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Brett Arends' ROI
April 27, 2011, 12:43 p.m. EDT · CORRECTED
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By Brett Arends, MarketWatch
An earlier version of this column misspelled the last name of Wendy Dobson, a University of Toronto business school professor. The column has been corrected.
BOSTON (MarketWatch) "” Copper is booming. Oil is booming. Cotton is near historic highs. Soaring raw-material costs are driving up prices for consumers, from the gas pumps to the grocery aisles. And speculators are taking record bets that prices are going to keep going up even higher.
Kasper Kierkegaard, an analyst at Danske Bank, reports from the futures markets that the speculative net bullish positions on many commodities are at, or near, record highs.
When I walked past a TV earlier today someone on CNBC was asking if copper was "the new gold." That's funny "” I thought silver was the new gold. Maybe silver is the new copper?
Simon Constable and David Weidner discuss the flooding in Missouri that's threatening a town there, the Nasdaq nears a 10-year high, how soaring gas prices could hurt Obama's re-election prospects and the growing trend of uniforms for pre-schoolers.
But could the wheels be about to come off this bandwagon? Could commodities be heading for a massive price slump?
Maybe. And that's the view of someone who is nonetheless incredibly bullish, over the long term, about all of them.
Jeremy Grantham, the chairman of Boston fund firm GMO, needs no introduction. He is Wall Street's best-known Jeremiah, a skeptical contrarian who presciently warned about the bear market that began in 2000 and the crash of 2007-09.
In his latest letter to investors, Grantham warns that we may be heading toward a major crash in commodity prices "” leading to the biggest buying opportunity of a lifetime. Read Grantham's warning on GMO's website.
Long-term, Grantham is a huge bull on commodities. He thinks we're running out of everything. His latest note reads like the treatment for a remake of "Soylent Green," the apocalyptic 1973 Charlton Heston flick about a starving, baking, overcrowded Earth.
Yet despite this, Grantham puts the chances of a serious price slump across commodities next year at an astonishing 80%. And he gives a smaller, but still significant, chance of a massive collapse.
Yes, it's hard to imagine, at these prices, that commodities might ever be cheap again. But isn't that always how it feels in a boom?
Grantham's logic is simple. It comes in two parts.
First, agricultural commodities are set up for a fall.
We have just lived through the worst year for farmers in memory. Any farmland that wasn't scorched by drought, as in Russia, was probably destroyed by floods, as in Australia. No wonder prices for so many goods have skyrocketed.
But the chances that this year will be as bad have to be remote.
Agricultural commodities are quicker to respond to prices than almost any other. Farmers just plant more crops. If this year's weather turns out to be better than last year, says Grantham, "we will drown, not in rain, but in grain, for everyone is planting every single acre they can till"¦ Should both the sun shine and the rain rain at the same time and place, then we will have an absolutely record crop."
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co.
The media, obsessed with the royal wedding in England and the Obama birther issue, shouldn't gloss over a chilling story with genuine news implications: the bombshell that a hacker infiltrated Sony.
11:24 a.m. Today11:24 a.m. April 27, 2011
"Warning: Are commodities about to crash? http://on.mktw.net/hxqL7e" 12:05 a.m. EDT, April 27, 2011 from MKTWArends
"IMF bombshell: Age of America nears end http://on.mktw.net/faXYEy" 11:48 p.m. EDT, April 24, 2011 from MKTWArends
"Uranium is not going away http://on.mktw.net/fwjBer" 11:34 p.m. EDT, April 21, 2011 from MKTWArends
"S&P move good for gold, ominous for Treasurys http://on.mktw.net/gMJas8" 1:07 p.m. EDT, April 18, 2011 from MKTWArends
"Small-cap investors paying too much for risk http://on.mktw.net/eY33Qt" 11:23 p.m. EDT, April 14, 2011 from MKTWArends
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