There are plenty of expensive assets in the world today. The past decade of loose monetary policy and central bank money dumps have created the infamous “ bubble in everything”. This is one reason we now have the bizarrely yo-yoing investment environment that we do, in which everything from risky stocks to safe gold is rising at the same time.
But one thing has remained reliably cheap — commodities. While the US equity market, which keeps ratcheting up to new highs, is almost as expensive as in the past 150 years, commodities are about as cheap relative to stocks as they’ve been in the past century.
Part of this is natural — and structural. Over the past 200 years, the real price of industrial commodities has been trending downwards. That’s because every time a new peak in prices disrupts what is usually a long-term bear market, companies and consumers adjust. They might substitute in a cheaper commodity for a more expensive one, develop technologies that allow more efficient extraction or (gasp) actually try conserving energy. On that note, who in my generation can forget Jimmy Carter’s 1977 presidential plea, amid an energy crisis, for Americans to turn down their thermostats, which he delivered from the White House while wearing a thick cardigan?