Money Morning Contributing Editor Martin Hutchinson detailed earlier this week how worldwide population growth will affect global commodity prices, prompting many readers to express praise for his well-supported analysis.
Hutchinson cited the United Nations report "2010 Revision of World Population Prospects" published May 3, where the UN estimated that the global population would reach 9.3 billion in 2050. This means prices for oil, metals, and food are also likely to climb much higher by 2050.
"The total impact of the UN's spiraling population projections will be seen over the long haul," said Hutchinson. "And that means that — even when interest rates are back to normal levels — global commodity prices will not return to levels we would consider ‘normal.' Oil prices will never see $20 a barrel again; their bottom is probably somewhere in the range of $60 a barrel to $80 a barrel — after which they march higher."
Hutchinson said this also means investors can benefit by positioning themselves with long-term holdings in certain producers of oil and agricultural products and well-run, diverse countries, like Canada.
The following reader letter praises Hutchinson's intellectual analysis, while also questioning the role of technological advancements in a growing population. Money Morning likes to highlight insightful and informed reader comments, as well as give our editors a chance to respond. You can read Hutchinson's comments below.
Whenever I see a Money Morning article by you – to paraphrase the old E.F. Hutton marketing message – I listen.
For the first few paragraphs, I agreed with you, but as I neared the middle of your article, my cynicism about so many apocalyptic scenarios (in spite of the fact that I've become a perma-bear) made me pause. I thought back to an earlier doomsaying British economist.
But low and behold, by the end of the first section, you referenced Thomas R. Malthus. I was more than impressed – I became downright giddy. You once again proved your understanding of the complex world economy and the fact that doomsdayers before us have been proven wrong often.
On the other hand, there remains the remote possibility that technology provides us with what's needed to make us all Malthusians. This would include the advent of commercial fusion (cheap and abundant energy), genetic agricultural breakthroughs (increased crop outputs), and nanotechnology (totally synthetic metals and fuels, among other things).
In this case, however, your sanguine appraisal rings very logical, pragmatic, and likely. The odds of your being right seem to significantly outweigh the odds of your being wrong. A clear awareness of history makes your forecasts that much more valid.
Your explanation of how productive activity has been superseded by the printing of money, which has in turn made commodities all that much more valuable, further supports your assertions.
Unlike a Bloomberg article, which is usually like getting a reading from the oracle at Delphi; with a strong opinion buttressing an idea at the beginning of the piece, and a counterargument destroying the initial assertion by the end of the missive; you stand behind your theories from start to finish with strong evidence and facts.
As a passive investor, I've been following your advice to great personal benefit. It helps that we appear to think similarly. Yet if that wasn't the case, I wouldn't be taking the economic and financial positions that I do with as much certainty.
Thank you for making me and those like me feel at home intellectually and economically.
Dear Mr. S.:
Thank you very much for your kind and most encouraging letter. I agree with you in being optimistic that technological advances will solve many of our problems. But they will not necessarily solve the ones we most want solving or think most likely to be solved.
For example, in 1961 you'd have got good odds that, by 2011, we'd be colonizing all the useful planets and making our first ventures into interstellar space, and that our power problems would have been solved by fusion reactors. Equally, anybody who had suggested the PC and the Internet would have been thought seriously eccentric.
It's thus clear that our 1960-2000 assumptions about cheap commodities get changed once the big population groups in China and India get rich, and that further increases in population raise the risk that we'll run into an environmental or resource problem we can't solve. Another worry, brought out by the Japanese quake, is that ice ages, meteors and other cosmic harassments are more common than we think, and so we'd better have a good margin of safety in our population/resource balance to avoid being wiped out when the planet suddenly can't give us what we thought it could.
High commodity prices and restrained worldwide population growth (or preferably the beginnings of shrinkage) are thus good for us in the long term.
Because of its impact on commodity prices, both in the near term and over the long haul, the rising global population requires Hutchinson to search for those more-immediate profit openings, while also scouring the horizon for the long-term trends that can create the hefty profits investors seek.
Indeed, in his "Permanent Wealth Investor" advisory service, Hutchinson has identified one particular global economy that meets all his requirements, and represents such a rich profit play, that we couldn't give it – or the investments he's recommending – away for free.
To find out more about these investments, and Hutchinson's service, check out this link.]
(**) Money Morning editors reserve the right to edit responses for grammar, length and clarity when posting on our Website. Please include your name and hometown with your email.
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