You've no doubt heard plenty as to why commodities are going
through the roof. Yes, turmoil in the Middle East plays a part. As
does a weakening U.S. dollar.
But perhaps the underlying
in the commodities pits is China. The nation's $5 trillioneconomy
is 90 times bigger than it was when economic reforms took place in
Major industrial hubs like Shenzhen (which has 25,000 manufacturing
facilities) deserve much of the credit. China is the world's
largest exporter, shipping out huge quantities of toys,
electronics, apparel, automobiles and other products. The country
accounts for nearly one-fifth of the world's manufacturing
But before you can make a finished good, you have to start with raw
materials. You can't assemble cars without steel -- and you can't
make steel without coal or iron ore. But these basic building
blocks are in relatively short supply.
China devours more than half of the world's iron ore supply each
year and two-thirds of its metallurgical coal. But the list
certainly doesn't end there.
Production of copper, for example, can't be turned on and off like
tap water. There just aren't many new projects that can be brought
online quickly, and existing mines often run at 100% capacity.
China also consumes more than one-third of global copper supplies
and nearly 40% of the world's aluminum. And it has an appetite for
oil -- about 9.4 million barrels a day and rising.
Efforts to clamp down oninflation may temper demand, but the impact
will be short-lived. There is little that can halt China's
inevitable rise. By some estimates, construction activity in
Beijing alone is greater than that in all of Europe.
The country can't support its own weight, so it's meeting
thedeficit by importing iron ore from Brazil, coal from Australia,
nickel from the Philippines, and bauxite (for aluminum) from
And let's not forget that China isn't the only country fighting for
a limited supply of these backbone raw materials -- India is
another hungry consumer. The massive infrastructure boom taking
place there will require huge amounts of steel and other building
There will be ebbs and flows in demand. And China won't always grow
at double-digit rates. But the global
simply can't function without the basic materials and hard assets
being consumed at a ever-greater pace.
I found the easiest way for individual investors toprofit is with a
fund. The world's supplies of most real assets are controlled by a
surprisingly small group of companies. One fund can let you
basically buy them all.
BlackRock Real Asset Equity Trust's (
$770 million portfolio is geared primarily to the metals and mining
sector. You won't find any second-rate companies watering down
results. The fund targets major players such as Brazil's
, South Africa's
Impala Platinum (OTC: IMPUY.PK)
, and Russian
Metal/mining heavyweights soak up about 45% of the fund's assets.
Another 30% of the portfolio is devoted to energy producers like
Arch Coal (
, as well as the supporting cast of equipment service providers.
The remainder is split between chemicals and forestry products.
Action to Take -->
That's led to some rich gains. The fund has been up 50%
since July. But given the bullish supply/demand pattern for limited
resources, I think the rise could continue for years.
And not only does that sort of portfolio give instant access to
some of the globe's most dominant "realasset " producers, but
investors also receive a rich 7%
-- Nathan Slaughter
P.S. -- If you haven't already done so, I urge you to watch my
free webcast. It outlines a few of the greatest opportunities in
the real asset arena thanks to massive supply/demand imbalances
I've found. (Be sure to watch especially for the details on the
little-known Russian/American nuclear agreement that's expiring...
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.