Commodities investors have to be feeling pretty smug right now. That’s because they get to ride two major economic trends besetting the world.
The first is money-printing and currency debasement, and the latest actions from the U.S. and Japan have emboldened markets to expect easy monetary policy to continue longer than markets expected just six moths ago. The U.S. is now expected to deliver another round of quantitative easing to its economy while Japan is freaking out about a strong yen and trying find ways to debase it. Don’t expect normal monetary policy out of the U.S., Europe, or Japan for a few years at least (Maybe don’t expect it ever from Japan).
Yet at the same time, commodities are also benefiting from the new growth paradigm of the current decade — emerging markets’ leadership of global growth. Infrastructure development alone accounts for a large part of the commodity story and as shown by the Bank of America chart below, there’s still another $6 trillion of emerging market infrastructure development coming over the next three years.
Thus commodities investors are riding both the panicked ultra-easy monetary policy of developed markets and the emerging markets growth trend that’s making them look bad. It’s a cosy combo.
(Chart via US Funds)