Editorials

Commodities are in a Supercycle

Economics professor Steve Hanke, at Johns Hopkins University, believes commodities are seeing initial signs of a long-term bull supercycle. Supply is very constrained, and inventory is low, as the economy starts kicking in, commodity prices go way up as you start a supercycle.

Copper toped $8,000 a ton as Goldman Sachs points to a commodities supercycle. Individual commodity groups have their own price patterns  above or below their long-term price trend, based on particular supply demand issues. Once every twenty years or so, when all commodities rise together, for an extended period of time this is considered a supercycle. 
Next year as fear of the virus is put aside, as more vulnerable people receive a vaccine, consumers will want to go out, travel, go to restaurants, and spend money. Global monetary authorities flooded the system with money, which will be especially felt next year when people return to their normal lives. Central bankers are not bankers. They are actually central planners similar to the Soviet Politburo, who do central planning for the soviet economy.  Central bankers pick an interest rate to within two decimal places that they guess will be correct. Once inflation starts to pick up, it might be hard to contain, with excess liquidity and near zero interest rates.  

In 1968 President Lyndon Johnson asked Congress to end the requirement that dollars be backed by gold, and Congress complied. That decision altered the nature of money in the U.S. Total credit in the US surpassed $1 trillion for the first time in 1964. Total public and private debt in the US surpassed $80 trillion in the second quarter, 2020. The U.S. Federal Reserve has increased its balance sheet to over $7.2 trillion in 2020.  It is currently buying $120 billion a month in treasuries and mortgage backed securities by printing new money. Bloomberg commodity strategist, Mike McGlone believes gold bottomed at about $700 in 2008 and peaked near $1,900 in 2011. He believes gold will go from a low of $1,470 in 2020, and approach $4,000 by 2023. The Fed has stated it will keep the Fed Funds at near zero, until 2023. This means the real rate of a ten year treasury after inflation, will be negative. Commodities perform well with negative real rates, and a booming economy. In a supercycle prices go to an excessive crazy point of exhaustion, driven by speculation and cheap money. 


 

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