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Commodities cycles BAU Ranchi Anil Mishra 25 th April 2018 MD & CEO. 30 years commodity cycles. Commodity cycle. Commodity cycle.
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Commodities cyclesBAU Ranchi Anil Mishra25th April 2018 MD & CEO
Commodity cycle • History shows commodity prices tend to trend sideways for 10–20 years, and then jump upwards in response to structural changes in the global economy, before resuming their sideways trajectory. That makes clear economic sense. • An event like China’s rapid industrialization and urbanization inevitably causes a sudden price leap, as suppliers scramble to meet the upsurge in demand. Eventually, producers bring new (and sometimes more marginal) resources on line and supply begins to catch up, at which point the dramatic price increases stop. • Chinese growth story is far from over . But those anxiously monitoring Chinese growth numbers for a sign that the boom has passed may be missing the point. China doesn’t have to slow down for commodity price rises to moderate — all that needs to happen is for supply and demand to come into balance. We reached that point in 2011.
Commodities cycle is over • Commodities ,all precious metals, gold closely follows a larger primary cycle that peaks every 30 years. It’s called the "30-Year Commodity Cycle." • It’s one of the most important – and accurate – cycles that commodities including gold has historically followed very closely. • Over the last decade (2001-11), it’s not just gold that soared. Nearly every major commodity has had a great boom: Silver soared 603%... heating oil 1,313%... nickel 1,273%... crude oil 1,205%... lead 870%... copper 606%... zinc 616%... tin 510%... and wheat 500%.But the great commodity boom of the last decade has run its course. • Commodities peaked between 2008 and 2011, and the sector won’t rebound again until around 2023 or so. Gold and silver have peaked just like they did at the top of the last commodity cycle in 1980.
Commodities peak to come again • But from around 2023 forward I expect to see the biggest commodity boom in modern history when commodity-intensive emerging countries will drive most of the global growth. That is another thing that demographics clearly tells us decades out. • These facts are based on something the other’s don’t have: scientific knowledge of the profound role economic and demographic cycles play in understanding where the economy is going next. • Using this knowledge you can start preparing now so you don’t make the fatal mistake of piling into the wrong investments… for all the wrong reasons… like the millions of investors who will lose their shirts when they find out.
Commodity dependence and export concentration 2010 Dependence Export Concentration (Net commodity exports in %of GDP) (Gross commodity exports in %of total exports) Commodities dependence Emerging Asia
Reliance on Commodities exports • South America is the most commodity-dependent sub-region, and this feature has become more pronounced over time (net commodity exports represented 10 percent of GDP in 2010, compared with 6 percent in 1970). Although the increase has been broad based, metals and energy still account for the largest shares of net commodity exports. • In contrast, Mexico and Central America have recorded sharp declines in net commodity exports, primarily as a result of falling agriculture exports and increasing energy imports. The sub-region was a large commodity exporter in 1970 (8 percent of GDP) and currently shows balanced trade in commodities (still being a net exporter of agriculture goods but now also a net importer of energy).
Reliance on Commodities exports • The trends in emerging Asia greatly differ from those in Latin America, as the former has evolved from being a net commodity exporter (reaching around 6 percent of GDP in 1970) to being a net importer (almost 3 percent of GDP) in 2010. This shift has been mostly due to a sharp decline in exports of raw materials and an increase in imports of energy and metals. Most large emerging economies in Asia are now net importers of energy. • A comparison with some large commodity-exporting advanced economies (Australia, Canada, New Zealand, and Norway) also yields some interesting insights. As in the case of South America, dependence is high and has increased markedly in these advanced economies (from an average of 6 percent of GDP in 1970 to 13 percent in 2010).
Economic cycle • As Nature has an order of things, so do markets and the economy. Every economic cycle in history has four seasons, just like our weather. Think of inflation in "temperature" terms. • They are: • SPRING: The Innovation BOOM. • SUMMER: The Inflationary Bust. • AUTUMN: The Maturity BOOM. • WINTER: The Deflationary Bust. • High inflation is like the summer season of 1969 to 1982. Falling inflation is like the fall season with great harvests and a bubble boom from 1983 to 2007. Winter follows with deflation in prices to clear the decks for the next spring boom and so on… • The Great Shake-Out Ahead” We entered a new economic cycle starting in 2008. “The Economic Winter Season” - because it is a time to hunker down and regroup… a time to clear the decks and "shake-out" the excesses of the previous boom so that the “Economic Spring Season” can begin
Economic cycle • Portfolios like gold… Chinese manufacturers… Russian oil and gas… copper… wheat, corn, silver, sugar… emerging markets… foreign currencies will lose value. You need to prepare for the great economic winter ahead. Because with any major shift in economic direction comes enormous profit opportunities. • So how can you take advantage of the myriad of opportunities as this crisis strikes? You can do nothing just pretend the market’s coming collapse, gold’s crash, real estate crash and deflation will have zero effect on your portfolio and retirement plans. Or… • Get ready to make a fortune! You can position your finances now - so when the gold bubble bursts, the stock market crashes, and the economy gets chaotic, you’ll have the opportunity to make more in the next five months than you’ve made in the last five years.
Economic Bubble • These bubbles have a very distinct, similar pattern. There’s a parabolic price movement that becomes unsustainable followed by a historic crash. Bubbles don’t correct or have soft landings – they burst! No exceptions. • This investment’s meteoric rise and coming crash will be no different. While this asset may never lose its entire value, the most loved asset in the world Gold is about to become the dangerous investment. • it’s a steady asset… that it’s been a store of value for centuries… and that it performs well during inflationary times and during times of danger. go-to safe-haven of choice much longer. It’s one of the world’s most popular investments but its not true. • While many economists have argued that gold is not in a bubble… and insist it will soar to $2,000, $5,000 and even $10,000. But today gold is $1330 per ounce.
Force of people, not Govt • “The One Force that Really Drives the Markets” is not sentiment .not interest rates not the price of oil not the Fed not China, but most powerful force is the force of people. • Most economists tell you that government policies and government spending are the key factors that drive the economy. • Spending statistics reveal that consumers and businesses are the primary factor that drive the economy. Eighty percent of all spending in the economy is by consumers and businesses (68% is consumers), leaving the government’s share at 20%, including state and local. • By looking at consumer spending as a whole, we can see that the economy is very predictable. In fact, the most important cycle driving modern economies - like that of the United States and other developed nations - are the new generations that come along every 40 years or so. Members of these generations move up a predictable family life cycle of earning, spending and productivity.
Force of people • We tend to enter the work-force at age 20…We get married at around age 26 and have kids around the ages of 28 and 29. At roughly age 31 we buy starter homes… then trade up to larger homes between ages 37 and 41, as our families grow. • We enter our peak spending phase – the period in our lives when we tend to have the most disposable income and treat ourselves to cars, gadgets and so on – between ages 39 and 53. The actual peak is at age 46 for the average household and 53 for the most affluent. • Between ages 46 and 64 our spending habits tend to change dramatically. We see retirement not far off and make a concerted effort to save, while our spending needs decline as our kids leave the nest. • We retire at age 63 (on average) and tend to have our greatest net worth at age 64 – cash, investments and assets we’ve set aside to live on.
