Why commodities will do well over a longer horizon (but not now).

Currently, China has been buying up lots of commodities. I believe they think that commodities is one of the most important investments they can make. But likely most of the purchases at this point is speculative and probably unneeded unless they are willing to let the supplies sit their for years.

The major reason commodities will do well over a longer period of 5+ years is mainly because nothing has really changed. China will continue to dump exports and piggy back on the the US and other developed nation's economies. They will find it harder to do so as time goes on as they will have to manage their currencies with other developing nations besides the US.

As you can tell, this is not a really healthy or effecient way of running an economy. By force feeding products to developing nations, we have a problem. The other economies don't really need the exports. By making exports cheaper than they are supposed to be through currency manipulation, quantity of products supplied to the world grossly exceeds what is effecient.

But alas, nothing is perfect. If nations can't play fair with each other, it will show with commodity prices. To keep this oversupply of products gravy train going requires an equally sizable oversupply of commodities. So this is a nice gutcheck against those countries who piggy back through export oriented economies.

The export model has taken a gut check, but there are no indications that countries will change their growth through exports philosophy so the picture for commodities is still strong. Also contritbuting to this is monetary abuses by nations. So once the monetary abuses abate or the world has an oversupply of commodities, we will probably see the commodity prices come back down.

The other way the commodity picture might turn bad is for world nations to start paying down debt. Most nations, though aren't doing the right thing as all they can think about is spending their way out of a recession. Most countries' leadership lack the mettle to take the tough medicine and would rather put it off for later. As long as we have this, the outlook for commodities looks good.