Commodity Super Cycle? Nope! (TWTW – May 25-28, 2021)

With many commodity prices having risen sharply in the past year, and the prospect of above-average economic growth spurred by excess(ive) liquidity, respectively pent-up demand, as well as earlier production curtailments, inflation data is continuing to capture its fair share of headlines.

Pictures such as this one … obviously capture more than their fair share of headlines.

With yields on fixed-income providing literally ZERO cushion against inflation … well, again, naturally, market participants are anxiously wondering whether inflation will – as per the US FED – indeed turn out to be transitory … OR … is the deflation demon truly vanquished, and has all that stimulus, etc., finally gotten us to a place where inflation could become a problem …

Stay tuned on that one, as they say, BUT without wanting to pre-empt the discussion, or reveal the outcome, let’s just say that the likes of David Rosenberg and ARK’s Cathie Woods certainly have valid points.  Specifically, spikes in several commodity prices are likely transitory indeed, + we are likely subjected to readings reflecting turbo-charged demand to make up for earlier lost production, demand, rebuilding of inventories, et al. To me, the other important element in all of this, is that, yes, technology will continue to play a deflationary role and that we have plenty of human capital untapped after significant job losses during the pandemic, + perhaps, most important, all of the indebtedness floating around is … well, deflationary in nature!  Specifically, imagine what would happen to the world economy, if inflation was indeed to take hold and rates rose significantly alongside … I think we’ve all become familiar with the concept of “stall speed” for the economy … and well, we probably wouldn’t just witness stall speed … it might be meaningfully more damaging than just a “stall”, as one and all super indebted parties out there curtails demand across the board due to rising debt servicing costs … Uuugly is how this could turn out.  Oh well … and evidently, through time, as lower and lower rates alongside two significant shocks in the past decade or so (GFC and Pandemic) spurred massively greater debt issuance … the rise in rates that can be accommodated without a real shock to the system has … gradually been that of a lower and lower ceiling.

As for the commodity supercycle – here is what participants had to say last week at an LME Asia Metals seminar, all the while several global banks keep predicting a multi-year commodity super-cycle:

A poll at the LME Asia Metals seminar on Tuesday showed only 6.49% of the audience see “super-cycle” as an accurate word to describe the main force for commodities market trends in the next 12 months, while 33.77% voted for liquidity and inflation and 22.08% went for Chinese demand and a rebound for developed economies.

Elsewhere this past week, an interesting take from Mohamed El-Erian on why the Central Banks isn’t our friend anymore => Click HERE!

Emerge Canada – (Emerge is the access point in Canada for ARKinvest). ARK Invest’s Cathie Woods, disruption maven extraordinaire, was recently interviewed by ETF Trends Director of Research Dave Nadig. Great discussions!

For the whole thing: Click HERE!

Some real nuggets in there from my perspective, amongst them:

  • Cathie’s views regarding inflation
  • A different take on regulatory “risk”
  • Managing with a 5-year time horizon, yet adjusting along the way – and what goes on within ARK’s funds as far as trading. LOVED IT! Well done Dave (as usual 🙂 )

 

ESG (Environmental, Social, Governance) – NOT as cookie-cutter or standardized as it ought to be if looking for clarity … => Click HERE for recent Globe article lamenting the lack of clarity on this front …

So what is this all about … Responsible investing? Impact investing? Seeking to prod corporations towards best in class practices in the E, S and G categories?  And what does that ultimately look like in terms of incorporating this in portfolio construction? More on this soon to come as far as assistance for you in navigating that category all the while ensuring coherence, and purpose aligns with your and your client’s preferences and objectives.

 

 

On a related note – interesting exchange between Brookfield’s Mark Carney – former Bank of England Chancellor, respectively Bank of Canada Governor – during which Conservative, Pierre Poilievre, looks at the “inconsistencies” he points to in terms of the Government here penalizing oil workers and pipelines, all the while the likes of Brookfield go on investing in other locales … presumably creating jobs there. The hypocrisy of the Davos Elites as Pierre puts it => Click HERE!

 

 

Bitcoin – continued “sell-off”, respectively “correction” … for the crypto fans out there … you can say that again!  If you guys can without a blink tolerate that kind of volatility … well, you’ve got strong stomachs to be sure!

Meanwhile, in the more garden variety of “gold” aka NOT the virtual/digital variety – I am talking real Gold bullion here – interesting to note that the real McCoy has already put in decent performance … since late March/early April.

New ETFs launched this past week:

Powershares Canada => Click HERE! for more NASDAQ “choices”.

Worth noting in passing, that Powershares is offering the cheapest Nasdaq access in Canada, having recently reduced their MER on QQC to 20 bps.

Other – there is such a key principle as keeping Church and State separate … IMO.  Similarly, I am not sure mixing religion and investing is necessarily a recipe for success … Discussing the whys and why nots could take a long time, and no doubt generate a healthy if possibly heated discussion. I say this because personally, I don’t think there is anything wrong with religion … save for the fact that “we” the human race … have a long history of being better at imposing it on everyone else than practicing it properly and living by its spirit. Why am I mentioning this here?  Because steps in the direction of seeking to do well financially by doing well in terms of investment choices evidently is what ESG is targeting.  I say if it gets us to a better place, all the power to ESG. Personally.   I only pray it isn’t yet another way for the “elites” to lord it over the rest of us, all the while making even more obscene amounts of money for themselves than they ever have …

Now on another note, Wealthsimple / Mackenzie Financial launched a Shariah-compliant ETF recently => Click HERE!

And HERE = to find out what’s in it 😉

Oh … AND before I forget … YES, there is now a FOMO ETF (LOL), that way, well, hedged against FOMO? Check it out => Click HERE!

Hope you are all enjoying the weekend, staying safe, and surrounded, whether physically or virtually, by loved ones and good friends = > both of which are a “blessing”, alongside, of course, fun, friendly, and engaging work colleagues 🙂

Talking about forgetting … how could I leave the banks out? With 5 out of Canada’s 6 Banks having reported, the focus was on sharply rebounding profits, bolstered by reductions in provisioning, and the prospect for future dividend increases / share buybacks to translate into further upside for the sector, as the Covid-19 overprovisioning exercise comes to an end …

Next Webinar – join us June 23, 2021 (12:00pm EST) as we discuss Cyber Security – (unfortunately) always a timely and topical discussion as bad actors continually look for weaknesses to exploit.

Click HERE to register!