Arbor Wealth: Commodity blues, global sniffles and Guy Clark

Staff Writer
The Destin Log
Margaret R. McDowell

“Only two things that money can’t buy …

And that’s true love and homegrown tomatoes.” from

“Homegrown Tomatoes” as performed by Guy Clark

At this writing, oil is selling for $44 a barrel, less than half its price as recently as June of last year. And it’s not just the oil business that’s crying the blues. Other commodities like copper, iron ore, nickel and aluminum have been languishing with seemingly no end in sight.

Plummeting commodity prices are often believed to portend future economic ills, like the old canary in the coal mine. So falling commodity prices might lead one to think global economic growth is stalling out. However, the world of commodities today is vastly different than it was even ten years ago. In fact, falling commodities prices have a lot more to do with China than with the rest of the world.

The decades-long building boom in China is slowing and with it, that country’s insatiable demand for commodities. Up until recently, China was consuming vast quantities of every conceivable commodity to build skyscrapers, high speed rail networks, shipping ports and highways. But now those commodities are, well, not-so-hot commodities. While the reverberations are felt around the world, they especially sting resource-rich emerging market countries, which had prospered by exporting to China. Take for example Brazil, which is a major commodities exporter. China’s slowdown means Brazil will sell less oil, timber, and iron ore. When Shanghai sneezes, Rio catches a cold.

It wasn’t that long ago when many investors and economists felt sure that commodity prices would never substantially decline. There’s only so much oil and so many precious metals left in the ground, right? Remember Mark Twain’s famous recommendation for 19th century investors to “Buy land, they’re not making it anymore.” Theoretically, a fixed supply of a product should protect pricing. But it’s easy to forget that raw land values dropped 90 percent during the recent real estate bubble. So much for that thinking.

Is this commodities trend a calamity for the U.S. economy? Certainly China’s slowdown will have an impact here at home. Recently, falling prices led U.S. Steel to cut 1,100 jobs right outside Birmingham, Alabama. But a Chinese construction slowdown is just one of several issues that strongly influence our markets and economy, like the specter of rising interest rates, ongoing global deleveraging and the impact of a strong dollar.

What will falling commodity prices mean to advanced economies like ours? When oil drops to $50 a barrel in a recessionary environment like 2008, look out. But when oil drops to $50 because one country is no longer consuming at a frenzied pace and while the U.S. economy is growing, it’s not quite the doom and gloom scenario it might first appear to be.

Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 —, a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.