China to continue commodity bull

The reason for this revisit to the “BRIC” story is the enormous amount of press about the “burst bubble” in commodities this month.  It’s an important, some might say, critical, topic.  How we should act and react in the market is intimately related to the type of market we are in.  Viewed in isolation, a bear market rally will look pretty much like a small piece of a bull market rally.  But while you might be looking for periods of weakness to accumulate positions in a bull market you’d be much more likely to be watching like a hawk for any weakness as a sell signal in a bear market rally.

Much of chatter recently focused on “unsustainable” growth in China.  This is said to prove the point that commodity prices have to fall.

We won’t know just how long China’s (or India’s or …) secular expansion lasts until it’s come to an end.  What we do know is that if it looks like recent periods of above trend growth in the region, namely Japan and South Korea, it will last for at least 25-30 years.

This is not wild eyed optimism.  Similar growth periods moving through mass industrialization in both Europe and North America had similar time frames.   That is about how long it takes to move to and through the process and to upgrade infrastructure (both public and private) to the level where it becomes sustainable.   There is absolutely nothing unusual about the length of the China expansion and we expect the one just starting in India will fit the pattern as well.

Analysis: We can see the historical patterns or generational growth and infastructure buildout ie Japan and South Korea. We can reasonably say the same dynmaics will play out in the BRIC countries thereby underpinning long term commodity prices. Once Wall Street figures this out we should a revaluation of the commodity stocks.

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