Jimmy Rogers, Refco and Gold

I remember Jimmy Rogers, of Quantum Fund fame, singing the praises, a few years back, of other commodities in contrast to a more sanguine view on Gold: Most commodities are going to do better than gold. I am long gold. I own gold and gold is in the fund. But the best commodities will be other commodities. Lead and other commodities will probably continue to do better than gold over the next few years. The problem with a trading room view like that is that one may forget that commodities are not stocks, by which I mean, commodities are physical.

No kidding, Dude, you might be saying, Jimmy knows that, that's why he bought them. Well, I think there are certain aspects of the game that may have eluded Mr. Rogers. Most notably the difference between other commodities and Gold lies in one's ability to store it. To profit from trading wheat, for instance, one either takes credit and counter party risk or buys a few silos and trucks. While the price increase one might see on the screen may be tempting, realizng the profits might be tricky, as he seems to be discovering in the Refco fiasco. $1Mil of wheat is many rail road cars of wheat, $1Mil of Gold can be easily stored at home and transported by car.

The disconnect between the financial superstructure and the physical universe is, in my view, substantial. Profits will likely be made in commodities but perhaps not so much by Wall St. as by others. Let the labor price spiral commence.