Today I see another reason for the bullish argument for commodities: worldwide demographics. An article recounts analysts from Macquarie describe the demographics of rising demand from consumer in the emerging markets:

They may earn only about £2,000 a year but they are 400 million-strong, scattered across the globe and have just bought themselves a fridge.

Meet Generation A, who soon could become the most important economic force on Earth.

All those consumers will need more stuff, which will create enormous demands on commodities. This means that not only consumer non-durables (e.g. soap) will be areas of growth, but non-durables (furniture, cars) as well as services (telecom) in the emerging market countries. Jeremy Grantham of GMO also comments on this in his essay The Emerging Emerging Bubble (see page 9).

Key risk: Continued growth in the emerging markets depend continued open markets. If the developed trading blocs (US, EU) start to close their markets to the emerging market economies, then investors would have to re-assess the longevity of growth story in the emerging markets.

Put it another way, there is a joke in our household that Santa Claus comes from China as everything he brings is stamped with “Made in China”. Look at your shirts, your toys and your electronics. If they continue to be made in China, India, Turkey, Vietnam, Guatemala, etc. then the emerging markets should continue their long-term growth, which will also be bullish for commodities.