Customer Reviews

Commodities Rising: The Reality Behind the Hype and How To Really Profit in the Commodities Market

5 star:		(4)
4 star:		(3)
3 star:		(0)
2 star:		(0)
1 star:		(1)

 

 

This guy completely rebuffs Jim Rogers' thesis of a new bull market in commodities. Someone is very wrong here and I'll put my money on Rogers being right. Given his assocation with Goldman Sachs, who many believe is now a quasi-government operation, used in order to "manage" the price of everything from the S&P index to the gold price, this book is a disinformation project masquerading as a "rational" and evenhanded analysis of the commodities markets. Much of the information on the growing demand for commodities in China is presented in such a way as to make the reader believe that becauase the average Chinese worker makes less than $2 a day, that, demand for raw materials in China is overstated. He assumes that it would be the average Chinese citizen as the ultimate consumer of these raw materials, and therefore, he says , since they cannot afford to buy " a copper plated" frying pan on $2 a day, that demand for copper would be overstated. The fact of the matter is that the Chinese, have committed to massive PUBLIC infrastructure projects for the next 20 years, that will require huge amounts of raw materials, most of which will need to be imported as China has a very limited amount of raw materials domestically. The author argues that China is becoming a net EXPORTER of raw materials!!! This is simply not true. China is now scavaging the globe trying to buy up whole raw material companies, in Canada, the US, Australia and Africa to meet their projected needs for the next 20 years. One recent example of this was their bid for Unocal, which was subsequently rejected via defacto veto by the Bush administration.

In addition, the US FED and CB's, because of the massive public and private debt obligations will be forced to massively inflate over the next 10 tears or so, or they will suffer a deflationary worldwide depression; therefore, the only prescription will be for continued worldwide growth with relatively high inflation. This fact alone should carry most commodities to multi-year highs, not to mention overall macroeconomic supply and demand.

This author argues that worldwide commodity supplies are catching up with demand, and that may be somewhat true on a short term basis, however, and a macro long term basis , there is no way supplies can meet demand based upon at leat 2 billion NEW consumers who are slated to enter the global middle class in the next 20 years.Even though raw materials may be a smaller component of overall production in the 21st century, there are a fixed amount of raw materials, which at best can be exracted on a linear basis. while worldwide demand will increase geometrically.

I would advise any reader of this book to read Jim Rogers' book and think for themselves.

In a very pithy, interesting discussion, the author discusses the various aspects of commodities, focusing significantly to dismiss some of the "hype" associated with it. The author reinforces the diversification and hedging benefits of commodities, the need to treat it as a separate asset class and asserts that a lot of money can be made, if done correctly. Point taken. However, the book doesn't really directly address the second portion of the title (how to profit..). No specific investment vehicles or companies or trading strategies are discussed in detail. Limited mention of ETFs and mutual funds is mentioned (no specifics though). Perhaps, the question was supposed to abstract and the discussions at a fairly-high level. If that is the intent, the author succeeds in that (that minor issue takes away 0.5 star from this book!). If you are looking for an excellent discussion on commodities and an intelligent discussion on what the future may hold for it, this is a good book; however, if you are looking for specific recommendations, this book will disappoint you.

I noticed this book on the shelf at the local bookstore and bought it. It seems surprising that for a book I found right at the bookstore, and on a currently hot topic, it only currently ranks in about the 400,000 range.

The fact that Mr. Christian frequently appears on financialsense.com news hour certainly contributed toward my interest in the book, since I consider financialsense the world's premiere source for informed business news and analysis. (although I haven't developed any strong feelings one way or another about Mr. Christian's commentary to-date.)

As another reviewer pointed out, the book is comparatively bearish compared to most commentary from those involved with commodities. (establishment "bubblevision" commentators who aren't personally involved in commodities tend to be much more pessimistic about them, of course. By the way, I just read Fleckenstein's book on Alan Greenspan and I highly recommend it. He indicates in there that he was the originator of the term "bubblevision". A man far ahead of his time!)

Now, back to the book. I would say it is not bearish, but rather neutral during a time when most in the field are highly bullish. So compared to the prevailing mood he looks bearish.

Certainly in the time since his book came out commodities have far outpaced his expectations.


I would guess that a couple of his mistakes were:


1). Not anticipating the huge runup in petroleum prices, he was unaware of the dampening effect that high energy costs would have on economic viability of new and/or expanded mining operations.

2). He doesn't seem to have been very cognizant of the inflationary impact that monetary expansion would have on commodities prices.

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That being said, the tone of his book is one of him having been astute in the last couple decades in carefully assessing supply and demand trends, allowing him to accurately assess trends in commodities prices. I don't have independent knowledge of this stuff to judge how valid that is, but his assertions strike me as largely credible.

One thing he puts a lot of emphasis on is the shoddy nature of much of the analysis that is performed on commodities- particularly as it relates to inaccurate and incomplete assessment of supply and demand. He points out a number of flaws in some analyses, such as not accounting for all sources of supply such as recycled material, sales from stockpiles, etc., as well as double-counting of material that moves back and forth across national boundaries at different points in the process.


Overall I found his book a worthwhile contribution, and considering his long and extensive career analyzing commodities, I am inclined to believe that for the most part he knows what he is talking about.

The most useful thing I got out of the book is a feeling that I need to view the "facts" provided in analyses and commentary about commodities with a healthy dose of skepticism.


I don't know that his book will trigger any change in my investment philosophy, however. I am heavily invested in:

1). large oil companies. As a value investor I usually invest in very small companies, because value criteria usually show those as being far better bargains than the big companies. But in the oil business that is not true, you find large oil companies like Conoco selling at PE's of 6-8 and enterprise value to BOE ratios of 12 or so and you won't find any better bargains among the small fossil fuel companies.

2). Junior gold exploration companies who have established that they have substantial high-grade gold deposit(s) on their property in politically low-risk jurisdictions (primarily eastern Canada), and which sell at attractive price to gold in the ground ratios (typically $10-50 dollar per ounce of gold) There has been much commentary about how absurdly cheap the junior mineral exploration companies currently are relative to larger mining companies and the commodity prices themselves.


As another reviewer pointed out, this book primarily discusses the commodities themselves, and does not delve into actual investment alternatives or approaches. That was fine for me because the former was more what I was looking to learn about from this book.

Over the past few years commodities have earned a reputation as being high flyers for investment portfolios, mostly due to the belief that developing countries are going to use more and more resources. In this book author Jeffery Christian attempts to dispel the rumors that exist in the commodities markets, as well as offering thoughts on how to make money whether markets are going up or down.

Here is a quick walk through Commodities Rising:

Chapter 1: The Commodities Rush Is On

The first chapter sets the stage for the rest of the book, explaining why the author felt a need to write this book. Since 2003 there has been a large run up in the price of commodities, thanks to increased demand from both developing economies and from increased investor demand. Investors have piled into commodities in the past few years for various reasons which are explained in later chapters.

Chapter 2: Myth of the Commodities Super Cycle and the Chinese Consumer Giant

The super cycle theory puts forth that there will be an extended run in commodities, potentially lasting for over a decade thanks to the rapid development of countries like China, India, and Russia. Furthermore, new production of in-demand commodities can't come on fast enough, which will drive prices even higher.

The reality, according to the author, is that these countries are not using raw materials nearly as fast as the investment community believes. On top of that, despite the rapid growth in incomes, per-capita incomes in the developing countries is still extremely low. In 2007 China's per-capita GDP was $5,400 a year, versus over $45,800 per year in the U.S. These are not the kind of numbers that you would expect to support gold at over $1k an ounce

Chapter 3: Commodities and the Global Economy

Chapter 3 examines the relationship between commodity prices and economic indicators. Commodities are often used as an indicator of inflation expectations and economic activity levels, whether those relationships are valid or not. The author jokes that gold has forcasted 13 of the past 3 bouts of inflation, and that commodity prices have a complex relationship with economic output levels that go beyond a simple ratio or formula.

Chapter 4: Commodities as an Asset Class

Ever since David Swensen revealed the secret to his returns on the Yale endowment portfolio, commodities have become known as an acceptable asset class for a well-diversified portfolio. Commodities have a low correlation with other assets like stocks and bonds, which has the potential to smooth out returns in a portfolio.

Chapter 5: Commodity Investment Vehicles

There are many ways to invest in commodities, including forwards and futures, ETFs, mutual funds, and hedge funds. Chapter 5 briefly covers these investment vehicles, and gives some of the pros and cons of using them. For example an investor can gain more leverage using futures, or they may prefer to hold the physical asset if they are investing in precious metals.

Chapter 6: Commodity Strategies

Once you've learned what tools you can use for investing, you will need to learn some techniques for applying them. A few ideas are covered, including using the Commitment of Traders Report to get market insight, using principal protected accounts and structured products, and why you shouldn't use ratios as a trading tool.

Chapters 7 - 11

The next 5 chapters describe the different types of commodities that are typically invested in, including precious metals, base metals, energy commodities, and agriculture. Each section contains a brief history of the commodity, historical price movements, a look at the supply and demand factors, and the common ways people invest. Precious metals, for instance, are often held by investors in physical form. Natural gas traders on the other hand will probably not want to store a highly explosive gas in their backyard, and thus futures, options, and equity investments tend to be a more practical route.

These chapters could be very useful for someone just getting started in commodities but is unsure where exactly they should start.

Chapter 12: The Fundamentals Still Apply

No matter what hype you hear on the news or in the financial press, prices are still driven by basic supply and demand. There may be short term swings one way or another due to speculation, but in the end understanding market dynamics is the key to long term success. This chapter attempts to help you clarify what you should think about when looking at supply and demand. For instance, does a particular supply number include recycled materials?

Recommendation:

If you're considering adding commodities to your investment portfolio then Commodities Rising should be on your reading list. Taking a few hours to read this book could save you thousands of dollars, no matter what side of the trade you decide to take.

Once you've become familiar with the basic hedging strategies suggested in this book you will likely want to find out more from another more advanced book. That is why I am giving this book 4 stars instead of 5. But this book should get you going in the right direction.

Commodities markets are awash in misinformation and disinformation. Huge price swings can inflict painful losses. Should you flee to the investment standards of stocks and bonds? That might be your first instinct, but it could deprive you of strong returns, says commodities expert Jeffrey M. Christian in this smart, compelling study. He offers no get-rich-quick secrets. Instead, he emphasizes the importance of sound analysis and solid decision-making. Christian nicely cuts through the hype to give a clear-eyed view of China's effect on commodities prices. His writing is a bit stiff at times, and but he avoids too much jargon and moves at a good pace in this informative introduction to a complex field. getAbstract recommends it to investors seeking savvy insights and for their portfolios.

I've read quite a few books and periodicals on commodities; Jeffrey Christian's book is the most comprehensive I've seen on the subject and it's written in a manner which makes it easy to understand. He has some terrific insight as to how commodities enhance your asset allocation or stock and bond plan, the "myth" behind the superheated growth in China and also made quite a solid prediction how some of the speculative excess would come off the commodities markets in 2006! Overall, a solid, educational read and I recommend it.

One of the strong points of this book was the authors obviously deep understanding of the commodities markets. He talks quite a bit about the metals markets, mainly because he has spent a lot of time researching and trading those markets, but he also goes into detail about other markets too.

I have heard a lot of hype about how China is going to cause a commodities boom cycle. I thought it was strange because a lot of commodites markets are actually going down. Wheres the boom cycle? Mr Christian explains why it is probably a myth. He details how the markets actually work and what happens when commodity prices go up or down.

I also learned a lot from the authors discussions on what the specific uses for the individual commodities are. Like platinum which is mainly used for auto catalytic converters and jewlery. Makes sense now why platinum is linked to auto production, which I never knew.

This book is very informative and gives you a macro understanding of the commodites markets.

This book is vastly more informative, balanced, and insightful than other books on the subject. The author has been involved in the commodity markets for many years and his experience and knowledge comes shining through. Thankfully, he doesn't have anything to sell. Yes, you can make a lot of money in commodities, but you better do your homework and you better not succumb to the marketing pitches from brokers and others in the industry. This book shows you how.