The So-Called Commodity Paradigm Shift Is False

The other day I saw the chart below published by permabear, value guy Jeremy Grantham titled “The Great Paradigm Shift”. The chart tracks the rise and fall of commodity prices since World War One. Apparently, commodity prices have been in a multi-decade decline and have now turned painfully upward for the next who knows how many decades. I don’t buy it.

In my experience and being a student of history, whenever a large group of smart people loudly proclaim a new, permanent paradigm has emerged, it typically hasn’t. The rise of computing and the Internet was hailed as a paradigm shift and it was to some extent. However, while that technology changed how we do stuff it didn’t change the stuff we do. We still communicate with each other. We still buy and sell things. We just go about it a lot differently.

Now, it appears that commodity prices: food, precious metals, energy, are all going to be much higher permanently. “We’re running out of food!” the headlines scream. “We’re not farming like we used to!”. Um…I live in the South. I can drive 30 minutes in just about any direction and see cows and rows of crops. Newsflash folks: there’s plenty of farmland. We can grow more stuff.

Humans, even going back to when we drew on cave walls since we didn’t have TiVo, have always, always adapted to food scarcity. Sure, sometimes we jack up the price or conserve or ration or form angry mobs in order to overthrow a corrupt monarchy. But most of the times, we just make more. And usually, it ends up being more than we need at the time.

Are food commodity prices rising? Duh. Will they go up forever? Again, duh. For argument sake, let’s say wheat goes away. It’s too expensive or is blighted out somehow. What would happen? Potato flour. Rice flour. Rye. Barley. What if those weren’t available. Yeah…I know and if my aunt had… get the picture.

Yes. Commodity prices are high. They may go higher. But they’re gonna come down sooner than later. A “New Paradigm” has been declared by the smart people with Look at the spike where they wrote “New Paradigm”. Prepare for bargains at the Food King.

paradigm chart

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