Officially, if you use the New York Stock Exchange as your measuring stick, the global financial crisis ended last night.
Officially, if you use the New York Stock Exchange as your measuring stick, the global financial crisis ended last night. Now, get ready for the global commodities crisis.
The reason for calling an end to the GFC was the latest upward surge in the Dow Jones Industrial Average which has just closed above 12,000 points for the first time since June 19, 2008, and since New York is where the GFC started it's fair to say that's where it ended.
The Dow might slide back below the 12,000 mark as troubles brew in the Middle East, and the Arab dominoes continue to fall, but the indications of a sustained recovery in the U.S. are obvious, and the BRICs (Brazil, Russia, India and China) show no sign of slowing.
Even the threat of war in the Middle East (when hasn't there been a threat of war?) is failing to slow economic recovery in the U.S., and growth in most emerging countries. Europe and Japan are the current sick men of the world, but they continue to tick over at 1% growth or slightly better.
And that, for commodity watchers, should be the sign of big things to come because overall world growth marches on at more than 4% a year, and that translates into even higher rates of demand for minerals and food because most of the emerging economies are in a metals and calorie intensive phase of growth.
What the GFC did was create two-and-a-half years of intense western-world navel gazing, hand-wringing, blame spreading, and eventually a realisation that the U.S. and Europe had been living beyond their means.
The U.S. has woken to the problem, but is yet to devise a way out its extreme indebtedness (except by printing more dollars). Europe slumbers on.
Meanwhile, in the rest of the world, growth continues at a brisk pace and that means ever-higher demand for commodities produced by exporting countries such as Australia.
Over the course of 2010 a range of commodities passed or challenged their all-time price highs, including cotton, coal, iron ore, tin, and sugar -- and that most important of all, cocoa, the principal ingredient in chocolate, and where would civilisation be without chocolate?
The problem, or opportunity for positive thinkers, is that the rapid urbanisation and industrialisation of the BRICs means that the world is struggling to meet demand for commodities.
Last year's rare earth scare caused by China saying it wanted to keep more of those exotic minerals for itself was an early warning of shortages to come across a range of commodities, including essential foods such as wheat.
It might be premature, but pressures are building on commodity production and supply lines with price the first measure of the looming GCC (global commodities crisis).
Barclays Capital, the investment banking division of Barclays bank, argued overnight that the commodities super-cycle "is back in full swing".
In a report carried by London's Financial Times newspaper, Roger Jones, global head of commodities at Barclays Capital noted that commodity prices usually rise sharply: "in the latter stages of economic recovery because it takes time for spare capacity and excess inventories built up during a downturn to get worked out".
"But this cycle looks different," Jones wrote. "Raw materials shortages, infrastructure constraints and resource nationalism continue to hamper production growth for many commodities, while emerging market demand is already soaring.
"In the west, policymakers are leaning heavily toward pro-growth monetary policy and appear unusually tolerant of inflation. The expansion phase of this economic cycle looks likely to exert even more stress on commodity supply than ever before."
Jones did not use the expression global commodity crisis, or GCC. That's been invented in this column. It will be amusing to see whether it catches on.
In the meantime, investors would be wise to continue building their exposure to the entire commodity complex, and that means minerals, metals, food and fibre.
Global demand for everything is strong, and getting stronger. The upside is higher prices. The downside is unrest in countries which cannot afford to pay, a reason why the Middle East is in turmoil today.
On balance, the news for commodity exporters such as Australia is excellent. The lucky country rides on.
