Natural Resources- Should One Load the Boat?

I enjoyed this interview with Bill Paul and Consuelo Mack. Bill Paul has been following the alternative energy sector for many years and had some fascinating opinions on the future of energy- specifically the potential revolution involving smart grids.

Cisco Systems put out a short four minute video explaining the smart grid.

Listening to this interview got me in a reflective mood. Many investment newsletters that I read today discuss the idea that we are in a natural resource boom that will last for the foreseeable future. You only have to listen to talk radio shows for a short period of time to hear commercials selling gold or precious metals with ominous warnings about the future of the US dollar and US economy.

I believe having natural resources as part of a diversified portfolio of investments has its place. There are some compelling arguments for owning these investments in a portfolio including:

1. The debt problems of mature economies- US, Europe, Japan- that may lead to temptations to devalue those currencies- US dollar; Euro; Yen. A devaluation of currency might lead to higher inflation and higher natural resource prices.

2. The growth of the emerging markets- China, India, Africa, South America, etc...-could produce a lot of consumers that are going to consume a lot of food, energy and the materials needed to build out infrastructure in those countries.

But I believe a healthy dose of skepticism and caution is warranted about prices of food, gold, silver and oil continuing to increase. There is a economics saying, "There is no cure for high prices like high prices." At some price, the incentives for alternatives and innovation kick in high gear. With enough incentives and revenue potential, innovation can happen quickly. And innovation can drive prices lower.

One of my favorite blogs to follow is Mark Perry's Carpe Diem blog. He had a recent post on how the cost of food as a percentage of disposable income has decreased dramatically over the last 80 years. You can find his support here.

John Hussman included this chart in a recent newsletter. The chart should make any student of history a bit nervous about "loading the boat" in natural resources right now. The story of history is progress. I like to refer to it as biblical progression. There will be cycles along the way.

But God has a plan that He is unfolding from creation to re-creation of the heavens and earth. But his stewardship mandate remains intact for humans to use the gifts and talents towards the ends of creating a better world as we eagerly hope for the day when the curse will be removed and progress will be unhindered by greed, decay and corruption- Romans 8:19-22.

As we await the complete fulfillment of this promise, we should heed the words of Sir John Templeton. The four most dangerous words in the English language are: "this time is different."