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Time
to take a look at various commodity prices, in terms of gold. These are all
updated monthly to November month-end and the last point is mid-December.
We
compare to gold because "gold is money" -- this means that gold is
a stable measure of value over years and decades. Why would you compare to
dollars? Don't you know that the dollar is a floating currency? Gold is not a
floating currency, it is stable money.
April 15, 2007: The Value of Today's Dollars in 1854 Dollars
 
Corn
is still cheap -- about the cheapest it has ever been.
With
this closeup of the past three decades, we see that corn is in fact the
cheapest in human history. Right now. When you consider that this was in the
40s in the 1950s and 1960s, and is under 4 today, we see where all the family
farms have gone. If we want to have family farms in the future, growing
1910-style corn ("organic" etc. etc.), we should be willing to pay
more for corn -- like 5x or 10x more. 10x today's price is about $0.66 per
pound, which is not exactly a crushing burden. Go eat a 1 lb. bag of tortilla
chips (the "party size"), or cornbread with a pound of dry cornmeal
in it, and tell me if that wasn't plenty of food for $0.66.
I pay
$1.50-$2.00 per pound for my grains (mostly rice) and beans. This is the
deluxe organic stuff. Although this is about 30x the wholesale price of corn,
this is still not really very much. It is maybe $30-$60 per person per month,
and that is only if you eat a
lot of grains and beans at every
meal.
Crude
oil. Still on the low end of the scale. In general, I expect
recession/inflation to depress the value of oil compared to gold. However,
"Peak Oil" factors will tend to support the price over the longer
term.
Sure
does suck to be a cattleman.
Cheapest
in history. By a wide margin too.
Cotton
made all-time lows recently, then rebounded a bit.
A very small
rebound!
People
are jumping up and down at the "high" price of copper. This is
because they are mentally anchored to 1990s prices. When you correct for the
devaluation of the dollar, copper prices are quite low -- as you would expect
in the midst of a depression. In fact, copper is cheaper today than in the
worst of the 1930s! The selloff earlier in 2009 matched historic lows for
copper. It was so cheap, Chinese people started to stockpile copper. People
thought they were crazy. But, when you look at this chart, and considering
that copper is easy and cheap to store, stockpiling copper makes perfect
sense, no? Of all the base metals, copper is the most "money-like."
Chinese have a long history of copper coins.
Let me
make a prediction: Chinese farmers stockpiling copper ingots at the lowest prices in history
will make out like bandits. Fancy-shmancy portfolio managers buying
stocks/bonds/tbills at
the highest valuations in history (for bonds and bills, and
stocks are pretty high too) will get steamrolled.
We see
again that copper matched historic lows.
A
similar story for lead.
Lead
has had a big recovery in nominal terms, but it is still well off its recent
devaluation-adjusted highs.
Natural
gas is cheap. Real cheap. Consider that recent spikes in 2000 and 2006 went
to 10x the
present value. Wow.
Another
grain near the lowest real price in the history of the world.
Matching recent
lows.
Sugar
used to be at super-lows, but then it had a little rebound. However, this is
the front-month contract. The out-month contracts are significantly cheaper,
and represent an interesting investment/speculation if you ask me.
Like
other grains, wheat is cheap!
Plummeting
to all-time lows. Anything that has fallen as much as wheat can fall further.
But
you know wheat is never going to zero.
Zinc's
rebound in real terms is much smaller than its apparent nominal rebound.
Before
the rebound, zinc made an all-time low.
In
general, it looks to me like commodities are very cheap here. You would
expect that, given the economic situation. However, if there is limited
downside, and considerable upside -- many could double vs. gold and still be
comfortably within their long-term trading bands -- then you have a pretty
good risk/reward situation if you ask me. I particularly like the grains.
Remember
the Famine Watch? This week we add two more items to our famine files:
Eric de Carbonnel: 2010 Food Crisis for Dummies
Eric de Carbonnel: The Worst Harvest Ever Seen
The
reports above are some serious research, and you should read them.
About
this time of year, I have advocated being prepared for a breakdown of various
systems as we know them. I would keep at least two months and better yet, six
months of food at hand at all times. This is not very hard to do, and doesn't
cost much either. You can buy a heck of a lot of bulk food for $2000.
Best-quality organic grains and beans cost about $2 a pound or a little less.
So, $2000 would buy you 1000 lbs. Got forklift? Forget about freeze-dried,
MREs, and other specialty products. Just go to the supermarket or Costco and
get the stuff you normally eat anyway. Focus on all sorts of traditional
preserved foods. Canned tomatoes and other canned vegetables, canned fish,
hard sausage, smoked meats, cheese, butter, fruit jams, peanut butter,
mayonnaise, pickled vegetables, pasta, that sort of thing. I might add here
that you should get exactly
what you normally eat. For example, if you normally use organic
extra-virgin olive oil, don't cheap out and buy Mazola for your
"emergency" supplies. Get the organic extra-virgin stuff. This way,
you can happily use it whatever happens. Actually, you will have to rotate
stock anyway because things like olive oil might go rancid in six months or a
year. If you consider that you will use the stuff anyway, then the actual
cost of this preparation is zero. If you then consider that food is very
cheap right now, and could go up much more in (nominal) price in the future
-- note the charts above -- then buying a stock of food now might be quite
profitable! Actually, I think I have already made a triple-digit return on a
25lb bag of organic lentils I bought a couple years ago.
Nathan
Lewis
Nathan
Lewis was formerly the chief international economist of a leading economic
forecasting firm. He now works in asset management. Lewis has written for the
Financial Times, the Wall Street Journal Asia, the Japan Times, Pravda, and
other publications. He has appeared on financial television in the United
States, Japan, and the Middle East. About the Book: Gold: The Once and Future
Money (Wiley, 2007, ISBN: 978-0-470-04766-8, $27.95) is available at
bookstores nationwide, from all major online booksellers, and direct from the
publisher at www.wileyfinance.com or 800-225-5945. In Canada, call
800-567-4797.
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