COMMENT
The Next Bull Market

If your heart sinks every time you fill up your car, try not to blame the oil companies too much. Instead wag a disapproving finger at the bull run in commodities.

According to Jim Rogers, co-founder of the Quantum Fund along with George Soros and author of best-sellers Investment Biker and Adventure Capitalist, the next bull market is already here. But it's not in shares or bonds. In his latest book, Hot Commodities, Rogers explains why he believes commodities are poised for a decade-long bull run at the expense of equities. Consequently, he is advising investors to buy a basket of commodities such as copper, sugar cotton, corn and crude oil.

Rogers reckons that commodity prices follow well-defined cycles, each lasting around 17 years. He mentions three bull runs that have occurred in the twentieth century. These were from 1906-1923, 1933-1953 and from 1968-1982. He claims that the next bull is already here, and got underway in 1999.

In Rogers' opinion, the reason for the cycles is head-slappingly obvious – supply and demand. Quite simply, he explains that when supplies and inventories are plentiful, prices will be low. But once supplies become depleted, and demand increase, prices have to rise.

Rogers points out that whilst commodity producers can control supply, they are reluctant to ramp up production unless it is profitable to do so. For instance, he points out that virtually no new mine shafts have been opened in 20 years because metal prices have been depressed.

Additionally, Rogers said even if new mines are opened today there are insufficient smelters to process the ore. Therefore, commodity prices could carry on climbing until new production capacity matches supply and demand once again. However, he reckons this takes years.

Roger's advice for investors is to invest directly in commodities. He mentions buying commodity futures as one possibility. He has also started a fund in the US called the Rogers International Commodity Index Fund, which tracks the performance of his self-compiled commodity index. Started in July 1998, it had risen by 176% at the end of December 2004.

In my view, this is a great book for anyone looking for an easy-to-understand treatise on commodities. His chapters on oil and gold are enlightening, and his insights on red hot lead prices are especially revealing.

Jim Rogers believes that commodities are easier to understand and simpler to invest in than shares. Furthermore, he reckons it is a popular misconception that commodities are more risky than shares. Certainly after reading his book, I tend to agree.

> Get Hot Commodities in the Fool Bookshop.