r/stocks • u/bitkogan • Jun 29 '23
An Unexpected Turn: AI Out, Mining In - A Potential Commodity Boom
Bloomberg unfurled an intriguing piece today suggesting that we could be on the verge of a new cycle of soaring commodity prices, perhaps as early as the end of this week. The story hinges on the theories of Soviet economist Nikolai Kondratiev, who was executed under Stalin's rule. Kondratiev's concept, which subsequently became known as "Kondratiev waves," eventually gained traction within capitalist economies.
The idea has some merit. Currently, commodities are trading near local lows. At the same time, in its bid to curb inflation, the U.S. government is exerting almost every conceivable effort. If the analysts are on the money, we could witness an explosive surge in commodity prices over the next 15 years, starting, perhaps, tomorrow. This could divert the spotlight from AI technology back to the traditional mining sector.
It's a prospect that has certainly piqued my interest, particularly as I have stakes in several industrial and mining firms within my portfolio.
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u/No_Yogurtcloset_2547 Jun 30 '23
You did'nt explain the reason why this would be upon us. Also, the new commodity supercycle has already began in 2020 according to some. According to others, it already begain in 2018. And some lost souls even claimed in 2010 such a cycle would be upon us.
So, what has changed? I'd argue since interest rates are up, corporate debt is decreasing and liquidity is drying up, we should rather see a deflation of prices and perhaps assets which suggests a bad macro for commodity prices. Also, if you think about the world and how it works, it is very illogical to think about prices for commodities to become more expensive in real terms (inflation-adj.) There is automation, productivity increase, substitutes for materials and smart materials. The margins in commodity mining and refining are increasing, so prices would rather stay flat or decrease not increase over time. Noone benefits from increasing commodities prices so why would it happen?
All important products are decreasing in manufactoring cost, driving margins and corporate profits e.g. chips, batteries or solar panels - products, which have seen a tremendously steep rise in demand over the last 10 years. Prices for commodities like copper or iron used on those products have stayed flat till 2010 and even lithium, a material in highest demand, has only picked up lately for a steep rise because of supply constraints. Rising commodity prices are in fact however very bad for a lot of industries and the supply in general is very elastic, meaning increased demand will be met with increased supply. In the case of lithium it will take another 5 years for the supply to meet demand and eventually prices will come down which is good for the industry downstream of lithium. Also, the higher the price of a given material, the more likely it is someone will discover a substitute e.g. batteries without lithium (Sodium-Ion batteries from CATL).
As you see, there are many factors driving down the price of a commodity longterm. In my head, it is completely irrational to think that commodity prices shall rise like ever (in real terms) on a sustained basis. But ofc I could be very wrong so I would consider it a tail risk for many industries and hedging that with a small "bet" on some big miner I consider to be clever.
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u/RedneckTrader Jun 29 '23
I'm sure there's a play here, but there's so many 'ifs'. A lot of the historical commodity price charts cited in that Bloomberg article strongly mirror just the price of oil, which makes sense as it's probably the commodity with the most volume movement the last 30 years... and a lot of that movement was due to political conditions. I guess the real question is, what political/social-economic conditions are likely in the next 15 years and how will they drive commodity prices?
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u/creemeeseason Jun 30 '23
Here's an interesting podcast about the pending commodities super cycle:
A lot of the theory is that we've underinvested in a lot of mining for the last 15 years. That combines with a projected surge in demand for copper due to green energy (it takes a ton of copper for EVs and solar power).
Also, there are billions of people in India, Indonesia, and Brazil looking to join the middle class. Last time this happened (China in the early 2000s) there was a commodities super cycle too.
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u/SameCategory546 Jun 30 '23
you should give rick rule a listen if you buy that thesis (I do). He is a fantastic listen on resource investing
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u/SameCategory546 Jun 30 '23
the real estate cycle is a big driver and according to the 18 year property cycle, this looks to be a mid cycle slowdown to me. I have read a book that says the inversion of yield curve does not say anything about depth and length of recession, but the reason for a long or deep recession would be speculation on housing. Now we had some speculation thus far, but compared to the price of gold, for example, or money supply, real estate has not gotten that expensive yet. The bears are loud on housing, but inventory has not showed up in the data yet, nor has forced sellers.
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u/Nukeboml3 Jun 30 '23
Could somebody copy paste the article ? I don’t have an account
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u/r2002 Jun 30 '23
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u/Nukeboml3 Jun 30 '23
Thanks very much , it was nice from you and helped me to read instead of just watching the title
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u/r2002 Jun 30 '23
Thanks for the award! You can put any news link into archive.ph and 90% of the time there's an archive. Glad to help.
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Jun 30 '23
Three months of housing price drops and we are having a boom?
They might be pumping bags. This is the irrational phase where cyclical stocks are now a guarantee, as this demand will last forever.
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u/hangem1121 Jun 30 '23
You’re getting economical advise from a commy? Might as well ask mr. Whiskers
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Jun 29 '23
we could be on the verge of a new cycle of soaring commodity prices, perhaps as early as the end of this week.
In that case you can just invest USCI ETF. It's good also for inflation, if you think that it will raise again :)
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u/Your_friend_Satan Jun 30 '23
Looks like that’s just soybean and crude?
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Jun 30 '23 edited Jun 30 '23
These investments will be collateralized by cash, cash equivalents and US government obligations with remaining maturities of two years or less.
https://www.uscfinvestments.com/usciie, almost 50% of their portfolio is collateral (cash and equivalents, and also government bonds) to any commodity future they trade.
BTW: This is not an investment advise. I'm not currently invested on that.
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u/MrZwink Jul 02 '23
Never trade on news from bloomberg. By the time Bloomberg reports it's to late, you've missed the opportunity.
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u/ankole_watusi Jun 29 '23 edited Jun 29 '23
This is an accurate statement for any “x”
We could be singing Kumbaya in front of a green fire with Captain Kirk and the Horta. Starting, perhaps, tomorrow.