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Could commodities be about to make a comeback?
What's that you say? Commodities have already made a comeback. They did seven years ago when the China boom started.
Yes, I know that, but it's not the commodities like iron ore, copper, oil or natural gas that I'm referring to.
Instead I'm referring to what they call soft commodities.
In a nutshell, pretty much any commodity that is used in the production of food can be considered a soft commodity - cocoa and sugar are obvious examples.
Despite that, few people or mainstream investors have any interest in something as dull sounding as soft commodities.
The only thing most people would know about them is from watching movies like Trading Places where Eddie Murphy and Dan Ackroyd make a killing from trading frozen concentrated orange juice (FCOJ) futures.
But our trip to the UK a few weeks ago highlighted exactly why there isn't much interest in this sector of the market. And in my view, it's a big mistake...
The Sayce family was winding down our UK tour with a three-day stay in London at the Euston Hilton - by the way, the emphasis should be more on the Euston part of the name rather than the Hilton part. But what do you expect for GBP129 per night!
Being back in London there was little need to keep the hire car, so after angrily negotiating the traffic of central London and finding the hotel without the help of a satellite navigation system, it was your editor's job to make the lone journey from Euston to London City Airport to return the hire car - while the rest of the Sayce clan enjoyed an in-room movie and room service.
So, we less angrily drove around the northern fringes of the City of London and through our old stomping ground of Whitechapel, taking in the sites, and erm, smells of Commercial Road as we headed ever deeper into London's East End.
We noticed on the way how little things had changed since the last time we were there in 1996.
We'd heard a lot in recent years about how London had been swamped by Polish plumbers and labourers. We'd been warned that good old London town wasn't the same anymore.
To us, it was exactly the same. We'd always considered London to be a hodge-podge of funny looking people - we were one of them back then, and we were one of them now.
Most were probably locals, while others were recent arrivals. There were white people, black people, and Asian people.
But when we were driving to take the car back we couldn't get a full picture of our surroundings. Only glimpses.
Sure we could see close up the dirty old Victorian buildings. And between the breaks in buildings we could every now and again catch glimpses of the fancy buildings at Canary Wharf.
But we were so intent on not going the wrong way that we didn't take it all in.
Which is a shame because we went the wrong way. We missed our turn and drove half way to Dagenham before realising our mistake.
And so, it was only as we took the Docklands Light Rail (DLR) train back into central London that we really started to notice things.
You tend to notice things more when you're in a train elevated forty-odd feet or more above ground level.
It was about 6.30pm on a Friday evening, and the first thing we noticed was the lack of suits. We saw plenty of suits milling around in the airport, one guy sounded like he was Swiss. Zengler we think his name was. That's how it sounded anyway. A banker, we thought.
But there weren't many suits - or Swiss - on the train. But that's OK, they're probably catching one of the 400 black cabs that are lined up, or hiring a car or they've got a chauffeur service.
No such luxuries for the three large African women we sat next to, or the girl from London sat across from us who was chatting to her recently arrived Irish friend.
And anyway, we were still a few stops from the gleaming towers of Canary Wharf. The pinstriped pinheads will doubtless swarm onto the train there. They didn't.
But before that, we looked out the window at the view. We saw a few nice looking apartment buildings. And some nice looking cars... BMWs, Fords, a Mercedes (just a small one), and a whole bunch of small but expensive looking other European cars.
Then we came to an area known as Silvertown. It's not far from the Thames flood barrier.
There's not much to say about Silvertown. Apart from its habit of getting blown up. As it did due to a TNT explosion in 1917 and during the Blitz in 1940.
Aside from that no-one seems to care too much about the place.
But as the train moved slowly through the Silvertown area you couldn't help but notice the Tate & Lyle factories. It was a few weeks ago now, but we recall seeing two of them, perhaps there was another. We forget now.
We do remember seeing a large tin of Golden Syrup. It must have been 10 stories high. Maybe more, it's hard to judge. It was big anyway. We'll guess it was an empty tin.
As far as we can guess, no-one much cares for the sugar and syrup factories there. They probably care about it just as much as they care about Silvertown. Aside from the 550 people who work there of course.
London has much more important things to do than worry about a sugar factory. Things such as what they do at the big shiny buildings just down the road at Canary Wharf. That's where the traders buy and sell things written on bits of paper.
Or where they buy and sell things on one of the six LCD screens they look at for eight hours per day.
We'll even take a guess that some of the things they buy and sell include sugar futures as well.
We wonder if they've ever been to the Tate & Lyle factory. Actually, we wonder if they've ever noticed it. Probably not. We suspect they arrive at Canary Wharf from the other direction.
As it happens, just a week before, Tate & Lyle had decided to sell its sugar and syrup business to the Americans for GBP211 million. American Sugar Refining Company (ASR) will be the proud owner of the factory built more than 130 years ago.
And according to Andrew Hill in the Financial Times this is "British industry's gain."
Really? That doesn't seem likely. Let's hear Hill's argument...
Hill says that Tate & Lyle wasn't all that much interested in the low margin sugar business anyway. That it'll be much better for a company such as ASR to buy it. A company that does have an interest in the sugar business and will continue to invest in it.
Hmm. Not convinced.
But look don't worry, we're not having a crack at foreigners for having the cheek to take over domestic businesses. We say good luck to the Americans in Silvertown. And we say good luck to American, Japanese or Chinese businesses that choose to buy Australian businesses.
The point we'll make isn't unique to the UK.
It's the idea that an economy can survive and flourish purely on a services based industry. That it can survive on services while at the same time allowing a manufacturing base to be destroyed. You only have to look at the wasteland around Silvertown to see that.
And even worse, that it can survive based on making money from the financial services industry.
When we arrived in the UK we thought the brainiacs may have learned their lesson from the economic meltdown. That inventing financial products from thin air and then selling them to each other isn't sustainable.
Buying and selling the Sugar No. 11 futures contract on the Intercontinental Exchange may be exciting and it may - or may not - make the trader a lot of money. But what does it actually do for the economy?
And if the trader is a speculator then they surely provide a benefit to the market by increasing the liquidity and therefore helping with what the boffins call price discovery.
But it seems odd that an economy would be so keen to encourage and grow the business of trading the price of things like sugar and cocoa and anything else you can think of, yet aside from the jingoistic cries about an old English firm being sold to the Americans there's little interest in growing a business that actually allows the traders at Canary Wharf to make their bets.
What impact will that attitude have on the UK economy in the long run? We considered that as we moved further along the train line. We went through some of the poorer suburbs. The kind of suburbs where the washing is hung from apartment windows and balconies.
Young Bengali kids were kicking a football around, and a Bengali mother was pushing a pushchair along the footpath. There weren't any BMWs or other expensive cars, just cheaper cars that were trying to look expensive - a stripe along the side, or an oversized exhaust pipe should do the trick.
We're not sure what line of work these kids will get into when they grow up. It probably won't be at the Tate & Lyle sugar factory anyway. If they're lucky they'll end up living in one of the fancy estates nearer Docklands and working in the shiny offices of Canary Wharf.
But the greater likelihood is they'll end up working in the services industry. Selling mobile phones, working in a department store or maybe, just maybe writing financial newsletters!
We're not saying that the service industry is bad and the manufacturing industry is good. But what we are saying is that a lopsided economy that is so heavily dependent on men and women in tall buildings pressing buttons to buy and sell something that doesn't exist doesn't make for a healthy economy.
Australia is different (you never thought we'd say that did you?) for now. For now we can at least rest on the knowledge that China is supporting the economy by buying up all its resources.
But what happens if Dr. Joseph Stiglitz in today's Australian Financial Review is wrong, and China's urbanisation doesn't drive demand for hard commodities such as iron ore, copper and oil for many years?
What happens then?
We don't know, but we'll have more to say on soft commodities in coming weeks.
Cheers.
Kris Sayce
For Money Morning Australia
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