"WHAT WALL STREET DOESN'T UNDERSTAND IS THAT THE LAW OF SUPPLY AND DEMAND IS STARTING TO FAIL IN NATURAL RESOURCES" BY FRED CARACH

Correctly understood the law of supply and demand works like a pair of scissors. Each blade of the scissors are interrelated and must work together for the law to work.Wall Street does not regard the law of supply and demand as being a pair of scissors. It thinks of demand as a faucet and water as the supply that flows through the faucet. In this model, supply is the always- obedient slave of demand. It is only necessary to turn the faucet handle and supply the ever-obedient slave of demand flows through it in the required amounts.
It must be admitted that this model works quit well in the world of manufacturing and services. What Wall Street doesn't understand is that this model has started to break down in the world of natural resources and that this breakdown is not a temporary phenomenon. To the extent that it is even considered at all, the late bull market in natural resources and commodities is thought of on "the street" as a one-off event that will not soon be repeated.
It is on the contrary the opening gun of a new world order. A world order of semi-permanent natural resource scarcity.
Every one will of course admit that in theory the supply of natural resources is ultimately fixed. But that unhappy day is always assumed to be centuries in the future. This fact is always assumed. No attempt is ever made to prove it.
We are now more than two hundred years into the industrial revolution with its ravenous demand for natural resources and with the greatest population the world has ever known. At the vanguard of this revolution is the rapidly industrializing BRIC nations of Brazil, Russia, India and China. With a gigantic combined population of 2.5 billion people. When the global recession ends their voracious demand for natural resources and commodities will once again kick in. The sheer size of this demand on the existing natural resource base is without historical precedent. The populations of Western Europe and North America when they were industrializing were minuscule in comparison.
The cheapest and the most easily accessible mineral fields are always put into production first. As these fields are slowly depleted away, they are replaced with ever poorer and less accessible fields. One of the favorite ploys of the natural resources in abundance crowd is to confuse potential pie in the sky assumed reserves in remote and far distant locations as proven reserves. And then to assume or more accurately to insist that these assumed reserves can be developed at the same costs that current producers enjoy. It should be obvious that for the most part, they cannot possibly be developed at anything like the costs being enjoyed by current producers.
A good example of this is the now notorious Kashagan oil field in Kazakhstan on the Caspian Sea. This estimated ten billion barrel super giant field, one of only three such super giants discovered since 1970 was found in the year 2000. It has had political and geologic problems galore. It is now estimated to go into production in 2014 at the earliest.
What I am trying to say is that the mere fact that natural resources exist does not mean that they will flow out of the faucet on demand.
But the real game changer is the greens. Who are convinced that it is their destiny to stop every new discovery from coming on-stream. Their success rate has been astonishing. And not just in the developed world as so many believe but in the third world as well.
The Northern Miner, which is the Wall Street Journal of the mining industry, has been reporting for years on the truly remarkable ability of a handful of green zealots to mobilize peasants all over the third world. Green field projects from the Andes to Outer Mongolia have been stopped again and again.
There will be consequences!
The most important consequence of course is that in the new emerging world order natural resources that can be brought into production will be golden. Wealth in the ground will make you rich.
Fred Carach is the author of " Forty Years A Speculator." his blog is fortyyearsaspeculator.blogspot.com