Raw Materials
Will Be
One of the Best Investments
During The Next 10 To 15 Years
By Clyde Harrison
Beeland Management Company, L.L.C.
Economic
history shows that cycles are normal: indefinite economic trends
are not. The graph below illustrates several cycles in our economy.
The saver cycle turned
in 1966 when the Dow Jones Industrial Average closed around 1000.
The economy entered an upswing in the spender cycle, with no
gain in the stock market for 16 years. During the spender cycle
upswing, hard assets, i.e., gold, crude oil, real estate etc.,
greatly increased in price. In 1981 a new saver cycle upswing
began and paper asset prices increased ten fold. I believe that
the economy is entering a new spender cycle upswing during which
equities and other paper assets will have poor relative price
performance and the relative price of hard assets as in the past
will rise.
During the last 20
years the capacity to produce raw materials in some cases has
declined dramatically while demand has continued to increase.
I believe that raw materials will be one of the best investments
during the next 10 to 15 years. The paper cycle appears to be
moving toward a downswing and the hard asset cycle upswing is
beginning.
As you climb the ladder
of success be sure it is leaning against the right wall.
Editor's Note: Clyde
Harrison is a Managing Member of The Rogers International
Raw Materials Fund, L.P. The Fund will invest and trade in
a portfolio of exchange-traded commodity futures and forward
contracts. The Index was developed by Jim Rogers, author of Investment
Biker: On The Road With Jim Rogers. For more information
on the Rogers International Raw Materials Fund, L.P. write Beeland
Management Co., 1000 Hart Rd., Suite 210, Barrington, IL 60010
or call toll-free 1-866-304-0450.
"This
chart shows the "saver/spender" ratio overlaid with
equity mutual fund flows (as a percent of nominal GDP.) This
ratio also fits well with the ups and downs of mutual flows.
The lone exception is the aftermath of the stock market crash
of 1987.
This chart also shows
how cash flows are affected by demographics. When the numbers
of savers (40 to 49 years old) swells in relation to spenders
(25 to 34 years old), equity mutual fund flows rise faster than
nominal GDP. In this environment the stock market outperforms
inflation. Conversely, when the number of savers falls in relation
to spenders, equity mutual fund flows decline relative to nominal
GDP. In this environment, the stock market underperforms inflation.
Currently, the stock
market is in a period of "demographic transition."
The actual "saver/spender" peak is in 2004. This suggests
the "tailwind" that many believed accounted for the
superior performance of the stock market in the 1990's might
be ending. If so, we could be entering a demographic period similar
to 1965 to 1981, when stocks underperformed inflation."
Chart and above text courtesy of Bianco Research LLC, Copyright
© 1990-2001. All Rights Reserved.
