Commodities Vs Tech

From an article by Jim Rogers:

http://www.lewrockwell.com/orig6/rogers2.html

"But What About Technology?"

Whenever I mention commodities in public, someone always points out that we now live in a high-tech world where natural resources will never be as valuable as they were when we had a smokestack economy. But if you read your history you'll discover that technological advances are as old as history itself: The introduction of the sleek and beautiful Yankee clipper ship dazzled the world in the mid-nineteenth century, loaded with cargo, sailing down the trade winds at 20 knots and more, averaging more than 400 miles in 24 hours and able to make it from U.S. ports around Cape Horn to Hong Kong in 80 days; within a decade, the clippers had been replaced by the steamship, no faster but not dependent on wind power; and before long the next big thing in transport had taken over, the railroad, which, of course, was the original Internet – and prices in commodities still went up.

In the twentieth century came electricity, the telephone, and radio (three more Internets) and then television (a fourth Internet). There was also the automobile, the airplane, the semiconductor – and in the midst of all of these truly revolutionary technological breakthroughs came periodic, multiyear commodity bull markets.

Even a revolutionary technological breakthrough in a particular commodity-related industry will not necessarily lower prices. For decades, drilling below 5,000 feet or offshore was virtually impossible. Then in the 1960s the Hughes diamond drill bit was invented and an explosion of technological advances in oil drilling and exploration followed. Drilling efficiency – and oil deposits – were available that had been unthinkable before this technological breakthrough. Soon there were wells 25,000 feet deep and offshore oilrigs multiplied around the world. Yet oil prices went up more than 1,000 percent in the 15-year period between 1965 and 1980.

When the supply and demand in raw materials is seriously out of whack, the emergence of new technology will not necessarily restore the balance quickly. To be sure, changes in technology, for example, have made the economy less dependent on oil. But we still use plenty of it, and whenever there isn't enough prices will rise. Computers or robots may do amazing things, but they cannot find oil or copper where there is none or make sugar, cotton, coffee, or livestock grow faster than nature allows. We can put in orders all day long on our computers for lead, but all that Internet technology will be in vain if there are no new lead mines. Technology can neither feed us nor keep us warm, and the demand for commodities will never disappear.

"But Isn't It Only Speculation and the Lower Dollar That Are Inflating Prices?"

Certainly, speculators who jump in and out of commodities can push up prices. And the dollar has been a pale remnant of itself – down against the euro almost 40 percent from the beginning of 2002 until the start of 2004 and at a three-year low against the Japanese yen. Since commodities are traded in dollars, a weak dollar will make prices appear higher. Crude oil rose 64 percent in dollars over that two-year period, but only 16 percent in euros.

But the dollar strengthened in the spring of 2004, and a funny thing happened: Commodity prices kept going up. The global recovery, particularly in Asia, was for real. We are now watching a fundamental structural shift in commodities markets, and it is called "supply" – and "China," a nation that will be consuming extraordinary supplies of all kinds of commodities for years to come. I will explain why in more detail in a later chapter. For now, however, here's the story: dwindling supplies and increasing demand.

And the dollar has nothing to do with either. Let me also remind you of the 1970s, when inflation in the U.S. was about 10 percent a year, the dollar wasn't buying anywhere near what it used to, and the economy was in a major recession – and commodity prices kept rising. We're talking another long-term bull market in commodities, and neither speculators nor a weak dollar can make that happen. Speculators can have a short-term effect only. For example, if they drive up the price of oil artificially, oil producers with excess supplies will gleefully dump their oil on the market driving the price back down. Both the dollar and speculation can have a marginal effect, but the market itself is bigger than they are.

A quote - the title of an essay by

“Sell Euphoria, Buy Panic.”

Jim Rogers - The entire article

This entire article is just too good to leave out even a small part of. I'm taking the easy way out here and pasting the hyperlink:

http://www.moneymorning.com/2008/08/19/jim-rogers/

My thoughts on his comments:

1. Economics is one thing that will surely and steadily lead the person not following its laws to destruction.  His example of U.K going bankrupt is shocking and startling!!! I must also now explore the contribution of U.K's growing bankruptcy on its India operations and how much of a factor it was in our gaining independence.

2.  "(Q): What if Thatcher had never come to power?Rogers: Who knows, because the U.K. was in such disastrous straits when she came in.  And that’s why she came to power…because it was such a disaster. "

Truth is an extremely potent and lethal weapon. In the long run, the person with the RIGHT fundamentals will gain power. But in the short run, people like Thatcher, like Hayek, like Rogers, like Buffett, will get a raw deal, be the laughing stock, till the disasterous policies of crooked/incompetent men brings about the disaster that these men could foresee. 

But the most interesting thing about this whole crisis is that men who've taken the pains to see correctly and without bias need a disaster for others to see their value. In the short run the only course available to them to is to stick to their guns, no matter what the cost.

Jim Rogers - His views on Ben's handling of the crisis

(Q): Many experts don’t agree with – at the very least don’t understand – the Fed’s current strategies. How can our leaders think they’re making the right choices? What do you think?

Rogers: Bernanke is a very-narrow-gauged guy.  He’s spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America.  There’s no problem in housing finance.  I mean this was like in 2006 or 2005.

(Q): Right.

Rogers:  He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else. 

 (Q): That’s problematic. 

Rogers:  It’s mind-boggling.  Here’s a man who doesn’t understand the market, who doesn’t understand economics – basic economics.  His intellectual career’s been spent on the narrow-gauge study of printing money. That’s all he knows. 

Yes, he’s got a PhD, which says economics on it, but economics can be one of 200 different narrow fields.  And his is printing money, which he’s good at, we know.  We’ve learned that he’s ready, willing and able to step in and bail out everybody. 

There’s this worry [whenever you have a major financial institution that looks ready to fail] that, “Oh my God, we’re going to go down, and if we go down, the whole system goes down.”

This is nothing new.  Whole systems have been taken down before.  We’ve had it happen plenty of times.

(Q): History is littered with failed financial institutions.

Rogers: I know.  It’s not as though this is the first time it’s ever happened.  But since [Chairman Bernanke’s] whole career is about printing money and studying the Depression, he says: “Okay, got to print some more money.  Got to save the day.”  And, of course, that’s when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

I'm really impressed with his insight on the fear that's set in about the biggest men in the American Society being scared about how a single institution will lead to the downfall of their entire society. What an extremely narrow understanding of things! To me it seems more like the Fed guy is being a "yes-man" to his political bosses and lacking (a) either, the intelligence to understand the problem , (b) Or, The spine to stand up for the right thing to do. If the leaders of such a big society are going to be scared of one institution bringing down their society then their idea of the strength of their society is extremely poor, and the men themselves come across as extremely weak-kneed. 

Lessons from the Crisis - People behaviour cycles

Excerpt from a Jim Roger interview:

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn’t know anything’s wrong – that anything’s happening. Is that still the case?

Rogers:Yes.

(Q): What would you tell the “Average Joe” in no-nonsense terms?

Rogers:  I would say that for the last 200 years, America’s elected politicians and scoundrels have built up $5 trillion in debt.  In the last few weekends, some un-elected officials added another $5 trillion to America’s national debt.

Suddenly we’re on the hook for another $5 trillion. There have been attempts to explain this to the public, about what’s happening with the debt, and with the fact that America’s situation is deteriorating in the world. 

I don’t know why it doesn’t sink in.  People have other things on their minds, or don’t want to be bothered.  Too complicated, or whatever. 

I’m sure when the [British Empire] declined there were many people who rang the bell and said: “Guys, we’re making too many mistakes here in the U.K.”  And nobody listened until it was too late. 

When Spain was in decline, when Rome was in decline, I’m sure there were people who noticed that things were going wrong.

It seems like such cycles in civilisations are an inevitable result of human nature. When there are people who have to struggle, they build up their character, strength of convictions and ability to fight. And most importantly live a strenous life. They become role models for their children, and build up a society/organisation based on good principles, as they themselves are hard working. However their progenies get things ready and built for themselves. It is easy for humans to take for granted the good things, and not see the umpteen labour that goes behind keeping everything running. Love for labour and hardships is lost, self-centred individualism increases, and there comes in a desire to gain for themselves as much of the resources around for themselves, as possible. Community loyalties and fellowship is lost. And this affects organisations and civilisations the most.

And then come the 3rd generations who have never seen the human effort that went behind creating the agencies(society/org.) whose benefits they reap, it becomes even easier to take for granted, and even more difficult to recognise bad, destructive behaviour creeping in. Plus none of them is attached enough to really care much, since they've got used to living a life where they could take the organisation for granted and live a very self centred life. Then slowly this attitude starts destroying all those aspects of human life which require a high level of working together - civil structures, big businesses and moral fibre of the society.

Mises and the economic man

Men are not wholly material beings. True we live in a material world. The physical world is a reality that all men live with. But their individual materialism, the way in which they interact with the materials around them, either natural or man made, is an expression of what or who each man is individually. Mises could clearly see this:

"Unlike other economists, Mises rejected the use of the theory of economic man, or Homo economicus, in economics. That model holds that man is driven solely by economic motives, the desire to make the greatest material or economic profit.

Mises thought that was too narrow. He preferred to study man as he really acted, with a multitude of motivations.

Still, that doesn't mean that men don't often act for economic motives. Nor does Mises' belief that the future is uncertain mean that it is completely unpredictable."

Understanding Inflation

One of the biggest objections people like Peter Schiff have raised against the proposed rejuvenation plans is that it will cause hyperinflation. What exactly is inflation and what are the dangers that the U.S govt actions are going to have for the world?

Wikipedia describes inflation as follows:

"In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply (monetary inflation); however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflation. Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time."

"The Austrian School maintains that inflation is always and everywhere simply an increase of the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer assets and goods and services.

Given that all major economies currently have a central bank supporting the private banking system, almost all new money is supplied into the economy by way of bank-created credit (or debt). Austrian economists believe that this bank-created credit growth (which forms the bulk of the money supply) sets off and creates volatile business cycles ) and maintain that this "wave-like" or "boomerang" effect on economic activity is one of the most damaging effects of monetary inflation."

"Inflation is one of the three means by which it can fund its activities, the other two being taxing and borrowing. Therefore, the actual cause of inflation is government's need to create new money. The money created then goes to fund various government programs, for instance welfare and warfare.^"

This is perhaps the most important thing to realise here - inflation is the means by which government gives itself money to do the things that the politicians in power want to do(good or bad, depending on the politician). It hence gives the government a means to interfere in the market and literally create money out of thin air and put it to use, not as per any productive aims, but in a manner as to maximise "public good".