(WEDNESDAY, FEBRUARY 5 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON) (THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED) (COPX), (GLD), (FCX), (BHP), (RIO), (SIL), (PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
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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 at $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 more than they do.
It’s starting to look like we are on the eve of another great commodity boom, the start of a long-term supercycle. China, the world’s largest consumer of commodities, is currently stimulating its economy on multiple fronts, including generous corporate tax breaks and relaxed reserve requirements. Get a trigger like a settlement 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 canceled.
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 chickenpox.
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 2008-2009 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 6.6%.
The rise of emerging market standards of living will also provide a boost to hard asset prices. But 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), and 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. 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 aren’t 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 have been greatly accelerated by globalization and the Internet.
Some new factors are weighing on miners that didn’t plague them in the past. Reregulation of the US banking system is forcing several large players, like JP Morgan (JPM) and Goldman Sachs (GS) to pull out of the industry. That impairs trading liquidity and widens spreads— developments that can only accelerate upside price moves.
The prospect of flat 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 $10 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.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/copper-mining.png412550Mad Hedge Fund Traderhttps://www.madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-12-17 04:02:492019-12-17 02:11:56The Next Commodity Supercycle Has Already Started
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED), (COPX), (GLD), (FCX), (BHP), (RIO), (SIL), (PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX), (WHY THE REAL ESTATE BOOM HAS A DECADE TO RUN), (DHI), (LEN), (PHM), (ITB)
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Featured Trade: (THE MARKET OUTLOOK FOR THE WEEK AHEAD, or DON’T NOMINATE ME!), (AMZN), (NVDA), (AAPL), (MSFT), (GLD), (ABX), (GOLD), (JOIN US AT THE MAD HEDGE LAKE TAHOE, NEVADA, CONFERENCE, OCTOBER 26-27, 2018)
I have a request for all of you readers. Please do not nominate me for justice of the Supreme Court.
I have no doubt that I could handle the legal load. A $17 copy of Litigation for Dummies from Amazon would take care of that.
I just don’t think I could get through the approval process. There isn’t a room on Capitol Hill big enough to house all the people who have issues with my high school background.
In 1968, I ran away from home, hitchhiked across the Sahara Desert, was captured by the Russian Army when they invaded Czechoslovakia, and had my front teeth knocked out by a flying cobblestone during a riot in Paris. I pray what went on in Sweden never sees the light of day.
So, I’m afraid you’ll have to look elsewhere to fill a seat in the highest court in the land. Good luck with that.
The most conspicuous market action of the week took place when several broker upgrades of major technology stocks. Amazon (AMZN) was targeted for $2,525, NVIDIA (NVDA) was valued at $400, and JP Morgan, always late to the game (it’s the second mouse that gets the cheese), predicted Apple (AAPL) would hit a lofty $270.
That would make Steve Jobs’ creation worth an eye-popping $1.3 trillion.
The Mad Hedge Market Timing Index dove down to a two-month low at 46. That was enough to prompt me to jump back into the market with a few cautious longs in Amazon and Microsoft (MSFT). The fourth quarter is now upon us and the chase for performance is on. Big, safe tech stocks could well rally well into 2019.
Facebook (FB) announced a major security breach affecting 50 million accounts and the shares tanked by $5. That prompted some to recommend a name change to “Faceplant.”
The economic data is definitely moving from universally strong to mixed, with auto and home sales falling off a cliff. Those are big chunks of the economy that are missing in action. If you’re looking for another reason to lose sleep, oil prices hit a four-year high, topping $80 in Europe.
The trade wars are taking specific bites out of sections of the economy, helping some and damaging others. Expect to pay a lot more for Christmas, and farmers are going to end up with a handful of rotten soybeans in their stockings.
Barrick Gold (ABX) took over Randgold (GOLD) to create the world’s largest gold company. Such activity usually marks long-term bottoms, which has me looking at call spreads in the barbarous relic once again.
With inflation just over the horizon and commodities in general coming out of a six-year bear market, that may not be such a bad idea. Copper (FCX) saw its biggest up day in two years.
The midterms are mercifully only 29 trading days away, and their removal opens the way for a major rally in stocks. It makes no difference who wins. The mere elimination of the uncertainty is worth at least 10% in stock appreciation over the next year.
At this point, the most likely outcome is a gridlocked Congress, with the Republicans holding only two of California’s 52 House seats. And stock markets absolutely LOVE a gridlocked Congress.
Also helping is that company share buybacks are booming, hitting $189 billion in Q2, up 60% YOY, the most in history. At this rate the stock market will completely disappear in 20 years.
On Wednesday, we got our long-expected 25 basis-point interest rate rise from the Federal Reserve. Three more Fed rate hikes are promised in 2019, after a coming December hike, which will take overnight rates up to 3.00% to 3.25%. Wealth is about to transfer from borrowers to savers in a major way.
The performance of the Mad Hedge Fund Trader Alert Service eked out a 0.81% return in the final days of September. My 2018 year-to-date performance has retreated to 27.82%, and my trailing one-year return stands at 35.84%.
My nine-year return appreciated to 304.29%. The average annualized return stands at 34.40%. I hope you all feel like you’re getting your money’s worth.
This coming week will bring the jobspalooza on the data front. On Monday, October 1, at 9:45 AM, we learn the August PMI Manufacturing Survey.
On Tuesday, October 2, nothing of note takes place.
On Wednesday October 3 at 8:15 AM, the first of the big three jobs numbers is out with the ADP Employment Report of private sector hiring. At 10:00 AM, the August PMI Services is published.
Thursday, October 4 leads with the Weekly Jobless Claims at 8:30 AM EST, which rose 13,000 last week to 214,000. At 10:00 AM, September Factory Orders is released.
On Friday, October 5, at 8:30 AM, we learn the September Nonfarm Payroll Report. The Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, it’s fire season now, and that can only mean one thing: 1,000 goats have appeared in my front yard.
The country hires them every year to eat the wild grass on the hillside leading up to my house. Five days later there is no grass left, but a mountain of goat poop and a much lesser chance that a wildfire will burn down my house.
Ah, the pleasures of owning a home in California!
Good luck and good trading.
We’re Taking Calls Now
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I?ll never forget when my friend, Don Kagin, one of the world?s top dealers in rare coins, walked into the gym one day and announced that he made $1 million that morning.? I enquired ?How is that, pray tell??
He told me that he was an investor and technical consultant to a venture hoping to discover the long lost USS Central America, which sunk in a storm off the Atlantic Coast in 1857, heavily laden with gold from the new state of California.
He just received an excited call that the wreck had been found in deep water off the US east coast.
I learned the other day that Don had scored another bonanza in the rare coins business. He had sold his 1787 Brasher Doubloon for $7.4 million. The price was slightly short of the $7.6 million that a 1933 American $20 gold eagle sold for in 2002.
The Brasher $15 doubloon has long been considered the rarest coin in the United States. Ephraim Brasher, a New York City neighbor of George Washington, was hired to mint the first dollar denominated coins issued by the new republic.
Treasury secretary Alexander Hamilton was so impressed with his work that he appointed Brasher as the official American assayer.
The coin is now so famous that it is featured in a Raymond Chandler novel where the tough private detective, Philip Marlowe, attempts to recover the stolen coin.
The book was made into a 1947 movie, ?The Brasher Doubloon,? starring George Montgomery.
This is not the first time that Don has had a profitable experience with this numismatic treasure. He originally bought it in 1989 for under $1 million, and has made several round trips since then.
The real mystery is who bought it last? Don wouldn?t say, only hinting that it was a big New York hedge fund manager who adores the barbarous relic. He hopes the coin will eventually be placed in a public museum.
Who says the rich aren?t getting richer?
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Buried deep in the bowels of the 2,000 page health care bill was a new requirement for gold dealers to file Form 1099’s for all retail sales by individuals over $600.
Specifically, the measure can be found in section 9006 of the Patient Protection and Affordability Act of 2010.
For foreign readers unencumbered by such concerns, Internal Revenue Service Form 1099’s are required to report miscellaneous income associated with services rendered by independent contractors and self-employed individuals.
The IRS has long despised the barbaric relic (GLD) as an ideal medium to make invisible large transactions. Did you ever wonder what happened to $500, $1,000, $5,000, and $10,000 bills?
The $100,000 bill was only used for reserve transfers between banks, and was never seen by the public. The other high denomination bills were last printed in 1945, and withdrawn from circulation in 1969.
Although the Federal Reserve claims on their website that they were withdrawn because of lack of use, the word at the time was that they disappeared to clamp down on money laundering operations by the mafia.
IN FACT, THE GOAL WAS TO FLUSH OUT MONEY FROM THE REST OF US. ? Dan Lundgren, a republican from California’s 3rd congressional district, a rural gerrymander east of Sacramento that includes the gold bearing Sierras, has introduced legislation to repeal the requirement, claiming that it places an unaffordable burden on small business.
Even the IRS is doubtful that it can initially deal with the tidal wave of paper that the measure would create.
Currency trivia question of the day: whose picture was engraved on the $10,000 bill? You guessed it, Salmon P. Chase, Abraham Lincoln’s Secretary of the Treasury.
Ever Wonder Where The $10,000 Bill Went?
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California is called the ?Golden State? for a good reason.
Countless fortunes have been made in mining, farming, real estate, tourism, movie making, aircraft manufacturing, aerospace, and more recently, in technology and pot growing.
The Google (GOOG) and Facebook (FB) IPO?s each minted 1,000 millionaires, and Twitter?s (TWTR) deal is said to have produced 1,600 more.
Recently, a lucky couple found the real thing while hiking ?somewhere in Northern California.?
Spotting an old, rusted out tin can, they started digging. To their utter amazement they uncovered five cans containing 1,427 gold coins worth more than $10 million.
Speculation ran rampant as to the original source of the cache. During the Mexican period prior to 1848, the notorious bandit, Joaquin Murrieta, killed more than 40 people in robberies up and down the state. The booty was never found.
Black Bart waylaid 28 Wells Fargo (WFC) stagecoaches in Northern California in the 1880?s, and said he buried the loot near an old oak tree.
Some even postulated that the coins belonged to the sole surviving member of the Jesse James gang, who retrieved the gold on his release from prison in Missouri and then moved to California.
Things got really interesting when my old friend, Don Kagin of Kagin?s, Inc., got involved (click here for his site).
Don has been the feature of several of my past pieces about rare and exotic coins (click here for ?The Mystery of the Brasher Doubloon?).
After close inspection, Don concluded that the coins were in mint, unissued condition dating from 1847 to 1894. One coin alone, an 1866 Liberty $20 gold piece, is worth more than $1 million.
Don?s take is that the coins were stolen during an inside job at the San Francisco Mint in 1900, one of the few buildings to survive the 1906 earthquake. The surrounding fires burned so hot, that the gold coins inside melted.
The building still stands today. However, it is structurally unsound to continue as a Treasury building, so it is rented out for parties. If that is the case, the coins are still the property of the US government.
But the US Treasury never filed a claim, lacking the documentary evidence dating back to the period.
The government has done this many times in the past, fighting a ten year legal battle to recovers some stolen, unissued 1933 gold double eagle?s, the last minted prior to Franklin Delano Roosevelt?s ban on private gold ownership.
One of these sold for $7,590,000 in 2002, making it the world?s most valuable coin. The government won in that case.
The find sparked a stampede of similar gold seekers, turning hills into suspected neighborhoods into Swiss cheese.
Too bad the lucky hikers didn?t find their cache five years earlier. Since then the price of the barbarous relic has fallen by 45%.
So Hiking Pays Off After All
https://www.madhedgefundtrader.com/wp-content/uploads/2014/03/Gold-Coins.jpg337452Mad Hedge Fund Traderhttps://www.madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-12-07 01:06:202015-12-07 01:06:20Lucky Find Sparks New California Gold Rush