Commodities | Jan 22 2007
By Greg Peel
“Oil, copper, gold… they’re all coming down and will continue to fall in price. We’ve seen a huge bull market in commodities, and at the same time, we are now seeing the [US] dollar at its lowest level in terms of its trading partners.”
Art Laffer is a long-respected US economist, famous for the “Laffer Curve” which suggests cutting taxes increases tax revenues. This curve now appears in most economic text books. He is also a highly successful money manager.
US publication Investment U’s Mark Skousen recently interviewed Laffer, and was provided with the above quote.
Laffer is bullish the US dollar because of the benefit the US trade deficit will receive from a falling oil price. Laffer can see oil below US$35/bbl in the next two years. Unfortunately, Skousen does not press the great man particularly as to why, but it is implicit from Laffer’s responses that he is of the “mean reversion” camp which believes commodity prices always return to the mean and will do so again soon. This is in stark contrast to those who see a 20-year commodity bull market.
A stronger US dollar will mean a lower gold price as well, Laffer suggests, and other commodities will follow suit.
This is, however, good news for the US share market. Says Laffer “I’ve never seen the US stock market so well-positioned as it is now. They’re really cheap right now”. Laffer believes talk of a US recession is misguided, and that interest rates will remain neutral for the time being. The stock market, he says, has “never been lower in relative terms”.
Laffer is neither concerned about the situation in the Middle East. He believes Muslim tyranny will be quashed as oil prices fall lower.