Commodity boom or bust?

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RYAN   By Guest Blogger Ryan Lewenza
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If you’ve filled up the tank or bought groceries recently then you’ve experienced firsthand the surge in commodity prices. From oil to nickel to beef, prices are up ‘bigly’ and with the horrific Ukraine war, prices look set to rise even further. The key question I’m battling with is, will this surge in commodity prices be short-term and fizzle out or are we in the midst a new ‘supercycle’ for commodities?

Over the last 60+ years we have seen two supercycles for commodity prices – the 1970s and the 2000s. The 1970s cycle was largely driven by an OPEC oil embargo and a major devaluation of the US dollar. The 2000s supercycle was driven by China’s phenomenal economic growth over that period and their insatiable demand for oil and industrial metals like copper.

Commodity ‘Supercycles’

Source: Bloomberg, Turner Investments

These commodity supercycles tend to have three key criteria.

First, commodity price appreciation should be broad-based with a number of commodities rising in price. Well that’s definitely occurring as seen in the table below. This table includes energy, metals and agricultural commodities and prices are up across the board so check with this criteria.

Commodity Prices and YTD Gains

Source: Bloomberg

Second, supercycles need to be longer term with durations of 5 years or longer. In the 1970s and 2000s supercycle they both lasted over a decade. If we are in one of these new supercycles then it’s still early days with a rough start date of summer 2020. This would imply we’re only 1-2 years into this new supercycle.

Finally, prices need to rise considerably with at least a tripling of prices over the cycle. The chart below hits home this point. In the chart I overlaid the 1970s and 2000s supercycles to illustrate the appreciation. In the 1970s cycle commodities rose by over 900% and 300% in the 2000s cycle.

To put the current cycle into perspective, commodities are up roughly 190% so if in fact we are in a new supercycle then there is still a lot of potential upside.

Past Commodity Supercycles

Source: Bloomberg, Turner Investments

Now let’s look at a few individual commodities.

First, the outlook for oil and gas remains bullish, particularly for oil prices. Oil demand/consumption has rebounded strongly with the rebound in the global economy and Covid-19 in retreat. As of February, the US Energy Information Administration (EIA) estimates global consumption at 101.38 mln bls/day with current supply at 99.76 mls bls/day, resulting in a deficit of roughly 1 mln bls/day.

This global oil deficit is being exacerbated with the war and the US announcing an embargo of Russian oil. The UK and EU are also considering taking this step. Russia produces roughly 10 mln bls/day and with the ongoing war in Ukraine and US embargo, we could be looking at an even tighter oil market as buyers shy away from Russian oil. This is why the US is going hat and hand to Venezuela and re-engaging with Saudi Arabia to see if they can increase supply to help alleviate this oil shortage.

In the short-term oil prices could pullback if there are any positive developments of a ceasefire, but based on my expectations for global growth, a big expected uptick in global traveling, and the already tight oil market, I’m expecting oil prices to remain elevated for the remainder of the year.

Turning to gold prices, I see limited upside from current levels after their recent surge from US$1,800/oz in February to US$1,960/oz currently. I see a few potential headwinds for gold prices this year. The Fed is just starting to ramp up their rate hikes and I see real interest rates (nominal bond yields less inflation) moving up considerably in the coming months, which would be negative for gold prices (higher real yields make gold look less attractive).

Technically, gold is approaching stiff resistance at US$2,028. With Russia’s poor execution of their ‘special military operation’ and the Ukrainians fighting valiantly, a potential ceasefire would likely be negative for gold prices. And finally, my gold model suggests gold is currently overvalued with my model pointing to ‘fair value’ of US$1,443/oz. Given all these factors I see limited upside from current levels.

Gold Model Suggests Gold is Overvalued

Source: Bloomberg, Turner Investments

Finally, agricultural commodities like wheat and corn have been on a tear following Russia’s unprovoked invasion of Ukraine. These two countries account for 29% of global wheat production so clearly a war in the region is disruptive to this market, hence the recent price surges. I’m expecting prices to come off a bit in the coming months but remain elevated due to these shortages and the ongoing conflict.

Putting it all together, commodities have been out of favour for years but these trends look set to reverse. With inflation running hot, economic growth and demand rising, and the war in Ukraine further destabilizing the commodity markets, the outlook for commodities has greatly improved. While I’m not yet prepared to declare a new ‘supercycle’ for commodities, I’m definitely bullish on them and see further gains ahead.

This is exactly why we increased our resource exposure in client portfolios early last year and very well could look to add even more exposure in the coming months. I think this story has legs.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Investment Advisor, Private Client Group, of Raymond James Ltd.

 

96 comments ↓

#1 LewenzaCountry aka Prince Polo on 03.26.22 at 11:16 am

Is there enough resources allocation in the good ol’ Canada index for a proper portfolio tilt, or do you advocate for a resources sector play at this juncture?

#2 Flop… on 03.26.22 at 11:25 am

Won’t be long to we see the following headline.

Man busted for having wheat grow-op in basement of Vancouver home, said it was only viable way to make escalating mortgage payments…

M47BC

#3 willworkforpickles on 03.26.22 at 11:27 am

#27 The West …from the previous string

With regard to the link you provided and where the interview with Chas Freeman a retired US diplomat gets into the subject of the world’s reserve currency status at approximately 46.45 minutes into the video. That touches a little on the variables pertaining to the global aspects leading to the demise of dollar domination and outlook toward risk of devaluation.

Outside of US borders this encompasses the other shoe to drop on the dollar.
…———————-…
The onus here at home is on debt!

The common denominator to our faltering economy is debt . QE is debt and debt is inflation becoming more QE becoming more debt becoming more inflation. A viscous cycle gone too far to ever be ended without immediate paramount consequences.

QE for the sake of QE should never have been started in the first place.

QE has expanded the bubble economy. A fake economy built on debt expansion that has grown a monster that can’t be put down without taking the economy and most everyone out with it.
The recursive QE effect or QE that is here to stay in other words, now must feed on itself to keep the cancerous debt breathing bubble economy from imploding.

The QE debt bubble has been recklessly grown to such an extent , real GDP doesn’t provide enough to cover the debt servicing costs without more QE.

The Fed knows this. Without the tapering promised now having even begun yet, the Fed has seized on a golden opportunity to ultimately implement QE5 later this or early next year.
A golden opportunity to bring in another round of QE and shift the blame for creating the quandary and more importantly , accompanying killer inflation yet to come on top of what we have now and is still forming.

That plan falls within the culmination of current Fed hawkishness which is little more than a pre-planned stunt the Fed chair is using to fool the markets and the masses he is none other than intently serious about getting inflation under control.
If Powell was serious about getting inflation under control he would admit their isn’t any way without setting off the domino effect to total economic ruin.
So he runs and hides as the Fed has done in the last decade and now sees a golden opportunity to shift blame away from the calamity they are responsible for to begin with.

Later this year it will become apparent, smallish interest rate hikes are having no effect on inflation but only to see inflation increase instead. Anticipating a market backlash then , the Fed will introduce the next round of QE , blaming the unavoidable increasing inflation on the Russian war . Then use the Russian excuse taking advantage of the golden opportunity to quantify the move to implement QE5 – taking the heat off the Fed shifting blame for what the Fed is solely guilty of.

The truth of the matter is QE5 will be the final straw that breaks the camels back culminating in eventual economic calamity on NA soil as never before seen.

QE5 is expected to balloon the US national debt by another $10 trillion dollars.

The clock to the final countdown of the dollars days as the world’s reserve currency will be set in motion over QE5 with a devaluing dollar cited for the dumping of US securities en-masse

#4 Cici on 03.26.22 at 11:39 am

Thanks for confirming my own recency bias, Ryan ;-)

#5 Linda on 03.26.22 at 11:39 am

Ryan, if previous ‘super cycles’ are an indication of what to expect & if you are correct that the world may be experiencing another commodity super cycle, what is the correlation between such a surge & inflation? If commodities remain ‘hot’ for the remainder of this calendar year & potentially continue to run ‘hot’ for years to come, should we expect inflation to continue to run hot as well?

#6 crowdedelevatorfartz on 03.26.22 at 11:42 am

People have to eat and drive cars/buses/ships

Canada is well placed to (hopefully) drag ourselves out of the debt abyss Trudeau has thrown us in.

Lets see if Trudeau and his coalition of the brilliant can squander this last opportunity at balancing a budget and paying down our obscene debt.

#7 pPrasseur on 03.26.22 at 11:45 am

I’m definitely bullish on them and see further gains ahead.

Good luck in your speculation efforts!

However more expensive commodities means more inflation, which also means rising interest rates.

Not so good for debt ridden Canada.

The only thing oil and commodities inflation might do for this country is to support the CAD and maintain the illusion that we are a safe haven economy a bit longer. Happened before, but this time feels different, problem is inflation in a problem that can’t be kicked down the road, you can’t print and borrow your way out of it, it will squeeze you no matter what and if you have weaknesses they will show very quickly.

So not sure resources can save Canada this time, and RE certainly can’t.

#8 pPrasseur on 03.26.22 at 11:51 am

China’s economy is slowing dramatically,

https://www.wsj.com/articles/slow-meltdown-of-china-economy-evergrande-property-market-collapse-downturn-xi-cewc-11640032283

they are (by far) the largest consumer of commodities in the world:

https://transportgeography.org/contents/chapter7/freight-transportation-value-chains/usa-china-commodity-consumption/

How is that bullish?

#9 Dharma Bum on 03.26.22 at 11:57 am

What’s the outlook on Pork Bellies futures?

#10 Dharma Bum on 03.26.22 at 12:00 pm

I just saw a pair of Trudeau Socks at a shop here in Canmore, Alberta.

It has 3 images of his smarmy smirky grin.

I think I’ll buy them so I can continually step on his face.

#11 DON on 03.26.22 at 12:00 pm

As for wheat, I hope there are no summer droughts via a severe heat domes in the US and/or across the prairies. Or wild fires in Russia like 2010.

#12 B from Q on 03.26.22 at 12:02 pm

So, the pandemic is over?

#13 DON on 03.26.22 at 12:03 pm

#6 crowdedelevatorfartz on 03.26.22 at 11:42 am
People have to eat and drive cars/buses/ships

Canada is well placed to (hopefully) drag ourselves out of the debt abyss Trudeau has thrown us in.

Lets see if Trudeau and his coalition of the brilliant can squander this last opportunity at balancing a budget and paying down our obscene debt.

******
I hear a lot of folks are cutting back on non essential driving.

#14 Quintilian on 03.26.22 at 12:10 pm

#6 crowdedelevatorfartz

“Lets see if Trudeau and his coalition of the brilliant can squander this last opportunity at balancing a budget and paying down our obscene debt.”

Crowdy, this is like the Karate Kid, but backwards, but I don’t mind teaching you.

In all likely the commodity boom will extend for quite some time. But that is no guarantee of a booming economy for Canada.

Commodities are in large part heavily concentrated sectors, and can exercise pricing power. But the surge in prices and profits may not be wide spread.

In fact, the benefit of higher oil prices may cause quite the distortion, not only resulting in run away inflation at the grocery store, but when oil hits $ 150, it might become unfeasible to produce when you have to pay an Albertan drop out $50 per hour to drive a forklift.

#15 Dogman01 on 03.26.22 at 12:11 pm

Ed Pennock sees it:
“Mercantilism returns. A long-term negative. Colloquially put that’s a “Beggar Thy Neighbour” policy. Forget all that good stuff about the division of labour and specialization. We are moving towards tariffs, protectionism, trade wars, and supply chain compression. It’s an era of economic nationalism. It may be out of necessity. It’s the safest and the surest. There are shortages everywhere. Oil to oats, lithium to copper, and chips for everything. Domestic suppliers win concessions to expand. As we wrote over a year ago, we are going from just in time to just in case. It’s about the surest, not the best price.”

———————————-

Yep.. Global Politics is about Power Systems and Elites control of those Systems.

Good example from the period of US hegemony : https://www.c-span.org/video/?182105-1/the-pentagons-map-powerpoint-presentation , he starts about 10 min mark.

The current systems:
Western US led System – In decline? (North America, Japan\Korea, Europe)
China System – in ascendance
Russia System – in decline
India System – in ascendance

Isolated into their own small system:
Iran
North Korea

Where Alignment to a system is fluid:
– Middle East
– Africa
– South America

It appear to me that we are moving away from the success of US (Western) power monopoly that created western “Globalization”.

You will notice that the current sanctions on Russia are also targeting the “private property” of the Elites in Russia, not just focused on the State. That is because these system are an amalgamation of State, Military, Corporations, Banking , Media and Elites. The systems have their “Rulesets” and their ruling class.

For those of you whom are always surprised about a decade of “Bad Russia” media and not a word about China, that is because the Western Elite are aware that the Russian Elite are not going to give up their control of their system, while the hope has always been the Chinese elite will integrate more with the Western System. In addition the Western Elite have been profiting enormously by their relationship with China.

The term Oligarchs is used to describe the Russian elite, as they are a bad elite, occasionally the Term Prince-lings is used to describe the scions of the Chinese Ruling Class, Meng Wanzhou’, etc. What we pay no attention to is the interesting activity of the Western Elite. (The “Prince” Hunter Biden being just one example)

#16 Satori on 03.26.22 at 12:20 pm

#6 crowdedelevatorfartz on 03.26.22 at 11:42 am
People have to eat and drive cars/buses/ships

Canada is well placed to (hopefully) drag ourselves out of the debt abyss Trudeau has thrown us in.

Lets see if Trudeau and his coalition of the brilliant can squander this last opportunity at balancing a budget and paying down our obscene debt
———————————————————
Unless we get a new ‘finance minister’ (who has experience in Finance and not Slavic Studies) we are screwed.

Top of the handout list is a dental-care program for low-income Canadians and a national prescription drug plan, both of which will likely be costly, and permanent spending initiatives.

Where is the break for people who stay fit, brush their teeth? Where is that tax discount? This is blanket coverage and soon it will go to everyone. Then when you need a filling you can wait 18 months for a dentist. Drug coverage is for ‘what kind’ of drugs?
——

https://www.sunshinelist.ca/

Officially known as the PUBLIC SECTOR SALARY DISCLOSURE.

Have a look at the link, the Sun sure does shine on these people, compliments of the tax payer. Getting 33% raises per year. ??? Everyone should have a look at this.

Its Your Money! Know where it’s ‘really’ going.

#17 Søren Angst on 03.26.22 at 12:21 pm

Music to my ears.

I think you nailed it.

The EU is scrambling to replace Russian oil with anyone but them oil.

Energy production can’t be ramped up over night nor new supply chains created. It will take years to do that. Oil and gas plants designed for +20% max capacity. New production facilities will have to built, etc. whether fossil fuel or renewables.

Why you have supercycles.

Time.

Rome was not built in a day.

—————–

Thanks to you, Garth et. al. well positioned to profit from it.

I say:

beat them, not join them.

#18 Dogman01 on 03.26.22 at 12:25 pm

“For the middle class and all those working hard to join it” @JustinTrudeau
“Your World is about to get a whole lot smaller” – Jeff Rubin

Massive increase in prices on the most basic things you need:
– Shelter
– Food
– Energy

If Recessions are caused by the consumer going into hiding then we will have a Recession in the next couple of years.

Regarding commodities; a Recession should dampen demand , but the other factors being so strong I suspect even a hard recession may only be a speed bump for many commodities.

#19 Ponzius Pilatus on 03.26.22 at 12:29 pm

I have given up eating wheat a while ago.
It’s oats all the way, now.
And liquid barley.
Canada has lots of those.
Try it.
Your gut will thank you.

#20 Ardy on 03.26.22 at 12:30 pm

I don’t know how in a relatively short period of time the world went from an oversupply of oil of such magnitude that tankers were floating around in the ocean with nowhere to unload their oil, to a global “shortage” today.

During the “glut” of oil, when storage was topped up and the cost of tankers used for storage skyrocketed due to short supply, there was also the embargoes and lock ins on oil in some of the largest producers like Venezuela, Iran, and Iraq.

One day we got too much oil and the next day we are running out of oil.

I think the current “supply shortages” are short term and we will return to the more normal “surplus” in due time.

#21 Brian on 03.26.22 at 12:32 pm

Wow, Canada is rich with a lot of these; oil, wheat, nat gas, potash, uranium, etc etc. We should be set to run huge surpluses and reduce taxes.
Oh wait no, 12 digit deficits and about to get worse with the LNDP. WTAF.

#22 Søren Angst on 03.26.22 at 12:37 pm

One thing for certain about what’s coming (prices accelerating up) we’ll find out very soon what shape the Cdn Consumer really is in.

New nesting Cdns that bought expensive homes will be vulnerable. They will want low rates. The rest will want prices to come down and high rates. The latter are more numerous.

Rates will go up by 0.5% increments if the US is to believed.

For the first time I actually believe the Gollum’s of Canada will see Precious devaluate by a lot.

I DO NOT see CB’s gingerly balancing high rates/recession/inflation.

Same outfits that were asleep at the wheel with rate increases coming far too late.

Bank of Canada top of the list in that incompetency. They acted stupidly. Hoping RE would continue to bolster the economy. Now homes are unaffordable to almost everyone in the country.

People want inflation relief- human immediate gratification as usual. Rates up fast. RE down fast – the very thing the CB sought to protect.

Why incompetent, acted stupidly.

Recession.

#23 Warren-the-lagging_indicator on 03.26.22 at 12:42 pm

I figure Gold is going to plop with rising real yields also but I wonder if Ryan thinks we are going into a recession with all of this?

#24 Sail Away on 03.26.22 at 12:51 pm

#19 Ponzius Pilatus on 03.26.22 at 12:29 pm

I have given up eating wheat a while ago.
It’s oats all the way, now.
And liquid barley.
Canada has lots of those.
Try it.

Your gut will thank you.

———-

Give up all foods and we’ll all thank you.

And good for the enviro!

#25 Satori on 03.26.22 at 1:00 pm

#20 Ardy on 03.26.22 at 12:30 pm
I don’t know how in a relatively short period of time the world went from an oversupply of oil of such magnitude that tankers were floating around in the ocean with nowhere to unload their oil, to a global “shortage” today.
—————————————————-
The explanation is that during Covid oil demand was really low. People were staying home, and here in Vancouver the traffic was noticeably reduced! Shoot it took me 5 minutes to drive downtown to a hiking mountain… which normally would take 40 minutes in regular traffic.

Anyways, they reduced production because of the lower demand during covid. Now its over, slowly people are back to work and there is a war, and supplies are low. Makes sense, no? Happy to hear a correction if I am wrong.

#26 crowdedelevatorfartz on 03.26.22 at 1:03 pm

@#14 Quinty’s Quantum Easing
” it might become unfeasible to produce when you have to pay an Albertan drop out $50 per hour to drive a forklift.”

+++

Errr. no.
Usually the first people to get wacked (in the downturn you seem to think is coming) are the legions of middle management, zero skills, Work from Home, politically correct , endless email, endless meetings, endless Zooming vidiots ( ie you) that no one will notice are gone.

Forklift divers still need to load and unload the trucks.
:)

#27 Ryan Lewenza on 03.26.22 at 1:03 pm

Linda “ Ryan, if previous ‘super cycles’ are an indication of what to expect & if you are correct that the world may be experiencing another commodity super cycle, what is the correlation between such a surge & inflation? If commodities remain ‘hot’ for the remainder of this calendar year & potentially continue to run ‘hot’ for years to come, should we expect inflation to continue to run hot as well?”

I see inflation peaking this year but remaining high. Inflation has averaged roughly 2% over the last decade and I see it averaging 3-4% over the next few years in part due to the higher commodities. So yes, higher commodities should keep inflation elevated. – Ryan L

#28 crowdedelevatorfartz on 03.26.22 at 1:07 pm

@#16 Satori
——

https://www.sunshinelist.ca/

Officially known as the PUBLIC SECTOR SALARY DISCLOSURE.

Have a look at the link, the Sun sure does shine on these people, compliments of the tax payer. Getting 33% raises per year. ??? Everyone should have a look at this.

Its Your Money! Know where it’s ‘really’ going.”

+++

yep.
And
Don’t forget.
Trudeau wants to give all Federal workers 10 more paid sick days off per year.
On top of everything they already have.
Disgusting doesn’t even begin to describe it.

#29 Diharv on 03.26.22 at 1:21 pm

I would say not alot of upside for oil now before demand destruction either sends the price down or the economy into recession. People are at their breaking point now with gasoline prices and provincial and state governments giving out bailouts they can’t afford. How long will that last?

#30 Papabear on 03.26.22 at 1:30 pm

Would growing Mercantilism factor into this as well?

As Garth’s economist friend mentioned in his post yesterday, he’s seeing the world tip back into it. What are your thoughts on that?

#31 Dave on 03.26.22 at 1:30 pm

“We are prepared to act forcefully.”

Sharon Kozicki Deputy Governor

Is a .5% increase on the table for April?

#32 Dave on 03.26.22 at 1:38 pm

Russia might be accepting Bitcoin as a payment for oil.

That means countries like China, India might be purchasing oil in Bitcoin.

Ukraine was is more then a regional war….its a shift in global monetary system.

China India and Russia are bringing alternatives to the world….would you agree?

#33 don't poke the bear on 03.26.22 at 1:59 pm

Mr. Lewenza, you forgot to point that out that commodity super cycles equate to stock market declines (more like collapses).

Stock markets from 1970-1982 lost 75% + adjusted for inflation. 60%+ losses from 2000-2010

if this is a true commodity bull market, there will be a corresponding stock bear market. they usually last 10-15 years …

your gold valuation model is of no use in today’s environment. just like someone trying to value crude, diesel or nickel. commodity markets don’t obey such simplistic models when they are broken and there is no liquidity.

on the bright side, this is generally good for commodity producing countries. Canada, Australia etc. not great for tech.

and yes, boys and girls. we’re going to have recessions and rising rates. much much higher rates.

#34 Dogman01 on 03.26.22 at 2:04 pm

Kitty Kaboom

They just merited a repeat.

——————————————

#22 Kitty Kaboom on 03.25.22 at 4:43 pm

Potash? Potable Water? Oil & Gas? Uranium? Gold?

What a time to be alive — if Canada could actually work together to grow our collective GDP on items the world actually needs right now at a price premium, we wouldn’t need tulip bulbs & home swapping to stand in for GDP. :)

–Fast-track pipelines.
–Get red tape out of the way for energy development.
–Build a real Trans-Canada highway that links the nation end to end with 4 lanes.
–Connect Energy Producers with Energy Consumers within our borders!
–Increase experimental Hydrogen blending into NatGas for consumers, providing increased feed-stock for export.

The will is there, the people are willing, the bureaucrats seem to have other ideas.

Who am I kidding…

GDP == MLS.

#35 jess on 03.26.22 at 2:43 pm

bullish?

technique known as “Buy, Borrow, Die,” in which they buy or build assets, borrow against them and then avoid estate and gift taxes when they die.

….”fixing a thoroughly broken tax code and showing working people in America that billionaires don’t get to play by a different set of rules. My view is the big scandal is what’s legal. When you walk these people through it, it causes people to lose faith in government, lose faith in democracy.

https://www.youtube.com/watch?v=8pBPZMUcsh0

https://www.propublica.org/article/when-billionaires-dont-pay-taxes-people-lose-faith-in-democracy

#36 Quintilian on 03.26.22 at 2:49 pm

#26 crowdedelevatorfartz on 03.26.22 at 1:03 pm:

Not questioning your clairvoyant talents, but this my observation of my social circle and my university grad friends:

Science major works for a large firm as safety officers $74 k

Science major works for a bank peddling investment product 88k

P eng works in sales for major international automation company 95 k

B.F.A works for a sales training company giving seminars 150k

None of them are making huge bucks, but the one whom you consider having a degree in “basketweaving” makes the most ,and free travel to a lot of exotic places at conventions.

#37 Ryan Lewenza on 03.26.22 at 3:18 pm

don’t poke the bear “ Mr. Lewenza, you forgot to point that out that commodity super cycles equate to stock market declines (more like collapses).

Stock markets from 1970-1982 lost 75% + adjusted for inflation. 60%+ losses from 2000-2010

if this is a true commodity bull market, there will be a corresponding stock bear market. they usually last 10-15 years …

your gold valuation model is of no use in today’s environment. just like someone trying to value crude, diesel or nickel. commodity markets don’t obey such simplistic models when they are broken and there is no liquidity.”

Sure US stocks underperformed but they still posted positive returns. We have a global portfolio so our CAD holdings should pick up the slack. And thanks for your advice re my gold model. I guess I should go back to heads or tails on making my investment calls. – Ryan L

#38 Kool Aid on 03.26.22 at 3:18 pm

Oil prices are not elevated here, the price of Oil was simply too low for too long in relative terms vs most other goods and services.

Oil has always been a lever for structural inflation.
Oil price goes up, the price of everything follows this consumable input.

Oil Supercycle? I think not, as interest rates will rise a lot higher than the markets are pricing in. Short term elevated pricing will give way to more balanced pricing in the late part of 2022 and early 2023.

I guess parking a few points of the portfolio scattered across some of the majors is fine… though, the investment in Oil does not excite me in the least.

Swipe left.

#39 Dr V on 03.26.22 at 3:20 pm

“This is exactly why we increased our resource exposure in client portfolios early last year and very well could look to add even more exposure in the coming months.”

and 1 prince polo

“Is there enough resources allocation in the good ol’ Canada index for a proper portfolio tilt, or do you advocate for a resources sector play at this juncture?”
———————————————

This is an excellent point. I question whether (or how much) we use geographic weightings in our portfolios
as opposed to sector weightings.

Other than tax considerations (ie eligible divvies) and instabilities (EMs) why are we not setting sector weights instead of country/region weights in a B & D?

The recent tech weakness cannot be bought out of the
SP500 index without buying health, finance etc, and the commodty/energy/materials strength in the TSX cannot be sold without selling the evil but prosperous banks.

And why would you add to your commodity holdings?shouldnt you be selling that and buying into the tech
weakness or other lagging sectors? And how do you
decide what sector weightings are “correct”?

#40 Where IT Ends on 03.26.22 at 3:21 pm

80% of all debt was created in the last 2 years.

China alone births Canada every 14 months.

Both demand and monetary policy is driving commodity prices up.

Will prices go down?

How will they reduce population and credit to put us back to Jan 2020?

From 1970 – 1980 interest rates exploded. So did gold, from $35 – $800.

#41 I don't know on 03.26.22 at 3:28 pm

We are definitely in a commodity bull run.

The USD is more or less stable. Rising interest rates and continued US economic growth coming out of the pandemic will help bolster the dollar.

Regardless of where ones stands politically, it’s obvious the Biden administration has masterfully navigated the Russia Ukrainian conflict by uniting NATO, the west, and its allies, at least so far. In times of conflict, the world will always look for someone to step up the diplomatic efforts and try to end the conflict as soon as possible. Someone to be a leader. By this metric, it’s clear who has stepped up, and more importantly, who has not. Those who mistakenly think the USD will lose reserve status need to pay attention, and see why there are no alternative reserve currencies for miles.

Regarding China, while their economy is still hot, it’s not has hot as it was during the last supercycle.

On the flip side, supplies of resources are going to greatly strained by the tragedy in Ukraine (which hopefully ends soon). There is no question prices will keep rising here for a while.

My thoughts are similar to Ryan’s. There is definitely more upside to commodities, but it’s way too early to tell if we are in the beginnings of a new super cycle.

IDK

#42 AK on 03.26.22 at 3:28 pm

And, once a commodity super cycle ends, a recession follows.

#43 Dave on 03.26.22 at 3:48 pm

All these changes are triggered by the war.

Putin knows this and has realigned with countries that want a new world order.

Below is a quote from Larry Fink CEO of BlackRock:

“The world is undergoing a transformation: Russia’s brutal attack on Ukraine has upended the world order that had been in place since the end of the Cold War, more than 30 years ago,” Fink wrote in his letter to shareholders. “The magnitude of Russia’s actions will play out for decades to come and mark a turning point in the world order of geopolitics, macro-economic trends and capital markets.”

Ryan what are your thoughts?

#44 Ponzius Pilatus on 03.26.22 at 3:54 pm

#32 Dave on 03.26.22 at 1:38 pm
Russia might be accepting Bitcoin as a payment for oil.

That means countries like China, India might be purchasing oil in Bitcoin.

Ukraine was is more then a regional war….its a shift in global monetary system.

China India and Russia are bringing alternatives to the world….would you agree?
—————–
Affirmative.

I saw a cartoon in a German Newspaper:
An elderly German couple opens the latest gas heating  bill.
He says: They want us to pay in Rubles.
She says: But we don’t have any Rubles.
Get it?
It may lose a little bit in translation.

#45 Diamond Dog on 03.26.22 at 4:19 pm

As to whether or not commodities are in a super cycle…

How much of commodity appreciation from supply/demand fundamentals and how much of it is from a rapid increase in the money supply…?

We know that the Trump administration in particular, printed more money year over year than any other president in history:

https://www.longtermtrends.net/m2-money-supply-vs-inflation/

We also know that m2, that’s the money everyone can instantly get their hands on without leverage, has seen a rapid increase from the wealth effects, a rapid increase in the money supply provides.

We were all here, we saw it. The Fed buying MBS’s and it’s own bonds dating back to October of 2019! Yeah, pre-pandemic!! We saw the crack coked housing valuations. Ballistic stock markets. Bond markets in a bubble. Commodities now in a bubble in conjunction with inflation. At the base of it all, the cause of it all was a rapid increase in the money supply jacking m2 and now popping inflation.

We know that a rapid increase in the U.S. money supply is at the base of it and since all commodities are priced in U.S. dollars, up she goes. In other words, the zenith peak rise ascent of commodities has been fueled by U.S. monetary policy I think, under the guise of a pandemic to buy a presidential election.

Once we remove govy antics, how out of wack are commodities really? It then comes back to fundamentals. Simplistic supply/demand. The business world knows what the days to months to years supply is in commodities. We know with some metals like nickel and copper, it’s down to days and weeks. We also know that the pandemic idled a good deal of exploration and development for commodities for a good period of time.

The combination of under exploration and under investment/development with monetary policy has brought valuations to where they are now (not to mention La Nina, looks like it’s on it’s way out btw). Of course, the war in Europe offers a new wrinkle further stressing supply/demand fundamentals. Budgets in Europe are being rewritten to include more defense spending as we speak. (Btw, conflict is a poverty effect) Plus, the global population continues to rise and climb out of poverty (at least for now) meaning more demand.

We put it all together and think, commodities are good for a while right, maybe even a few years but in this I know. When the U.S. slides into recession, commodities will slide with it as demand wanes. Quarterly indicators and inverted yield curves are too slow to predict when the worm turns. Thus, PMI and other monthly indicators are the best indicators to watch.

We know that the Fed has to raise rates to fight inflation. We know that the Fed can at most raise rates to 3.5…. briefly (4% might be a pipe dream now) and then things break on the fiscal side. The U.S. will be lucky to service debt on the fiscal side at 2.5%. We may be there by the end of the year.

At present, 30 year mortgages in the U.S. are at 4.9? May as well say 5%. (40 year terms could offset, some are just coming out now in the U.S.) Think for a moment what rates will do to housing. That housing bubble the U.S. so enjoyed is now turning into a poverty effect. Govy bonds are a loser (have been anyway for a while now). Corp bonds are ever the riskier. Junk is turning into garbage. With rates rising and inflation so high, going long with equities is a challenge. There are some bright spots in commodities in equities, but fundamentals and valuations dictate the winners from the losers.

I think it’s necessary for the Fed to raise rates until something breaks with inflation running at 7.9% (that’s a cooked number) not just because of high inflation but because policy makers in Washington need to be put on red alert that they can’t continue to tax & spend and print money the way they have and get away with it.

Plus, without some kind of bond restructuring which again, is mainly decided by Washington, I don’t see how the U.S. can right this ship. Lyn Alden explains why quite well below.

https://www.lynalden.com/does-the-national-debt-matter/

The wild card in all of this is the U.S. dollar. If the dollar devalues substantially, commodities will go to the moon unless of course, there is a recession. If a recession comes in combination with a low dollar, we’ll see an ugly… maybe butt ugly form of stagflation, maybe even depression. This is what policy makers have to try to prevent.

With inflation so high, recession is certain at this point (see chart below). When it hits (when m2 comes down), how bad it will be and for how long depends on policy but if history is any indication, double digit inflation means a bad recession coming no matter what policy makers and world events decide now. There have been few times in history when a rapid increase in the money supply as a result of monetary policy directed by the presidency, didn’t lead to inflation followed by higher rates and recession:

https://allstarcharts.com/wp-content/uploads/2011/07/7-23-11-10-yr-yields-FFR-and-inflation.jpg

On the note of leadership, just in the context of war… I’m not sure anyone could do a better job leading the U.S. through the Russia/Ukraine war than Biden. (could we imagine the disaster Trump would have been?)

There’s an old Churchill quote, “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities.” It appears as though they did the right thing in choosing Biden. He’s the right guy in the right place, at the right time and has my full support.

#46 Dr V on 03.26.22 at 4:23 pm

36 Q

“None of them are making huge bucks, but the one whom
you consider having a degree in “basketweaving” makes
the most ,and free travel to a lot of exotic places at
conventions.”
————————————————

But wouldnt they be happier basket weaving? I mean,
they grew up wanting to be a basket weaver, right? Mom and Dad and all their teachers said they could do basket weaving. And that they shouldnt have to pay back student loans either. Right? RIGHT?

#47 Kevin on 03.26.22 at 4:28 pm

Thanks for your great insights as always, Ryan. Do you recommend some stocks or etfs to bet on this commodity super cycle, in CAD? I know there’s CMDY in USD, but can’t seem to find anything in CAD, other than investing in an ETF like VCN that buys the entire Canadian market, which is largely commodities driven.

#48 Ryan Lewenza on 03.26.22 at 4:44 pm

Kevin “ Thanks for your great insights as always, Ryan. Do you recommend some stocks or etfs to bet on this commodity super cycle, in CAD? I know there’s CMDY in USD, but can’t seem to find anything in CAD, other than investing in an ETF like VCN that buys the entire Canadian market, which is largely commodities driven.”

We can’t make specific recommendations but broad based TSX ETFs or resource ETFs would do the trick. And yes stick with CAD dollars as it generally benefits when oil prices rise. – Ryan L

#49 willworkforpickles on 03.26.22 at 4:53 pm

#25 Satori #20 Ardy

The high cost of gas at the pumps is also a prime example of government shifting blame on others instead of where it squarely belongs …on government themselves.
Biden is using excuse’s such as the pandemic slowdown, the Russian invasion of Ukraine and the price gouging of selfish American oil and gas producers in the same way they use excuses to shift blame from themselves for the inflation they are solely responsible for.

The 2022 Biden budget with a dozen tax increases on American energy have hit businesses and consumers hard with higher prices.

The renewed threat of a Biden windfall profits tax that failed in the past – generating a fraction of the revenue projected only to raise the cost of gasoline and increased dependence on foreign oil, has curtailed oil companies plans from drilling and exploration if for spending the revenue to do so will only see their profits taxed out from under them.
The deciding factor in essence that has left the oil companies no alternative but to raise prices on existing reserves.

Blame Biden for high oil and energy costs.
Never allow him to shift blame elsewhere for his failed policy’s.

Failing grade actions and proposals with a history of failure from a career long failed politician that fits with his overall lifetime failed foreign policy record as well.

#50 Ryan Lewenza on 03.26.22 at 4:54 pm

Dave “The world is undergoing a transformation: Russia’s brutal attack on Ukraine has upended the world order that had been in place since the end of the Cold War, more than 30 years ago,” Fink wrote in his letter to shareholders. “The magnitude of Russia’s actions will play out for decades to come and mark a turning point in the world order of geopolitics, macro-economic trends and capital markets. Ryan what are your thoughts?”

I agree with this. Russia, rather Putin, completely misplayed this and it will have devastating long-term effects. Many of the 400 companies that have exited Russia won’t be back for years if not decades. If Russia defaults on its debt the who will lend to them in the future. Europe/Germany finally realized they need to move away from Russian O&G. Sure China will buy more but they can’t buy it all. I believe Russia’s economy is in real trouble and this war will send them back decades. And yet 60% of Russians support this war. I don’t get it. – Ryan L

#51 Dr V on 03.26.22 at 5:00 pm

43 Dave

‘ “The magnitude of Russia’s actions will play out for decades to come and mark a turning point in the world order of geopolitics, macro-economic trends and capital markets.” ‘
——————————————-

Yes, a huge unknown with many possible outcomes or combinations thereof.

Does the West ever trust Russia again? Does China buddy up or effectively take over Russia for their resources? Does the West really ween itself off oil and develop a more sustainable economy? Does India become the dominant military superpower? How do the middle East, Africa, South America match up?????

#52 cuke and tomato pickere on 03.26.22 at 5:16 pm

Yes farm products will go up because of production costs etc. I spoke to a wheat, lentils, canola, and pea grower who owns 8000 acres in Saskatchewan who said “last year was a write off” hopefully this year is better. Also a chicken grower on Vancouver Island says their grain cost have gone up 30 percent but they cannot increase their prices till the Agriculture Review Board has a look at things and this could take months.

#53 Quintilian on 03.26.22 at 5:35 pm

#46 Dr V on 03.26.22 at 4:23 pm
“But wouldnt they be happier basket weaving? I mean,
they grew up wanting to be a basket weaver, right? Mom and Dad and all their teachers said they could do basket weaving. And that they shouldnt have to pay back student loans either. Right? RIGHT?”

Apparently, the skills learned in BSTW 100 to BSTW 800 are transferable to Behavioral Finance.

And with the traveling to exotic places, they get to weave with palm leaves alongside with the Indigenous people and that is a source of happiness.

As for paying back the student loans, I think they should have to pay it back, however the money should be earmarked to finance Pol Sci for underprivileged students.

#54 willworkforpickles on 03.26.22 at 5:35 pm

#45 Diamond Dog

“If a recession comes in combination with a low dollar, we’ll see an ugly… maybe butt ugly form of stagflation, maybe even depression. This is what policy makers have to try to prevent.”
……………………………………
That statement is pretty much a discredit to your cut and paste article. It is too late for policy makers to do anything to prevent eventual economic calamity. They got us into this mess in the first place with the creation of overall debt levels they can no longer get us back out of without a great deal of bloodletting.
———-
“It appears as though they did the right thing in choosing Biden. He’s the right guy in the right place, at the right time and has my full support.”
………………………………………..
Sure, with NATO and the US in a proxy war with Russia using Ukrainian soldiers like cannon fodder down to the last man on Ukrainian soil if need be.

#55 Yukon Elvis on 03.26.22 at 5:37 pm

And yet 60% of Russians support this war. I don’t get it. – Ryan L
+++++++++++++++++
Support may not actually be that high. Protesters face up to 15 years in jail so people might just be paying lip service to the regime.

#56 crowdedelevatorfartz on 03.26.22 at 5:40 pm

@#36 A quintillian querys
“None of them are making huge bucks, but the one whom you consider having a degree in “basketweaving” makes the most ,and free travel to a lot of exotic places at conventions.”

+++

“Exotic” convention locales…..?
Okaaaay.
Trust me.
After working for one company where I was a employee/ customer service trainer and I spent months flying to and fro giving employees staff seminars for 2 or 4 days at a time….the novelty of “hoteling it, living out of a suitcase and eating restaurant food” in a different city and time zone on a weekly basis…wears thin.

As for the others .
They could have saved themselves 4,6 or 8 years of Uni and a massive debt and just gone straight into a trade and been “earning while learning” as well as earning double what they are getting now.

Sad.

#57 TurnerNation on 03.26.22 at 5:59 pm

The Turner Gold Price Model ? Who knew. Shurly not

Buy, hold and phospor(ous):

https://finviz.com/quote.ashx?t=CORN&p=m&tas=0

#58 KLNR on 03.26.22 at 6:05 pm

@ #50 Ryan Lewenza on 03.26.22 at 4:54 pm

I believe Russia’s economy is in real trouble and this war will send them back decades. And yet 60% of Russians support this war. I don’t get it. – Ryan L

Look how much support trump gets.
Strange days indeed.

#59 Downward Slope on 03.26.22 at 6:07 pm

The latest memo from Howard Marks.
For those in the know his insights are as good as that Jimmy Buffett guy.

https://www.oaktreecapital.com/docs/default-source/memos/the-pendulum-in-intl-affairs.pdf

#60 Dr V on 03.26.22 at 6:09 pm

Re: Local gas prices

Glad I filled the F150 the day before the prices jumped.
Prices slowly falling and almost half way back to the price I last paid. Will top up next week before Comrade Horgie adds $0.11/L tax. He will send cheque for $110 later this year. Sounds like ICBC had $2B sitting around.

Here’s my gripe. Awhile ago, the prices jumped immediately when the price of crude increased. Then
crude dropped, but the price at the pumps did not.

The companies said “oh but it takes a few weeks for that lower price to get to us.” What? It didnt take a few weeks for the price increase to show up on the pumps.

This time it appears to be working a bit faster.

Conclusion – they never paid that higher price for crude.

It’s all FBS. And taxes.

#61 Dr V on 03.26.22 at 6:15 pm

53 Q

Ahh the art of subtle sarcasm…..

56 fartz – ya gotta appreciate that one……

#62 Quintilian on 03.26.22 at 6:31 pm

Why! Why ! Must you always degrade and make disparaging remarks about us liberal arts people?
Two of my favourite and most successful, and more importantly, good looking, Canadians ie Garth Turner and Justin Trudeau have a liberal arts background.

And you can be sure they are making some good coin.

But that aside, next time you are enjoying a porn flick, or reading a good book, or listening to inspiring music, just remember where it came from.

#63 Downward Slope on 03.26.22 at 6:41 pm

Question for some of the pros.
(Doc, Bdwy, Sailo, and others)
-You are all in on CDN high Dividend payers.
-Since Jan 4 you are up over 50%
Question, what do you do?

#64 Downward Slope on 03.26.22 at 6:50 pm

Forgot to add.
-Retired and living off the divies.

#65 crowdedelevatorfartz on 03.26.22 at 6:59 pm

@#53 A Quintillian Politicians

” I think they should have to pay it back, however the money should be earmarked to finance Pol Sci for underprivileged students.”

+++
Great.
Just what we need
More political science Profs like…Mayor Kenndy Stewart.
“Mr Invisible.”

https://vancouversun.com/news/local-news/dan-fumano-vancouver-mayor-forming-new-political-party-for-2022

Possibly one of the worst mayors the city has suffered through.

Lets see how “The Professor does in the Nov election.

#66 Michael in-north-york on 03.26.22 at 7:19 pm

#50 Ryan Lewenza on 03.26.22 at 4:54 pm

And yet 60% of Russians support this war. I don’t get it. – Ryan L
===

Less than 10% of Russian residents agree to talk to the pollsters and give them any kind of answer. 90% refuse to answer any questions; one can wonder why.

So, the war supporters make 60% of the 10% who agree to share their views.

#67 I don’t know on 03.26.22 at 8:19 pm

54 willworkforpickles on 03.26.22 at 5:35 pm

-Cannon Fodder? Did you read that on another YouTube video comment section? Facebook thread? Reddit?

Ukraine is fighting for the right to be in control of its own destiny. It wants to be part of nato and for nato support. That is up to Ukraine and only Ukraine to decide.

Russia’s prosperity has always been tied to good relations and trade with Europe. This is painfully obvious. Over the past 30 years, the west tried to trade economic prosperity for peace with the east. This seems to have unravelled for no reason. This war is pointless and everyone knows it. Each tragic death could have been avoided.

One of the main fronts in this conflict is social media. It’s destructive and dangerous. Your painfully incorrect comments do nothing but fan the flames of discontent, and strengthen the argument for this comment section to be shut down (like so many others that eventually degenerate into toxic online sludge).

IDK

#68 Investx on 03.26.22 at 8:23 pm

Loving my juicy Canadian oil stock dividends.

#69 Sail Away on 03.26.22 at 8:43 pm

#63 Downward Slope on 03.26.22 at 6:41 pm

Question for some of the pros.
(Doc, Bdwy, Sailo, and others)
-You are all in on CDN high Dividend payers.
-Since Jan 4 you are up over 50%
Question, what do you do?

———

Nothing.

A story: When I began this self-directed investing gig 13 years ago, it was done by learning, studying, and feeling my way along. I made plenty of moves that I would no longer make, but also several useful ones. One of the useful has been to maintain a detailed list of all sells along with reasons for selling and profit/loss to the point of sale.

One big takeaway? My average return would have been better had I not taken profit and sold for reasons I thought made sense at the time. And included in the list are four bankruptcies.

So now I choose holdings ever more carefully after watching for a year to several years and may take profit at highs, while also adding at dips, but almost never sell more than 1/2 a position.

Every situation has exceptions, though. So, the honest and clear-cut answer? It depends.

#70 crowdedelevatorfartz on 03.26.22 at 8:48 pm

@#62 Quinty’s Quest
“But that aside, next time you are enjoying a porn flick, or reading a good book, or listening to inspiring music, just remember where it came from.”

+++
You assume I read books…..

#71 Ponzius Pilatus on 03.26.22 at 9:23 pm

#67 known unknowns

One of the main fronts in this conflict is social media. It’s destructive and dangerous. Your painfully incorrect comments do nothing but fan the flames of discontent, and strengthen the argument for this comment section to be shut down (like so many others that eventually degenerate into toxic online sludge)
—————
Agreed.
Too many posters  here think they are experts on every subject under the sun.
Politics, History, Human behavior, you name it.
When in fact, all they do is  extrapolate their own biases into the World around them.
The German word “Weltanschauung” sums it up, nicely.
No substance, just filling the cyber space with useless blather.
Right now, everyone is an expert on everything Russia.
I for one, have no clue what’s going on in the Ukraine.
And I think, Putin does not either.
Remember, the “Freedom Convoy”.
Everyone had a opinion.
I think we have a much clearer picture now of what “really” was behind the movement.

#72 Flop… on 03.26.22 at 9:49 pm

Went for a my annual pilgrimage out to Surrey to get my personal taxes done.

Man, what a difference from the Surrey/Delta of the last two years.

Every strip mall was packed, restaurant car parks that were filled with tumbleweeds the year before, had no parking.

People bombing around on the major routes burning their 2 bucks a litre gas.

I keep seeing the surveys about 40% of people are only a couple of grand away, or whatever, from trouble, but although masks were still prevalent the COVID shutdowns are in the rear view mirrors and the public didn’t appear to know what a purse string was.

The strangest sight I witnessed was an empty parking lot at the Thrift Store, I guess this matches the other side of the coin that things aren’t as bad as sometimes reported.

Correction, the strangest thing I witnessed was the people who shop at Walmart…

M47BC

#73 Ponzius Pilatus on 03.26.22 at 10:29 pm

#72 Flop… on 03.26.22 at 9:49 pm
Went for a my annual pilgrimage out to Surrey to get my personal taxes done.

Man, what a difference from the Surrey/Delta of the last two years.

Every strip mall was packed, restaurant car parks that were filled with tumbleweeds the year before, had no parking.

People bombing around on the major routes burning their 2 bucks a litre gas.

I keep seeing the surveys about 40% of people are only a couple of grand away, or whatever, from trouble, but although masks were still prevalent the COVID shutdowns are in the rear view mirrors and the public didn’t appear to know what a purse string was.

The strangest sight I witnessed was an empty parking lot at the Thrift Store, I guess this matches the other side of the coin that things aren’t as bad as sometimes reported.

Correction, the strangest thing I witnessed was the people who shop at Walmart…

M47BC
—————
You saw correct, Floppie.
Surrey is a’booming.
The new immigrants are coming with lots of money.
House prices are a’rocking, surpassing Richmond now.
Drive by shootings are way down.
And they are planting trees like crazy.
The motto is “Surrey, the future is here”.
Can’t argue with that.

#74 Nonplused on 03.26.22 at 10:52 pm

Gold at US $1443/ounce, ha ha, what a kidder! I’d like to see how this “fair value” model works.

Russia will never go back to relying on the US dollar or the Euro, or western banks. That ship has sailed. That means from now on 10 million barrels of oil per day trades in Rubles, gold or local currencies only. Well and the Yuan. And whatever India uses. The agricultural products we are so worried about also. And fertilizer. And aluminum.

Seizing Russia’s assets, whether they be foreign reserves or somebody’s yacht, was worse than illegal; it was stupid. Never in the history of banking has such a self-destructive move been conducted. Not even John Law was so reckless. Now that all countries in the world are aware that the US banking system is subserviently to US political machinations, the exit will be near total. No nation state is going to leave any assets within reach of the US government except the NATO vassal states.

And it does not matter whether Russia proves to have been right or wrong regarding their reasons for invading. It does not matter that the war was inevitable and has actually been going on for 30 years. None of that is going to matter. What is going to matter, if you are say China, is that in the blink of an eye the US can and will seize any foreign reserves they have access to on a whim. Supposedly because they don’t like what you are doing, but realistically power does not need reasons. Power, by its very nature, is independent of reasons. Power is the reason. Always was.

Politics has no place in banking, not even during a war. Prepare for titanic shifts in the global currency system. Say goodbye to unfettered globalization. Say hello to localized economies with all the inefficiencies that entails. Imagine when every country needs to make its own semiconductors? Cars will be using points again, like lawnmowers do. That’s where we are now headed.

Buy all the things. The only limit there is to commodity prices at this point is when people plain run out of money and cannot buy them anymore. And printing more money and handing out more ‘stimulus’ will only make matters worse.

The drama queen has arrived. – Garth

#75 Dr V on 03.26.22 at 11:03 pm

62 Q

“But that aside, next time you are enjoying a porn flick, or reading a good book, or listening to inspiring music, just remember where it came from.”
—————————————–

It’s all just market driven Q.

I imagine a few of the thousands of dollars I spent on a hundreds of classical music CDs worked their way back to the artist (or surviving family). I’m fine with that.

Just dont be under the impression that the combination of a degree and your talent guarantees you can make a
living at it.

Same goes for any vocation.

#76 Diamond Dog on 03.27.22 at 12:39 am

#54 willworkforpickles on 03.26.22 at 5:35 pm

#45 Diamond Dog

“If a recession comes in combination with a low dollar, we’ll see an ugly… maybe butt ugly form of stagflation, maybe even depression. This is what policy makers have to try to prevent.”

“That statement is pretty much a discredit to your cut and paste article. It is too late for policy makers to do anything to prevent eventual economic calamity. They got us into this mess in the first place with the creation of overall debt levels they can no longer get us back out of without a great deal of bloodletting.” – – wwf

I disagree, it’s not too late. If you had read Lyn Alden’s summary, you would note that there is a path forward but they have to take it within the next few years. Otherwise, they lose the window or it harder and harder for them to turn it around. They are on the edge of the cliff, but not over it.

The U.S. is at 125% debt to GDP now. The U.S. was there once before in WWII. It could easily be 140% over the next 2 to 3 years. The path forward involves major cuts in spending, major tax increases and restructuring at least what they have on their balance sheet with a fixed rate of 2%. If they do this, a long and ugly recession may still happen, but they might be able to avoid depression or worse.

Think for a moment, the Fed has bought nearly 8 trillion in Treasuries and MBS’s. They are the owners of their own debt meaning they could treat it as a special circumstance of the pandemic and restructure their own treasuries at the very least at 2%. Or less! But if they don’t do it soon and allow these bonds to roll over, they will lose the window. Once they get to the 140+% level, it will get hard if not impossible for them to turn it around. They need to restructure and the sooner, the better.

“It appears as though they did the right thing in choosing Biden. He’s the right guy in the right place, at the right time and has my full support.” – D.D.

“Sure, with NATO and the US in a proxy war with Russia using Ukrainian soldiers like cannon fodder down to the last man on Ukrainian soil if need be.” – wwf

If you have a better idea on how the U.S. , Ukraine and the rest of Europe should handle Russia, I’d like to hear it. While you’re collecting your thoughts, you can tell yourself that Ukraine knows suffering from the hand of Russia only too well (as does Poland):

https://en.wikipedia.org/wiki/Holodomor

By the way, have you ever wondered why it was that the 7 satellite Russian states that separated from the U.S.S.R. in 91′ were ever controlled by Russia to begin with, with less than 1% Russian speaking people? Try war.

How easy it is, to forget or ignore history when we haven’t lived it. Stalin used WWII as an opportunity to invade Poland, remember? Stalin then invaded Finland with 1 million soldiers, 200,000 dying from that invasion. Finland ended up ceding land to Russia. in 1940, Stalin annexed the Baltic states:

http://smarthistories.com/soviet-russia/

“In February 1945, the Allied leaders, Winston Churchill, Franklin D. Roosevelt, and Joseph Stalin, met at the Yalta Conference in Crimea, where the post-war world order was agreed on. The fact that Soviet troops were just 60 km from Berlin, gave Stalin an incredibly strong negotiating position.

After Germany surrendered on 9 May 1945 (Soviet time), Stalin was reluctant to withdraw his troops, and went on to turn Eastern Europe countries into his satellite states.” – smart histories

Of the 15 states that left in 90′ and 91′, Ukraine had at the most, less than 20% Russian speaking folk, with the majority of states possessing single digit Russian speaking people. And they were also? The spoils of war.

There is a long history of Russia invading other nations and taking them over, controlling their governments and domestic/economic policy in the last century under Soviet rule. Russia didn’t get to be so big by accident.

It can be easily argued that Putin is a Soviet and the Soviets never relinquished control since the breakup of the U.S.S.R.. Look at them now, with all state controlled media, censorship, quickly nationalizing assets, Russia is less free now than it was in the early 80’s. Do you see a difference? I don’t. They are the same slavers now as yesteryear.

In short, Russia became the largest nation in the world through war and conquest. Once again, it’s all in the link below.

http://smarthistories.com/soviet-russia/

Just so readers know, if it was me leading the U.S., I would have encouraged NATO to immediately adopt Ukraine as their newest member, even now. Within a day, I would have defended Ukraine on it’s own soil. But I’m just some crank with Leo in Mars. I would have tried assassinations, the works, probably would have started or finished a nuclear war by now.

What I’m trying to tell you specifically willworkforpickles is, be thankful Biden is leading the show. It’s likely that half of us would have already led the U.S. and Europe into a world war. And it’s still possible because of?

History. Russian history as a warring nation with the second largest ranked military and largest nuclear stockpile in the world, how soon we forget.

https://en.wikipedia.org/wiki/Russian_Armed_Forces

#77 don't poke the bear on 03.27.22 at 12:56 am

#74 Nonplused on 03.26.22 at 10:52 pm

The drama queen has arrived. – Garth
____________________________________

He is completely correct in his assessment that seizing Russian foreign currency reserves was a massive policy mistake. the US has just proven why Fiat currency is worthless and have guaranteed the undermining of the USD as a reserve asset.

Russia is by no means isolated. India, China, South Africa all abstained from condemning Russia’s invasion. And as long as Europe buys 40% of it’s energy from Russia, they continue to prop him up.

Isn’t it curious that Russia is still allowed to make debt payments? If Russia defaults, then there will be a problem larger than Lehman. A number of European banks will go belly up, and so will American banks.

If i’m Putin, i turn off the taps, and stop paying my debts. Europe collapses, and so does the rest of the world. Millions will freeze. Millions will go hungry.

Don’t engage in a war when you’re not prepared.

Solar and Wind are dead too. Were always good for nothing.

#78 TurnerNation on 03.27.22 at 1:09 am

Fertilizer prices. Yep just another step in the Control Over Feeding. It all dropped globally, that winter week March 2020.

–From the Killing Us Softly Dept.
What happened to ‘trust the science’. They know what they are doing.

.Dangerous chemicals found in food wrappers at major fast-food restaurants and grocery chains, report says (ctvnews.ca)
“The U.S. Centers for Disease Control and Prevention calls exposure to PFAS (per- and polyfluoroalkyl substances) a “public health concern,” citing studies that found the human-made chemicals can harm the immune system and reduce a person’s resistance to infectious diseases.”


— Almost back to normal! Gee it’s not a permanent system of control at all. They will be so healthy.

.Shanghai rules out full lockdown despite sharp rise in Covid cases (theguardian.com)

.California sends millions of COVID-19 tests to schools for the return from spring break (msn.com)

.FDA could authorize a second Covid booster shot next week (nbcnews.com)

#79 willworkforpickles on 03.27.22 at 1:12 am

#67 I don’t know

There you go again…with little concept of what is going on in the real world to what you are talking about.
Just the world according to I don’t know with a few other know nothings tagging along sentimentalizing their misguided opinions counter to what suits their personal agenda’s and ill informed false beliefs.

Nothing you say is on track with current economic focus . Your comments are idealist, outdated, out of sync with the path the economy and society is on and where its headed now. A blind follower or quite possibly a shill with his/her own agenda, one or the other.
As one poster aptly put , you’ve got to be some kind of realtor troll.
As if it matters what anyone commenting on RE here has to say, its not going to affect the market one iota.
Nonetheless and whatever you happen to be in life , your comments and responses are little more than vain babble as usual.

With regard to “canon fodder” Your response to that term in my post only exemplifies once again the trouble your having with your deficient reading comprehension skills and with your taking things out of context and making them into something other than its original intent . Pity you.

#80 Ustabe on 03.27.22 at 1:38 am

You saw correct, Floppie.
Surrey is a’booming.

My town is booming as well, both market and subsidized new rental apartments/condos all over the place. Higher end urban style town home developments 100% sold out prior to completion and original purchasers moving in. Retail is fine. Restaurants are fine. The builders both custom and spec are booked out well into next year.

Last summer we did a lengthy tour of north Island, the karst formations in and around Port Alice, Port Hardy and hiking into Cape Scott, Malcom Island, Sointula and every where the apartments are both full and fixed up, coffee shops are full and thriving, the entire population seems happy, content and far better off than just a few years ago. Houses and yards are more spic and span, unlike a few years ago. Talked to a significant number of folks who left but now have returned, opening businesses, AirBnB,s whatever. Long dormant cafes, campgrounds, general stores are re-opening and doing well, manned by very optimistic folks.

Now Tahsis, on the other hand, could use a couple of you rich guys to move in and fix things up a bit.

#81 Summertime on 03.27.22 at 4:24 am

Goldman Sachs predicts gold prices of 2500 USD by year end.

https://www.business-standard.com/article/markets/goldman-sachs-sees-gold-prices-hitting-2-500-oz-by-year-end-122030900328_1.html#:~:text=Gold%20prices%20have%20surged%20nearly,per%20cent%20to%20%242%2C500%20an

GS have been generally bearish on gold.
Very interested in the basis of the ‘fair value’ of US$1,443/oz predictions and the model citied behind it.

Gold clearly can go down slightly with all this talk about tightening, but is that realistic/the permanent interest rate ‘normalization’? I don’t think so.

Deeply negative interest rates are here to stay for a very long time, it is by intend and that is generally good for gold.

Grain prices will stabilize, maybe go down a little and then at least double from here in the next 3 years, watch also the prices of milk and meat.

High energy prices are here to stay.

#82 Summertime on 03.27.22 at 4:37 am

#27 Ryan Lewenza on 03.26.22 at 1:03 pm

I see inflation peaking this year but remaining high. Inflation has averaged roughly 2% over the last decade and I see it averaging 3-4% over the next few years in part due to the higher commodities. So yes, higher commodities should keep inflation elevated. – Ryan L

We live obviously in parallel universes.
CPI has been 2 % in the last decade, real inflation as measured in the 80-es? 7-9 %.
Just check the average M2 expansion in the last decade. It is public information/on BoC web site.

Referring to the the ‘CPI’ as ‘the inflation’ is factually incorrect and wrong, misleading at best.

Higher commodities do not cause inflation. Bad loose monetary policies do and the commodities prices reflect that. It is that simple.

As for the ‘peak inflation’ meme that is already too old and not trendy, before it was ‘transitory’, now ‘peak inflation’, when the 10 % + CPI mark comes from the US a few months down the road it would the war in Ukraine, etc.

But ‘peak inflation’ is already an old meme, let’s try some other buzz words.

If it was peak inflation why is the FED so concerned about it?

There are indications that 10 % official CPI in the states translates to 18-20 % inflation as measured in the 70-es and 80-es.

The highest ever on record since the beginning of 20-th century and only accelerating.
With rates at 0.5 %…

#83 willworkforpickles on 03.27.22 at 8:52 am

#76 Diamond Dog

Both points I brought up from your post are of the same set of consequences. The Fed and the Government mishandling of their affairs allowing both sets of circumstances to get way out of control. Its now all beyond righting the messes they both have very much helped create without avoiding great calamity to do so.
Now I agree with much of what Lyn Alden has to say, just not all of it. So we’ll have to agree to disagree on those 2 points.
Since Biden and the Fed are the current front-men, we’ll have to live with their mistakes going forward.

#84 T on 03.27.22 at 8:56 am

Good post Ryan
But unless I missed it.

You should provide the capex numbers of both oil gas and mining.

I think you will be stunned where you see them from 2015 and 2012 respectively through today.

We are literally at the beginning of this mess.

All courtesy of ESG and activist investors.

#85 Stone on 03.27.22 at 10:22 am

#69 Sail Away on 03.26.22 at 8:43 pm
#63 Downward Slope on 03.26.22 at 6:41 pm

Question for some of the pros.
(Doc, Bdwy, Sailo, and others)
-You are all in on CDN high Dividend payers.
-Since Jan 4 you are up over 50%
Question, what do you do?

———

Nothing.

A story: When I began this self-directed investing gig 13 years ago, it was done by learning, studying, and feeling my way along. I made plenty of moves that I would no longer make, but also several useful ones. One of the useful has been to maintain a detailed list of all sells along with reasons for selling and profit/loss to the point of sale.

One big takeaway? My average return would have been better had I not taken profit and sold for reasons I thought made sense at the time. And included in the list are four bankruptcies.

So now I choose holdings ever more carefully after watching for a year to several years and may take profit at highs, while also adding at dips, but almost never sell more than 1/2 a position.

Every situation has exceptions, though. So, the honest and clear-cut answer? It depends.

———

Well, at least that was an honest answer about gambling versus actually investing. I’m not saying gambling doesn’t occasionally pay off, just that it’s very inconsistent.

Apparently, it’s too hard for most everyone to just hold a balanced and diversified portfolio of ETFs and simply rebalance occasionally while adding to it as cash becomes available.

#86 don't poke the bear on 03.27.22 at 10:23 am

#82 Summertime on 03.27.22 at 4:37 am

government lies are quit apparent…

Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, Index 1982-1984=100

https://fred.stlouisfed.org/series/CPIAUCNS

#87 DON on 03.27.22 at 10:33 am

#80 Ustabe on 03.27.22 at 1:38 am
You saw correct, Floppie.
Surrey is a’booming.

My town is booming as well, both market and subsidized new rental apartments/condos all over the place. Higher end urban style town home developments 100% sold out prior to completion and original purchasers moving in. Retail is fine. Restaurants are fine. The builders both custom and spec are booked out well into next year.

Last summer we did a lengthy tour of north Island, the karst formations in and around Port Alice, Port Hardy and hiking into Cape Scott, Malcom Island, Sointula and every where the apartments are both full and fixed up, coffee shops are full and thriving, the entire population seems happy, content and far better off than just a few years ago. Houses and yards are more spic and span, unlike a few years ago. Talked to a significant number of folks who left but now have returned, opening businesses, AirBnB,s whatever. Long dormant cafes, campgrounds, general stores are re-opening and doing well, manned by very optimistic folks.

Now Tahsis, on the other hand, could use a couple of you rich guys to move in and fix things up a bit.

*******

Ah the Cape Scott trail…love that trail.

Will need to stop and get a bank loan to finance the gasoline it will take to get there.

Can’t wait to go back.

#88 don't poke the bear on 03.27.22 at 10:37 am

let’s try that again

https://fred.stlouisfed.org/series/CPIAUCNS

go to the right, click edit graph. drop down menu, click third choice, “change from year ago, index 1982-1984 = 100”

that shows you the true extent of government lies. it normalizes the data from 1913-present using 1982-1984 as the base years. too bad we can’t post graphs here.

#89 Ryan Lewenza on 03.27.22 at 10:40 am

Summertime “We live obviously in parallel universes.
CPI has been 2 % in the last decade, real inflation as measured in the 80-es? 7-9 %. Just check the average M2 expansion in the last decade. It is public information/on BoC web site. Referring to the the ‘CPI’ as ‘the inflation’ is factually incorrect and wrong, misleading at best. Higher commodities do not cause inflation. Bad loose monetary policies do and the commodities prices reflect that. It is that simple.”

Yah it’s not simple. Far from it. M2 and money printing are not the only drivers of inflation. We had massive money printing and M2 money expansion following the credit crisis and yet we still had low inflation for years. What about the impacts from globalization, just in time deliveries, technology advancement, an aging population and the massive global debt around the world. These are just a few major trends that have helped to keep inflation in check. You focus on one singular factor (M2) and give no consideration to the myriad of other deflationary forces. So it’s not ‘that simple’. – Ryan L

#90 Satori on 03.27.22 at 10:55 am

#73 Ponzius Pilatus on 03.26.22 at 10:29 pm
#72 Flop… on 03.26.22 at 9:49 pm

I am sorry to hear that your town is booming.. what you can look forward to:

A ton on new builds going up, traffic nice and slow, streets blue with exhaust, unused bike lanes, loud car music, crowds of happy drunks screaming outside late at night, lots of druggies, stranger attacks, homeless, mental health issues, car alarms, several people piling in expensive rental units, line ups, break ins and so it begins…

I never believed the Olympics were good for the city. I voted against them and now Vancouver is unrecognizable, a big cesspool of crime.

Why do we believe “booming cities” are a good thin???g… I have no idea.

*(maybe for one reason – the cost of property goes up, and that my friends is ONLY if you sell it. Which most of you won’t, “creatures of habit” seems to calcify as you age).

#91 slick on 03.27.22 at 1:05 pm

Nice choice of a picture there Ryan.
Exact same machine as mine, right down to the width of the grain head.
Was at a commodity meeting this past week. Grains may be near a top, but meats are gonna get real expensive.
Feed costs are outstripping pork, beef and cheeken prices.
Less hogs and cattle on feed, and china is in deep shit trying to increase meat production.
The world is just hoping that the US can come up with a bumper grain crop, because Ukriane is offline. There will likley not even be a crop planted this year, which should happen in the next month.
Gonna be interesting.

#92 slick on 03.27.22 at 1:10 pm

#9 Dharma Bum on 03.26.22 at 11:57 am
What’s the outlook on Pork Bellies futures?

in 2011, trading of these pork belly futures ceased due in part to a decline in the demand for bacon

You can trade futures on the pork cutouts. But you better have deep pockets and extra cash. thinly traded, and very volatile.

#93 RyanM on 03.27.22 at 3:30 pm

Would a long-term commodities supercycle mean that some Canadian real estate actually is attractive to buy? Ontario and British Columbia real estate has gone to absurd levels over the last few years. But what about real estate in Canada that may in fact be undervalued like Edmonton or Saskatoon? Would long-term strength in the commodities markets lead to a comeback in the real estate markets in the prairies?

#94 Diamond Dog on 03.27.22 at 5:06 pm

#83 willworkforpickles on 03.27.22 at 8:52 am

https://www.lynalden.com/debt-jubilee/

I know this is in your wheelhouse. Mine too. It’s nice to come across thinkers finding answers to questions no one else is asking right now.

#95 Sail Away on 03.27.22 at 7:07 pm

#85 Stone on 03.27.22 at 10:22 am

Well, at least that was an honest answer about gambling versus actually investing. I’m not saying gambling doesn’t occasionally pay off, just that it’s very inconsistent.

Apparently, it’s too hard for most everyone to just hold a balanced and diversified portfolio of ETFs and simply rebalance occasionally while adding to it as cash becomes available.

———-

Funny. I have nothing against B&D; about 60% of the portfolio would fall into the 60:40 realm.

B&D, though, is a single strategy and I don’t believe in putting all my faith in a single strategy. It (B&D) is probably still negative for the year, no?

#96 willworkforpickles on 03.28.22 at 12:33 am

#94 Diamond Dog

Fed chair Powell said recently Americans wouldn’t notice if the US dollar was removed as the world’s reserve currency.
Saying that fits about right in his playbook of tricks and smokescreens to diminish the true importance of it in the minds of many and to take as much negative focus off themselves as possible. Only the gullible and brain dead would ever believe it.
The economy of the US is built on the underpinnings of its reserve currency status period.
Lyn Alden’s suggestion of a 100 year bond to reduce the deficit in a type of debt jubilee is nothing new. Its been sidestepped because of associated risk to the US central bank nonetheless, buying already a lot of the debt on the strength of the US dollar as the world’s reserve currency.
Powell’s statement is foolhardy as the reserve currency status directly affects the life cycle of US bond structure. Regardless, a debt jubilee won’t be factored in anytime soon with that line of thinking.
Even if it were to ever be made policy, historically normalized interest rates would be put in place soon after creating a massive recession anyway . Not hiking rates would defeat the purpose of a jubilee to begin with… only to put the reserve currency status at greater risk.
Either way the economy is going to suffer much pain so a debt jubilee still isn’t in the cards.
Powell has his bag of tricks to play out on a largely unsuspecting world first before even pondering anything more exotic.