When listening to UGK, it is easy to conjure up images of sizzurp-swilling Texas boys in a late model Escalade, rolling with the swagger of men who possess the most important type of respect–the respect of the grassroots. The moniker of ‘Underground Kingz’ is not only fitting, but also implies dominion over what is above ground as well. What lies beneath the earth, after all, eventually makes its way to the surface. Their pride was (RIP Pimp C) justified: after all, if you rule the roots, you rule the shoots that break the surface. The same principle applies to food or, in a twist on this idea, oil. If you own it below ground, then you own it above ground as well.
It might seem a stretch to apply an analysis of the etymology of one of the greatest rap duos in hip-hop history to the commodities markets. All you need to do, however, is take a trip to the supermarket and look at the price of tomatoes to understand the value of what we dig up for consumption purposes. Better yet, try filling up a tank of gas. If you can make out the digits behind the tears you shed at how expensive gasoline has become in the US, then this principle is even clearer. To paraphrase one of the great characters to make his name in New York state politics in recent years (and trust me, the competition has been stiff): “The commodities are too damn high.”
Indeed, the commodities are too damn high–except for those selling these commodities. This, however, is too simplistic a dichotomy to be accurate. What’s really happening is that there are a number of discrete factors that have conspired to drive the price of food, fuel, and raw materials upwards over the past few months. The specter of widespread rebellion in the Middle East has pushed oil prices past $100 a barrel. While this price is not reflective of a sudden drop in oil supplies, it is reflective of the sentiment among oil traders that disruption will happen. Just a glance at the news coming out of Libya suggests that this is not speculation but rather a well-founded assumption that’s being priced into the market. The big question is whether or not this is a temporary condition. If it isn’t, and prices continue to rise, then that presents a serious challenge to global economic and political stability. No one wants $150 a barrel oil–especially oil-producing countries. High energy prices dampen economic activity; and with unemployment remaining around 9% in the US and at similar levels elsewhere, the damage to any prospect of near-term economic recovery would be shot. This in turn creates a massive incentive for OPEC to keep prices and production levels stable. If developed world consumption of energy decreases, then the nations that form the OPEC cartel will start to lose money. In the oil market, there’s no such thing as taking a small loss for long-term gains. The sheer amount of capital it takes to bring oil to the surface ensures that it’s a strictly high-reward, high-loss venture. A loss is just not acceptable, especially when there are geopolitical implications tied to lost revenues.
It’s not just oil, though. Precious metals, most foodstuffs, copper, and other rare-earth minerals used in electronics and manufacturing have all risen in price over the past year. It would problematic enough if all of these price rises were tied to a single underlying cause like a global conflict or a widespread boom in demand for these products. What makes this situation particularly thorny and downright dangerous if not handled properly is that there isn’t a unifying theme to be found. Precious metals (gold and silver) have risen in price as investors have hedged against the volatility of sovereign debt-laden currencies with physical tender. Food prices have risen because of poor harvests (and, increasingly, high transportation costs) caused largely by particularly strong La Nina conditions in the Eastern Pacific. Copper and rare-earths used to make semi-conductors and cellphones have been subject to price rises largely due to increased Chinese demand as the CCP looks to ensure stability by propping up its vulnerable manufacturing sector.
It seems that commodity prices are going to be a major part of the global discussion for the foreseeable future. And much like the rent, there isn’t much to do about it except tilt at whatever metaphorical windmill happens to be closest. In the developing world, that entails food riots and rebelling against regimes that are unable to prevent its citizens from going hungry. In Washington DC, it means that the global economy’s back in business (albeit looking over its shoulder).
I ask you, then: which one of these outlooks seems more plausible to you? The choice, in part, depends on your stakes. For most people, they’re pretty damn high. We’ll see how it turns out.