Iacono Research has a good summary on the bullish case for commodities. Read the whole report, but I liked this section best.
These long-term cycles usually last about 15 years and come to an end with production surpluses driven by huge investments in infrastructure, not after a drastic cut in consumption due to a recession, as has been the case in 2008 and 2009.
We are likely only about half way through the current commodities bull market, this one interrupted in a similar fashion as the last one back in the 1970s by a brutal recession.
The best was yet to come for the natural resource sector during the 1974-1975 recession - oil and gold didn't peak until about five years later - and the best is likely yet to come in the current cycle which should peak sometime in the next decade.
Our portfolios have decent investments in stocks that will benefit from this trend whether commodities or infrastructure. In a lot of the cases, the infrastructure companies have been devastated by this recession. Whether the builders or the equipment suppliers, they have all been crushed. Some of our favorite names have been FWLT, TEX, and MTW some of which were down over 90%. On the commodity side we like FCX, X, ANR, or VALE.
Iacono Research favors a portfolio focused completely on this sector while we still believe a more balanced approach is warranted. Its clearly best to be invested in quality stocks. No need to de-worstify by selecting stocks that you know will decline. But its not certain that the commodity/infrastructure sertor will soar. Global demand seems almost inevitable, but will the BRIIC economies be able to handle the higher prices? Most of there consumers are pretty poor. Also, new technologies may allow for faster and better mining of commodities that could help solve the supply issues once growth starts anew. Renewable energy may help reduce the need for oil and gas hence crushing those prices and any stocks in that sector.
In general, we see that as what ends this bull market in the next 5-8 years, until then the world just hasn't invested enough over the last 20 years in this sector. Equipment everywhere is aging and all over Asia they have serious demand for new infrastructure. Iraq is a prime example of over under invesing over the last 2 decades as lead to a need to spend billions in order to catch up. In the meantime though, we'll continue investing in technology stocks that will be part of the infrastructure buildout in the BRIIC countries along with the developed world. Also select financials that have been beaten down from the Great Recession along with some healthcare where the opportunity exists. Also, we'll focus on stocks of companies benefitting from that global growth like GFA, MELI, or MICC. Basically buy where the opportunity exists noting the logical trend that is inevitable. Too many people want too few goods (for now).