The Second Half of the Commodity Bull

This is a frequent post topic, but it is intended to correlate with the importance of the topic.

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Here, once again, is the comparison of the current Commodity Bull with the last great Equity Bull, measured by the Dow Jones Industrial Average (DJIA). Jim Rogers started an index to track Commodity prices starting in July 1998. His call about that being the next great bull market has been "right on". The two indices start on this graph the last time they were at 1,000 but did not retrace below that mark. That occured in March 1999 on the Commodity Index and November 1982 on the DJIA.

The "X axis" is shown in current Commodity Index dates with the DJIA occuring 16 years and 3 months earlier. The end points are March 2010 for the Commodity Index and November 1993 for the DJIA. It's important to recognize that November 1993 is one year into Clinton's first term and one year past the 1992 recession that caused Bush I to lose the election. Currently we sit about one year past the great Credit Crisis of 2008-2009. Regardless of the economic recovery path in the U.S., the Commodity Index is much more likely to be influenced by continuing development of the emerging economies of China, India and Brazil.

The November 1993 DJIA sits at 3,700 with a quick trip to 10,000 in store during the next six years. It is very conceivable that the Commodity Index will not fall behind this pace, and may even exceed that pace. At the current end points the DJIA has compounded at 12.6% from its origin, while the Commodity Index is running at a rate of return of 11.2%.

The one important difference is the volatility one will experience by being a Commodity investor. Note the difference in the 1987 crash on the DJIA and the 2009 Credit Crisis impact on the Commodity Index (and they are scaled correctly on this log-graph).

Here is another look at annual returns, plotted every month on a rolling basis for the Commodity Index. It is the right place to be, but not for the faint of heart investor.

Annual returns can regularly exceed 40%, but correspondingly, the falls can be equally as breathtaking.