span, silver has risen from $4 per ounce to more than $5. Zinc, tin and aluminum are all at two-year highs...lead is at its highest point in five years...and nickel has climbed the charts, hitting a 13-year high. The grain markets are also strong, with wheat prices fetching $3.50 per bushel - almost a dollar more today than what they brought in spring 2002. And soybeans have soared from $5.20 per bushel to $7.20 - since August! But the real surprise and thus the opportunity is that even after this run-up, commodities are still undervalued. Wall Street likes to say that stocks are cheap right now. I hardly agree based on historical measurements, such as the market's overall price-to-earnings ratio. But even if you buy into the argument that "new era" stocks should be evaluated in a "new" light, stocks are still not nearly as cheap as real assets. Right now, the discount in the most glamorous of commodities is incredible. Take the number of ounces of gold needed to buy a share in the Dow Jones Industrial Average. When gold became unrealistically priced at the end of 1980, one ounce of gold would buy one share in the Dow. That was when gold was at $800 per ounce and the Dow was at 800. In early 2000 that ratio became an incredible 42-to-1. (The Dow reached 11,906 in March of that year, a time when gold was trading at $280 per ounce.) Even now, with Wall Street gurus calling the stock market cheap while heaping disdain on gold, the ratio stands at 26-to-1. In the same vein, oil is also cheap. In 1980 it took 22 barrels of oil to buy one share in the Dow. By 2000 that ratio reached an astounding 545-to-1. Today, the ratio is still 312-to-1. This is a dramatic change since 1980, when you consider that the Dow 30 companies continued to offer new shares, but there had been no new discoveries of oil. It's only a matter of time before these trends start to reverse themselves. A few brave gold analysts even believe that an ounce of gold could one day be worth more than a share of the Dow. But even if it doesn't happen, investors will still have a very good chance to get rich with commodities - thanks to another unstoppable force driving commodity prices. This bull market has more than just the inner machinations of an inflated U.S. buck backing it. The other part of the double-barreled bull market is growing demand. Throughout the world, demand is outstripping supply. But nowhere is this more prevalent than in Asia, where the superpowers of tomorrow are underpinning the long-term cyclical uptrend in commodities. This region is exploding in population, economic growth and spending. All across Asia consumers are discovering their buying power. These consumers are younger than their counterparts in the West, and most importantly, the number of these young Asian consumers is growing. In 2000, there were 1.2 billion Asians between the ages of 30 and 59. That number's expected to rise to 1.7 billion by 2020. Compare that to the same age group in Western Europe and America, where the number of consumers is actually shrinking. Also consider that these Asian consumers are buying more and saving less than their high-saving parents. Basically, Asia's growing number of well-educated singles and couples are enjoying a sense of confidence in their own living standards...much like America during the 1950s. They are spending money on homes, consumer durables, luxury goods and tourism. And with the path they are on, Asia's consumers may soon replace America's consumers as the drivers of global growth. The nation that's leading this growth is China. With its 1.29 billion population - up 12% since 1990 - this massive country is bent on modernizing itself in a more Western image. China's estimated economic growth this year is 8%. Compare that to the United States at 3% GDP and Canada at 2.2% for 2003. And along with their need for more roads, housing, energy...everything required for everyday survival, they're also consuming more base metals. With China's booming economy, the nation's factories are consuming 2.8 million metric tons of copper each year (and they're only producing 800,000 metric tons from the state-owned mines). China's consumption of copper was only 6% of the world in 1990. By 2010 it's predicted to be 29% or more. And that's just copper. The thriving steel industry in China is bigger than the United States and Japan combined. Demand is up; supply is down. The growth within Third World countries entering their own Industrial Revolutions and especially China's impact on real assets is just the beginning of a double-barreled bull market in commodities. In less than two years, though, it will be the hot topic in the investment community. Now is the time for you to profit from this boom. John Myers John Myers - son of the great goldbug C.V. Myers - has been helping readers earn suprisingly lucrative returns in stocks largely unknown to Wall Street's wunderkinder since his early 20s. Our man on the scene in Calgary, John has his fingers on the pulse of natural resource profits - including oil, gas, energy and gold. John has recently put together a report on terror in the Middle East and its effect on the oil price. Had you read it, the recent attacks in Riyadh would have come as no surprise...nor the oil spike that followed. For more information, you can find John's report here: After Iraq... America's Next Crisis This article
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