Ruchir Sharma: Breakout Nations and the Commodity Bubble

This CNBC Fast Money interview with Ruchir Sharma is a must view.  His newly published book, Breakout Nations, also looks like a must read and is in definitely on our reading list.

Sharma also has a good piece in The Atlantic.  Here’s an excerpt,

As playwright Arthur Miller once observed, “An era can be said to end when its basic illusions are exhausted.” Most of the illusions that defined the last decade — the notion that global growth had moved to a permanently higher plane, the hope that the Fed (or any central bank) could iron out the highs and lows of the business cycle — are indeed spent. Yet one idea still has the power to capture the imagination of the markets: that the inexorable rise of China and other big developing economies will continue to drive a “commodity supercycle,” a prolonged upward rise in the prices of commodities ranging from oil to copper and silver, to textiles, to corn and soybeans. This conviction is the main reason for the optimism about the prospects of the many countries that live off commodity exports, from Brazil to Argentina, and Australia to Canada.

I call this illusion, for it is strikingly similar in some ways to the mania for technology stocks that gripped the world in the late 1990s. At the height of the dotcom era, tech stocks comprised 30 percent of all the money invested in global markets. When the bubble finally burst, commodity stocks — energy and materials — rose to replace tech stocks as the investment of choice, and by early 2011 they accounted for 30 percent of the global stock markets. No bubble is a good bubble, and all leave some level of misery in their wakes. But the era has had a larger and more negative impact on the global economy than the tech boom did.

We’ve long held that many emerging markets have experienced a very positive terms of trade shock with the rise in commodity prices,  which is masking structural problems that have never been addressed.   Sharma seems to agree.

(click here if video is not observable)

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6 Responses to Ruchir Sharma: Breakout Nations and the Commodity Bubble

  1. Kuldip Singh says:

    A few years ago, when 2012 was trending, on the Agora’s 5 Minute Financial blog, somebody asked, “Will the world come to an end in 2012?”
    The blogger replied, “No, the world will not come to an end in 2012, but the world as we know it will cease to exist.”
    I take this to mean that wars,bigotry,religious extremism,financial greed,quaralling politicians serving themselves,etc will end.
    If materialism were to cease,spiritualism must take its place.
    Which is why nobody is able to comprehend trends anywhere-be it economics, or share markets.The only trend being correctly predicted is that incumbent politicians in Europe will not be re elected.

  2. I would have to disagree with Mr.Sharma’s main point that we are somehow in a commodities asset bubble. Oil is a non-renewable resource that we are running out of. Has this guy never heard of Peak Oil!? Population growth is exploding and so is demand for a lot of FINITE resources. Nothing….materially speaking…. can grow forever on a finite planet. We are just at the beginning, of hitting some natural limits when it comes to resources. Peak everything is a very real scenario unless we begin mining other planets. A counterpoint to the above posted video:

    • Kuldip Singh says:

      Brian Solis, in today’s post titled 10 Trends to Beat Digital Darwinism, wrote,
      As Leon C. Megginson once said in paraphrasing Charles Darwin’s Origin of the Species, “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.”

      A commentator, Antoinedup1, wrote
      Like says Francis Bacon “we cannot command nature except by obeying her”

      I do agree that our planet is finite.However,when things get out of hand,nature will play its part to keep the equilibrium.
      The Euro financial crisis is a case in point.Had we obeyed nature,the crisis will not have been as dire as it is today.

      • trilok says:

        Super counter point Kuldip.
        one has to read his Book – Breakout Nations!! Fantastic book, with weighed analysis, none whatsoever biased or outright prudish. must for all to read.

  3. pramod says:

    bad politican ,bad gover ment , bad mentality ,bad dicision , corruption ,india not groth .
    pramod pawar sangli .

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