Hot Commodities (Jim Rogers) 2 comments

Now, whatever what one thinks of Jim Rogers --- former affliate of George Soros and now chief doyen of the burgeoning commodities brigade --- it is worth listening to what he says, for his views on commodities and the dynamics that drive them. He has written a few books but this book is the one that crystallises his worldview on commodities, so it's the best one.

Jim Rogers wrote it in 2004 --- or more accurately, before 2004, since the book was published in 2004. That was probably 1-2 years into the boom in energy and metals commodities, and the agricultural commodities boom would only come 2-3 years later. One would have profited immensely from following the advice in this book, but of course it is all on hindsight.

The book offers a beginners' perspective to commodities so it is not heavy reading. To broadly sketch its contents, it begins by introducing commodities and the means to trading it plus the common terminology, then drives home the key catalyst for the coming boom (China), and then examines a few commodities in detail (Precious metals: gold; Industrial metals: copper, lead; Energy: oil; Agricultural: sugar, coffee). There is a set of very useful appendices at the end listing the main commodity indices and the various commodity contracts. Among the commodity indices are his self-created Rogers International Commodities Index (RICI) --- no harm having a little self-promotion.

To me the meat of the book is in the individual chapters on the various commodities. How Rogers structures the discussion is an indication of how he views the commodity market, and it is clear he see demand and supply as the critical issues to focus on, because he devotes separate sections to specifically discuss them --- the main consumers and applications for the commodity, the main supplying countries, the volatility of supply, what drives the supply volatility, and then a historical overview of the impact of demand-supply dynamics on commodity prices. There are some traders who trade on technicals such as trend-trading (some have been very successful at it); it appears that Jim Rogers is more a big-picture, fundamentals-driven type, my kind of man.

It is actually a very simple book; as I said, good for beginners, not much quantitative stuff. My main grouse with it is that Rogers does not cover more commodities than those mentioned. For those who want in-depth comprehensive coverage on the whole commodities universe, he recommends the yearbook published by the CRB (Commodities Research Bureau) which he snaps up every year and reads through front to back. So that's a tip there.

Inflation is here to stay, so whether one is really planning to trade in futures, or is just strictly a share investor, it will be useful to get a feel for commodities prices, because they are, generally without exception, the main cost components to an industrial business, and sometimes but less often, a key cost component to a service-based operation. Read my recent HotTrendsWatch writeup on Global Inflation for more details.