CFP Contributor David Harris has provided below a valuable lesson on why and how westerners should invest in commodities and emerging markets:

As the world sinks deeper into recession, rising oil prices are bringing comfort to the Middle East’s oil rich economies.  Abu Dhabi and Saudi Arabia are attracting renewed interest from international investors, and stock markets are rallying across the region.  Saudi Arabia leads the charge, with its Tadawul All Share Index ending last week with a 26 percent increase for the year to date.  The same index lost over half its value in 2008.  While oil, holding steadily above USD $50 a barrel, is nowhere near the record $147.27 reached last July, savings over the last several years should provide a cushion for the Gulf’s petroleum producers.

Though dollar weakness is part of the issue, there are other forces at play.

Some believe the forces are speculators creating a short-term profit scheme.  Oil industry experts Bernstein Research have another idea.  They have concluded that the price increase is the result of Chinese stockpiling.  Bernstein’s Neil McMahon has noted through satellite images that tanker arrivals into ports have “increased materially” and that there has been a “significant increase in storage construction”.  This suggests stockpiling.  Oil has soared this year, up 70 percent since mid-January. 

A large percentage of the world is rapidly developing, and placing great demand on the world’s scarce resources.  Famed investor Jim Rogers, and economists like Euro Pacific Capital’s Peter Schiff  have long stressed the importance of investing in emerging markets.  There are many reasons to do this: solid growth potential, and resource-based, real world fundamentals are two of them.  Some currencies are attractive: they lack value because of manipulation for exports, rather than the inflation of the West.

Many fear that the jig is almost up for the US Dollar and the Pound.  While China is investing in real value with oil, gold, and copper, the West continues its derivatives sorcery.  This is a dangerous game to play, because as western currencies continue to devalue, it will become more difficult for these economies to secure resources as easily as they do today.  The only difference between American and Zimbabwean dollars is reserve status.  Much of the West could very well end up being bullied halfway out of commodities markets in a generation, if western money continues to weaken.  This may be necessary to deal with debt, but it will make it very difficult to purchase anything down the road.  It would be wise to address that situation today, and to plan ahead – like China.