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Mad Hedge Fund Trader

August 30, 2023 - Quote of the Day

Diary, Newsletter, Quote of the Day

“The stock market is very much a mood ring,” said Josh Brown, of Ritholtz Wealth Management.

 

https://www.madhedgefundtrader.com/wp-content/uploads/2019/10/mood-ring.png 406 406 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-30 09:00:442023-08-30 14:59:27August 30, 2023 - Quote of the Day
Mad Hedge Fund Trader

August 29, 2023

Diary, Newsletter, Summary

Global Market Comments
August 29, 2023
Fiat Lux

Featured Trades:

(LAST CHANCE TO ATTEND THE WEDNESDAY, SEPTEMBER 6, 2023 SAN DIEGO, CALIFORNIA STRATEGY LUNCHEON)
(A NEW THEORY OF EQUITIES)

 

CLICK HERE to download today's position sheet.

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-29 09:06:402023-08-29 13:29:48August 29, 2023
Mad Hedge Fund Trader

SOLD OUT - Wednesday, September 6, 2023 San Diego, California Global Strategy Luncheon

Diary, Luncheon, Newsletter

 

Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in San Diego California at 12:00 noon on Wednesday, September 6, 2023.

The event will be held at a famous downtown San Diego restaurant with a spectacular harbor view. An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.

I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $279.

I’ll be arriving on time and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.

The lunch will be held at an exclusive private restaurant in the downtown San Diego. The precise location will be emailed with your purchase confirmation.

I look forward to meeting you, and thank you for supporting my research.

To purchase tickets for the luncheons, please click the BUY NOW! button above or click here.

 

https://www.madhedgefundtrader.com/wp-content/uploads/2023/06/cortina.jpg 352 560 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-29 09:04:162023-09-13 08:41:49SOLD OUT - Wednesday, September 6, 2023 San Diego, California Global Strategy Luncheon
Mad Hedge Fund Trader

A New Theory of Equities

Diary, Newsletter

So far, 2023 is playing out just as I expected. A fantastic first half is being followed by a flat second half. Since the October 15 bottom, the Dow Average has risen by an eye-popping 3,000 points.

Followers of the Mad Hedge Fund Trader are already up by 60% so far in 2023.

However, I have been getting some pushback from some of my readers, especially the many new ones. Yes, the Dow Average is still off 2,500 points from its all-time high, after one of the sharpest selloffs in history.

However, we are only just getting started.

While climbing the base of Italy’s Cinque Torre recently at 9,000 feet (where I always get my best ideas), I had an epiphany.

I finally realized that nothing less than a New Theory of Equities was needed to get followers to understand WHY the Dow will rise from 34,500 to 240,000 by 2030, a gain of 695%. If I’m wrong, it will happen by 2031 or 2032.

It’s really very simple. Recall the laws of supply and demand?

From 2010 to 2020, roughly $6 trillion was invested in financial assets. Because the Great Recession and the 2008-9 crash had just happened, some 94% of this money went into bonds, while only 6% went to equities.

During the entire decade, portfolio managers, strategists, and hedge fund managers pronounced that bonds were overpriced and would imminently crash.

Instead, they went up for ten years.

Fast forward to 2021. A new decade has begun and bonds around the world were offering negative inflation-adjusted real returns. The planet was massively overweight bonds.

Many people don’t realize how stupidly low-interest rates still are right now. Triple “C” rated bonds are yielding what Triple “A” paper was a decade ago, about 7.5%.

I looked at municipal bond yields the other day and my eyes almost popped out of my head when I saw 2.45%. This is a yield that is so low that it is beyond any economic rationale.

So, what happens next.?

Let’s say that those bond/equity cash flow weightings reverse, that all new investment for the coming decade goes 94% into equities and 6% into bonds. Stock markets would rise for the decade while bonds fall. There’s your Dow at 240,000 right there.

Portfolio managers, strategists, and hedge fund managers predicting that stocks are overpriced and ready for a crash will be wrong for ten years. We won’t be massively overweight equities until 2030.

They are wringing their hands that stock prices have outrun fundamentals. In fact, the opposite is true. Fundamentals are outrunning stock prices….in a big way. Productivity and profit margins are exploding. Think AI, quantum computers, and rapid robotization.

Traditional asset managers would correctly point out that price-earnings multiples are not exactly cheap. And they’d be right if you were only looking at tech growth stocks, the market leaders since 2009. The big caps are priced at mid-20s multiples.

This ignores the huge chunk of the market, the value stocks, that are selling at low teens or single-digit multiple and basically haven’t moved in a decade.

What happens next is that value stock multiples rise to match those of the FANG. Add in earnings growth and that gets you to 240,000 also. By the way, in this scenario price earnings rise a lot, from the current 20 to 30, 35, or even 40.

I’ve seen it all before.

The fact is that American companies cut costs so dramatically since 2020 that they have spectacular earnings leverage in 2023 and beyond. This year, it was cut, or die. Many US companies are now over-prepared for a recession that may not actually happen.

Where are the breadlines and soup kitchens?

Except that this time it’s different.

Remember the 2009 Obama stimulus package? It amounted to a measly $831 billion because Republicans were doing everything they could to block it and Obama was new at the job. Only major banks, brokers, insurance companies, and car makers got bailed out. The rest of us were left to twist in the wind.

This time, the aggregate stimulus is looking like $10 trillion by the time you add in packages 1,2,3,4, Covid-19 rescues, an infrastructure bill, and Biden’s latest $729 Climate/Inflation Fighting/Deficit Reducing bill which is only just now hitting the economy.

But wait, there’s more!

It gets better.

You have to live in Silicon Valley to know this, but the rate of technology innovation has increased by tenfold since the nineties and is far broader than ever imagined. You won’t believe what’s coming your way!

You might ask what happens if interest rates rise further, and they will. The answer here is simple: only invest in the non-borrowing part of the stock market. It turns out that all big tech companies are in fact are net lenders to the system because their cash flows are so enormous. That explains the “Magnificent Seven.”

Other industries benefit from rising rates, like banks, brokers, insurance companies, payday lenders, and money managers. Companies that DO borrow substantially you don’t want to buy anyway, as they are in the wrong industries.

Interest rates would have to get really high before they act as a drag on the stock market, like 6%, 7%, or 8% and that is probably a 2030 event.

The bottom line here is that we are about to see the biggest binge of equity buying in 50 years. Yes, it really WILL be a new American Golden Age and Roaring Twenties.

Start practicing that Charleston!

Yes, stocks are about to become what bonds were in 2010.

I have run this scenario past several of my big-time hedge fund buddies and they ask why I’m being so conservative. They are looking at a Dow Average of 300,000 or 400,000 by 2030 if everything plays out as I expect.

I guess I’m just a conservative kind of guy. Old age and arthritis will do that to a person. Even one that climbs mountains.

 

Is That A 240,000 Dow?

 

On Cortina’s Cinque Torre

https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/john-cortina.jpg 156 208 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-29 09:02:402023-08-29 13:28:26A New Theory of Equities
Mad Hedge Fund Trader

Quote of the Day - August 29, 2023

Diary, Newsletter, Quote of the Day

“Never sell short anything just because it is expensive,” said the late Ace Greenberg, CEO of the late Bears Stearns

 

https://www.madhedgefundtrader.com/wp-content/uploads/2021/02/time-bomb.png 224 374 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-29 09:00:232023-08-29 13:27:57Quote of the Day - August 29, 2023
Mad Hedge Fund Trader

August 28, 2023

Diary, Newsletter, Summary

Global Market Comments
August 28, 2023
Fiat Lux

Featured Trades:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FAILED RALLY)
(SPY), (TLT), (FCX), (TSLA), (AAPL), (UPS)

 

CLICK HERE to download today's position sheet.

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-28 09:04:252023-08-28 15:45:52August 28, 2023
Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or The Failed Rally

Diary, Newsletter

Market’s tried to rally last week….and failed.

The reason, of course, is Fed governor Jay Powell’s comments that interest rates may have to stay higher for longer. He seems hell-bent on reaching his 2.0% inflation target, down from the current 3.2% and well off the 9.0% high.

That puts off any rally in the interest rate-sensitive sectors, which is almost everything, by three to six months. But then, markets discount fundamentals by six to nine months in advance.

You do the math.

That means a monster rally in all financial assets should ensue sometime in September or October that could last a decade.

What a surprise!

The possibility that the next rally will be explosive is bereft of doubt. A record $5.6 trillion is now sitting on the sidelines ready to dive into risk assets on the slightest pretense. We might be in for another January 4 repeat. That includes funds in money market funds, overnight bank deposits, 90-day T-bills, IRAs, 401Ks, and cash under the mattress.

It's all very reminiscent of 1982 when we enjoyed the exact demographic tailwind as we are enjoying now. An 18-year rally followed and took the Dow Average up 20-fold.

The United States has by far the strongest major economy in the world for a reason. A 3.5% Headline Unemployment Rate, 5.25% overnight interest rates, and a 3.2% inflation rate are supposed to be mathematically impossible, yet here we are.

Did I mention that 2024 is an election year? That's when the economic data magically improve, as they have during every election over the past 200 years. Stock investors notice this.

As I spent all day every day and well into the night conducting research, I noticed a curious development. All the bears seem to live on the East Coast, while those in Silicon Valley are the most bullish I’ve ever seen.

That’s because we here in California see the hyper-accelerating technology in every meeting, with every human contact, and right on our own doorsteps. We are the beta testers for the technology that the rest of the country and the world won’t see for a few years.

While the nation is debating climate change, there is a “Robot War” taking place in San Francisco over how rapidly to permit the expansion of the self-driving taxi fleet, now capped at 1,000.

The fact that their accident rate has been near zero, far lower than human-driven vehicles, is a major point in their favor. I’m getting used to seeing no driver in the car next to me.

Walked into a McDonald's or a Taco Bell lately? It’s all computers. My theory as to why UPS agreed to such a generous 40% pay increase over five years for 340,000 workers is that when the next contract comes up for negation, they will have gone all robotic by then.

Autonomous driving, artificial intelligence, quantum computers are all still in their infancy and are in no way reflected in share prices.

In the meantime, keep massaging those 5.25% 90-day T-bill rates and enjoy your summer vacation. But the time to go all in with risk is approaching.

So far in August, we are down -4.70%. My 2023 year-to-date performance is still at an eye-popping +60.80%. The S&P 500 (SPY) is up +17.10% so far in 2023. My trailing one-year return reached +92.45% versus +8.45% for the S&P 500.

That brings my 15-year total return to +657.99%. My average annualized return has fallen back to +48.15%, some 2.50 times the S&P 500 over the same period.

Some 41 of my 46 trades this year have been profitable.

The Oracle Speaks! Fed Governor Jay Powell might as well have been reading me the New York telephone book when he indicated that “Interest rates may have to stay higher for longer” during his Jackson Hole speech. The Fed only knows two speeds: too slow and too fast. The bears are coming out of the woodwork once again. Look for lower lows to buy into for all asset classes. Start positioning yourself for a monster yearend rally.

Markets Will Snore Until September 1 Jobs Report. The August Nonfarm Payroll report is expected to come in at a weak 175,000. Enjoy the last week of summer.

The US Budget Deficit is Climbing Once Again, after a super spike in 2020. Recent environmental spending has added another trillion dollars to the bill. That will seem a bargain if we can’t slow down exploding global temperatures….quickly. It was 120 degrees in Italy this summer. Mama Mia!

Has Apple (AAPL) Topped Out? With no new products on the horizon and interest rates rising, the bull market in Apple shares may have called it a day at last month’s 200 peak. As with the rest of the “Magnificent Seven,” there was a giant pull forward of performance into the first half of this year. All of the stock’s gains have been through multiple expansions, regaining much of what was lost in 2022.

Existing Home Sales Drop Again, demolished by record-high mortgage rates. July saw sales decline by 2.2% to a six-month low on sales of 4.15 million units. Home resales, which account for a big chunk of U.S. housing sales, fell 16.6% on a year-on-year basis in July.

Ten-Year Treasuries Hit
New 16-year High, at 4.32%. We could be approaching a bond-selling climax around Jay Powell’s Jackson Hole Speech on Friday and the buying opportunity of the decade.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, August 28 at 8:00 AM EST, the Dallas Fed Manufacturing Index is out.

On Tuesday, August 29 at 8:30 AM, the US JOLTS Job Openings Report is released.

On Wednesday, August 30 at 2:30 PM, the ADP Employment Change is published.

On Thursday, August 31 at 8:30 AM, the Weekly Jobless Claims are announced. Personal Income & Spending are also announced.

On Friday, September 1 at 2:30 PM, the Nonfarm Payroll Report for August is published. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me
, The Diary of a Mad Hedge Fund Trader is now celebrating its 15th year of publication.

During this time, I have religiously pumped out 3,000 words a day, or 18 newsletters a week, of original, independent-minded, hard-hitting, and often wickedly funny research.

I spent my life as a war correspondent, Marine Corps combat pilot, Wall Street trader, and hedge fund manager, and if you can’t laugh after that, something is wrong with you.

I’ve been covering stocks, bonds, commodities, foreign exchange, energy, precious metals, real estate, and even agricultural products.

You’ve been kept up on my travels around the world and listened in on my conversations with those who drive the financial markets.

I also occasionally opine on politics, but only when it has a direct market impact, such as with the recent administration's economic and trade policies. There is no profit in taking a side.

The site now contains over 20 million words, or 30 times the length of Tolstoy’s epic War and Peace.

Unfortunately, it feels like I have written on every possible topic at least 100 times over.

So, I am reaching out to you, the reader, to suggest new areas of research that I may have missed until now which you believe justify further investigation.

Please send any and all ideas directly to me at support@madhedgefundtrader.com/, and put “RESEARCH IDEA” in the subject line.

The great thing about running an online business is that I can evolve it to meet your needs on a daily basis.

Many of the new products and services that I have introduced since 2008 have come at your suggestion. That has enabled me to improve the product’s quality, to your benefit. Notice how rapidly my trade alert performance is going up, now annualizing at +47% a year.

This originally started out as a daily email to my hedge fund investors giving them an update on fast market-moving events. That was at a time when the financial markets were in free fall, and the end of the world seemed near.

Here’s a good trading rule of thumb: Usually, the world doesn’t end. History doesn’t repeat itself, but it certainly rhymes.

The daily emails gave me the scalability that I so desperately needed. Today’s global mega enterprise grew from there.

Today, the Diary of a Mad Hedge Fund Trader and its Global Trading Dispatch is read in over 140 countries by 30,000 followers. The Mad Hedge Technology Letter, the Mad Hedge Biotech & Health Care Letter, Mad Hedge AI, and Jacquie’s Post also have their own substantial followings. And the daily Mad Hedge Hot Tips is one of the most widely read publications in the financial industry.

I’m weak in distribution in North Korea and Mali, in both cases due to the lack of electricity. But that may change.

One can only hope.

If you want to read my first pitiful attempt at a post, please click here for my February 1, 2008 post.

It urged readers to buy gold at $950 (it soared to $2,200), and buy the Euro at $1.50 (it went to $1.60).

Now you know why this letter has become so outrageously popular.

Unfortunately, I also recommended that they sell bonds short. I wasn’t wrong on that one, just early, about eight years too early.

I always get asked how long will I keep doing this?

I am already collecting Social Security, so that deadline came and went. My old friend and early Mad Hedge subscriber, Warren Buffet is still working at 92, so that seems like a realistic goal. And my old friend, Henry Kissinger, is still hard at it at 100 years old.

Hiking ten miles a day with a 50-pound pack, my doctor tells me I should live forever. He says he spends all day trying to convince his other patients to be like me, and the only one who actually does it is me.

The harsh truth is that I don’t know how to NOT work. Never tried it, never will.

The fact is that thousands of subscribers love me for what I do, pay for me to travel around the world first class to the most exotic destinations, eat in the best restaurants, fly the rarest historical aircraft, then say thank you. I even get presents (keep those pounds of fudge and bottles of bourbon coming!).

Given the absolute blast I have doing this job; I would be Mad to actually retire.

Take a look at the testimonials I get only on an almost daily basis and you’ll see why this business is so hard to walk away from (click here for those).  

In the end, you are going to have to pry my cold dead fingers off of this keyboard to get me to give up.

Fiat Lux (let there be light).

 

 

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2020/07/John-Thomas-bull.png 350 308 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-28 09:02:222023-08-28 15:46:32The Market Outlook for the Week Ahead, or The Failed Rally
Douglas Davenport

Quote of the Day - August 28, 2023

Diary, Newsletter, Quote of the Day

“The most dangerous word in the English language is “cheap”” said a
hedge fund manager friend of mine.

 

https://www.madhedgefundtrader.com/wp-content/uploads/2022/05/qofd-050222.jpg 296 346 Douglas Davenport https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Douglas Davenport2023-08-28 09:00:052023-08-28 15:44:27Quote of the Day - August 28, 2023
Mad Hedge Fund Trader

August 25, 2023

Diary, Newsletter, Summary

Global Market Comments
August 25, 2023
Fiat Lux

Featured Trades:


(THE NEXT COMMODITY SUPERCYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
 (PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)

 

CLICK HERE to download today's position sheet.

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 Mad Hedge Fund Trader https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png Mad Hedge Fund Trader2023-08-25 09:04:382023-08-25 13:41:24August 25, 2023
Mad Hedge Fund Trader

The Next Commodity Supercycle Has Already Started

Diary, Newsletter

When I closed out my position in Freeport McMoRan (FCX) near its max profit earlier this year, I received a hurried email from a reader if he should still keep the stock. I replied very quickly:

“Hell, yes!”

When I toured Australia a couple of years ago, I couldn’t help but notice a surprising number of fresh-faced young people driving luxury Ferraris, Lamborghinis, and Porsches.

I remarked to my Aussie friend that there must be a lot of indulgent parents in The Lucky Country these days. “It’s not the parents who are buying these cars,” he remarked, “It’s the kids.”

He went on to explain that the mining boom had driven wages for skilled labor to spectacular levels. Workers in their early twenties could earn as much as $200,000 a year, with generous benefits.

The big resource companies flew them by private jet a thousand miles to remote locations where they toiled at four-week on, four-week off schedules.

This was creating social problems, as it is tough for parents to manage offspring who make far more than they do.

The Next Great Commodity Boom has started and, in fact, we are already years into a prolonged supercycle that could stretch into the 2030s.

China, the world’s largest consumer of commodities, is currently stimulating its economy on multiple fronts, to break the back of a Covid hangover.

Those include generous corporate tax breaks, relaxed reserve requirements, government bailouts of financial institutions, and interest rate cuts. Get triggers like the impending moderation of its trade war with the US and it will be off to the races once more for the entire sector.

The last bear market in commodities was certainly punishing. From the 2011 peaks, copper (COPX) shed 65%, gold (GLD) gave back 47%, and iron ore was cut by 78%. One research house estimated that some $150 billion in resource projects in Australia were suspended or cancelled.

Budgeted capital spending during 2012-2015 was slashed by a blood-curdling 30%. Contract negotiations for price breaks demanded by end consumers broke out like a bad case of chicken pox.

The shellacking was reflected in the major producer shares, like BHP Billiton (BHP), Freeport McMoRan (FCX), and Rio Tinto (RIO), with prices down by half or more. Write-downs of asset values became epidemic at many of these firms.

The selloff was especially punishing for the gold miners, with lead firm Barrack Gold (GOLD) seeing its stock down by nearly 80% at one point, lower than the darkest days of the 2008-9 stock market crash.

You also saw the bloodshed in the currencies of commodity-producing countries. The Australian dollar led the retreat, falling 30%. The South African Rand has also taken it on the nose, off 30%. In Canada, the Loonie got cooked.

The impact of China cannot be underestimated. In 2012, it consumed 11.7% of the planet’s oil, 40% of its copper, 46% of its iron ore, 46% of its aluminum, and 50% of its coal. It is much smaller than that today, with its annual growth rate dropping by more than half, from 13.7% to 3.50% today.

What happens to commodity prices when China recovers even a fraction of the heady growth rates of yore? It boggles the mind.

The rise of emerging market standards of living will also provide a boost to hard asset prices. As China goes, so does its satellite trading partners, who rely on the Middle Kingdom as their largest customer. Many are also major commodity exporters themselves, like Chile (ECH), Brazil (EWZ), and Indonesia (IDX), who are looking to come back big time.

As a result, Western hedge funds will soon be moving money out of paper assets, like stocks and bonds, into hard ones, such as gold, silver (SIL), palladium (PALL), platinum (PPLT), and copper.

A massive US stock market rally has sent managers in search of any investment that can’t be created with a printing press. Look at the best-performing sectors this year and they are dominated by the commodity space.

The bulls may be right for as long as a decade thanks to the cruel arithmetic of the commodities cycle. These are your classic textbook inelastic markets.

Mines often take 10-15 years to progress from conception to production. Deposits need to be mapped, plans drafted, permits obtained, infrastructure built, capital raised, and bribes paid in certain countries. By the time they come online, prices have peaked, drowning investors in red ink.

So a 1% rise in demand can trigger a price rise of 50% or more. There are not a lot of substitutes for iron ore. Hedge funds then throw gasoline on the fire with excess leverage and high-frequency trading. That gives us higher highs, to be followed by lower lows.

I am old enough to have lived through a couple of these cycles now, so it is all old news for me. The previous bull legs of supercycles ran from 1870-1913 and 1945-1973. The current one started for the whole range of commodities in 2016. Before that, it was down from seven years.

While the present one is short in terms of years, no one can deny how business cycles will be greatly accelerated by the end of the pandemic.

Some new factors are weighing on miners that didn’t plague them in the past. Reregulation of the US banking system is forced several large players, like JP Morgan (JPM) and Goldman Sachs (GS) to pull out of the industry completely. That impairs trading liquidity and widens spreads— developments that can only accelerate upside price moves.

The prospect of falling US interest rates is also attracting capital. That reduces the opportunity cost of staying in raw metals, which pay neither interest nor dividends.

The future is bright for the resource industry. While the gains in Chinese demand are smaller than they have been in the past, they are off of a much larger base. In 20 years, Chinese GDP has soared from $1 trillion to $14.5 trillion.

Some 20 million people a year are still moving from the countryside to the coastal cities in search of a better standard of living and improved prospects for their children.

That is the good news. The bad news is that it looks like the headaches of Australian parents of juvenile high earners may persist for a lot longer than they wish.

Buy all commodities on dips for the next several years.

 

 

 

 

 

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