Book Review of Hot Commodities by Jim Rogers

Book Review of Hot Commodities by Jim Rogers

Jim Rogers released Hot Commodities – How Anyone Can Invest Profitably in the World’s Best Market in 2004 and his analysis has been remarkably correct as the commodities bull market charges onward into 2008. I have been following Jim Rogers for a number of years and he is undoubtedly one of the best market analysts in the business.

Jim Rogers grew up as a poor kid in Alabama and went on to be educated at Yale and Oxford. He started the Quantum Fund with George Soros, where he amassed his personal fortune. Since then, he has traveled the world twice and scouted investment opportunities in numerous countries.

Hot Commodities is obviously about the bull market in commodities. The author did release the book before the commodities rally moved into full swing. You really can’t publish a book touting commodities unless you give a good explanation of commodities in general, so people can understand why they might move higher. If you have ever caught one of Jim Rogers’ interviews on Bloomberg, Fox Business or CNBC, you will know that he explains things in a logical and easy to understand way.

Jim Rogers gives you a detailed explanation on why other commodity bull markets developed in history, how long they lasted and what happened during the rallies. This gives you a good basis on why the author believes the current rally in commodities will last about 17 years.

The author discusses a number of commodities, but he gives a detailed analysis of crude oil, gold, lead, sugar and coffee. Many books on commodities are either too basic or too complicated for the majority of readers. Rogers gives you a real world and easy to understand explanation of individual commodities and what makes them move up and down. It will give you a better basis for understanding the big picture in commodities.

Simple supply and demand factors are the reasons why commodities move higher or lower. China has been fueling much of the increased demand for commodities and it is not expected that the world will be able to increase the supplies of oil, metals and foods in order to meet demand.

For example, he explains how the world cannot produce enough oil to meet demand. There have not been any major discoveries of oil in years and many oil-producing countries have already hit their peak production. There has also been little investment in exploration and building of new oil refineries.

In the last century, there have been three major bull markets in commodities: 1906-1923, 1933-1953 and 1968-1982, each lasting an average of about 17 years. It is also important to note that when commodities are in a bull market, stocks are usually in a bear market.

The theory behind the bull market in commodities has to do with a prolonged period of a lack of investment in the infrastructure that produces commodities. During the bull market in stocks of the 80s and 90s, how often did you hear about an IPO for a mining company? In fact, commodity related corporations where pushed aside in favor of financial and tech companies.

It takes a long time to open new mines and find alternative sources that will increase supply or lower demand for a commodity. This time will be no different as pressures from China will exaserbate the supply situation. You can image how much their appetite will grow for energy, metal and agricultural commodities.

Jim Rogers states in Hot Commodities that the bull market in commodities began in 1999. The average of previous long-term bull markets for commodities is about 17 years. That would have this run in commodities lasting until about 2016.

Rogers mentions several times that there will be several corrections along the way and all commodities won’t necessarily move at the same time. Each market has its unique factors that will change supply and demand. Think about how the Internet and real estate bubbles ended. When you start to feel the hysteria about commodities from the general public and they have the feeling that prices will keep moving higher forever, then that will be the top.

Hot Commodities is a must read if you want to participate in commodities. Jim Rogers gives the readers of this book a good understanding of how changes in supply and demand impact commodity prices and how to profit from them. This is not a book for day trading commodity futures – it is a guide for long-term investing in commodities during a long-term bull market. Eventually, annual supplies will outpace demand and the rally will end. At that point, it will probably be the time to start buying stocks again.