Enzio's Clock

Background

1. The politics of commodity demand

In our recent piece on the global Economic Time, we alluded to commodities being an interesting asset class. We are not commodities specialists, and thus would make the following macro observations:

• Supply considerations. Commodities markets are basically global cartels. In other words, whether explicitly or implicitly, there is "one" price for oil, wheat, nickel, etc. This is because cartels control the supply of commodities.
• Demand considerations. More importantly, however, is the demand side of the equation. In Toynbee's fascinating Change and Habit (1966), he states that the global force that "annihalates distance" is communication. Originally, it was the "muscle power" of donkeys that expanded the Sumerian empire (which is today's Iraq). Subsequently, wind power led man to harness waterways and the seas - and to discover America. Now, I contend, the third one is electronic power - which has gone from telephony and media into the internet.

What does Toynbee have to do with making money? Everything!

The reason is precisely because the internet is annihilating distance in the most backward of places like China and India. Here is how it works.

• People get jobs via MNCs investing in places like China and India;
• They then buy computers and get on to the internet;
• That enables them to discover worlds which they never thought possible - just like the Sumerians, equipped with only a donkey, never could have known of distant shores such as America's or indeed Northern Europe's, and
• In today's world, the Chinaman's internet is the Sumerian's donkey.

One upshot of such effortless communication is that people see others getting rich - and start wondering why their governments are keeping them poor. So the internet annihilates distances, thus promoting awareness - and social unrest is fomented.

The politicians, in turn, have to tune into this fire and douse it by creating jobs. That, in turn, means that more commodities are demanded - the bricks with which these workers have their jobs. But which ones are particularly in demand?

2. Which commodities in particular

China and India are experiencing the first stage of their respective industrial revolutions.

• This means that first and foremost, infrastructure - public and private - must be created. Thus, any commodities related to the creation of roads, bridges, water systems, sewage systems and private homes will be bought the most.
• Another facet of infrastructure: the annihilation of distance via the computer in and internet - so look at metals such as copper which is a major ingredient of wire.

• Then there is the whole matter of nutrition. When people start getting money, they want to eat better. Thus, soft commodities like wheat, soya, and dairy are in demand.

3. How to Make Money Off This Idea

1. Always consult your financial adviser first before doing anything!
2. Buy stocks and or bonds related to leading "hard" and "soft" commodity producers including the ones that we alluded to just now.