MORGAN STANLEY STRATEGIST: The Oil And Gold Boom Has Come To An End

The great oil and gold booms are over.

That's according to Ruchir Sharma of Morgan Stanley, writing at Bloomberg View.

Sharma, an emerging markets specialist, blames the slowdown in China.

The wreckage caused by China’s great, juddering slowdown continues to spread far beyond the country’s shores. Although most commodities enjoyed a bounce on May 3, after better-than-expected U.S. employment data, the plunge in their prices over the past few months suggests the past decade’s rally is truly broken.

After walking through what happened during the period of 2000-2011 (which saw a surge in prices and talk about "peak oil") Sharma says the opposite discussion is now occurring, that we have perhaps reached peak demand.

Now, as emerging nations begin to embrace energy efficiency as well -- China is working hard on electric cars, for instance, despite continuing to build dozens of coal plants -- global demand might flatten out this decade. The debate over “peak oil” scenarios may shift from the threat of dwindling supply to the threat of peaking demand.

Certainly, the world is no longer terrified of running out of important commodities. High prices have drawn investment to copper mines, aluminum smelters and other basic sources of supply. In the past decade, the amount of capital invested in the energy and materials sector, which includes most nonfarm commodities, has risen 600 percent, compared with an average increase of 200 percent in other sectors.

The idea that peak oil is now decisively a concept of the past has been getting a lot of play lately. Part of it is due to the fall in commodity demand growth. Part of it is due to the huge expansion of potential US supply, and what that means for global trade balances.

Meanwhile, the Australian economy is starting to crack, as its highly exposed to Chinese demand, and a strong market for commodities.

(Via Derek Brower)