Commodity Super-Cycle

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pages: 606 words: 87,358

The Great Convergence: Information Technology and the New Globalization by Richard Baldwin


3D printing, additive manufacturing, Admiral Zheng, agricultural Revolution, air freight, Amazon Mechanical Turk, Berlin Wall, bilateral investment treaty, Branko Milanovic, buy low sell high, call centre, Columbian Exchange, Commodity Super-Cycle, David Ricardo: comparative advantage, deindustrialization, domestication of the camel, Edward Glaeser, Erik Brynjolfsson, financial intermediation, George Gilder, global supply chain, global value chain, Henri Poincaré, imperial preference, industrial robot, invention of agriculture, invention of the telegraph, investor state dispute settlement, Isaac Newton, Islamic Golden Age, James Dyson, knowledge economy, knowledge worker, Lao Tzu, low skilled workers, market fragmentation, New Economic Geography, out of africa, paper trading, Pax Mongolica, profit motive, rent-seeking, reshoring, Richard Florida, rising living standards, Second Machine Age, Simon Kuznets, Skype, Snapchat, Stephen Hawking, telepresence, telerobotics, The Wealth of Nations by Adam Smith, trade liberalization, trade route, Washington Consensus

Putting it differently, ICT-enabled offshoring created a new style of industrial competitiveness—one that combined G7 know-how with developing-nation labor. Because this high-tech, low-wage combination turned out to be a world beater, the easier movement of ideas sparked massive North-to-South flows of know-how. It is exactly these new knowledge flows that make the New Globalization so different from the Old Globalization. Curiously Concentrated Effects and the Commodity Super-Cycle Importantly, G7 firms own this know-how, so the new North-to-South knowledge movements should not be thought of as some enormous “Kumbaya moment.” Rich nations are not sending their know-how to poor nations in a burst of caring and sharing. G7 firms work hard to ensure that their offshored knowledge stays within the confines of their production networks. According to the three-cascading-constraints view, this is why the manufacturing miracle happened in so few developing nations.

India is an exception, but mostly because India has engaged in international production networks primarily via the types of services for which frequent face-to-face interaction is less of an issue. While the second unbundling’s impact on industrialization was hyper-concentrated, the Great Convergence was a much broader phenomenon due to knock-on effects. About half of all humans live in the developing nations that are rapidly industrializing, so their rapid income growth created a booming demand for raw materials. Booming demand, in turn, created the “commodity super-cycle,” which subsequently sparked growth takeoffs in many commodity-exporting nations that were untouched by the emergence of global value chains. Globalization’s Next Big Thing: Globalization’s Third Unbundling The three-cascading-constraints narrative—which is summarized graphically in Figure 3—plainly admits the possibility of a third unbundling, if face-to-face costs plunge in the way coordination costs have since the 1990s.

Since the production stages that were offshored still had to fit flawlessly with those left onshore, the offshoring firms sent their know-how along with the jobs. In this way, the flows of knowledge that used to happen only inside G7 factories became a key player in globalization (light bulbs in bottom panel). These new information flows allowed a handful of developing nations to industrialize at a dizzying pace—resulting in a massive shift of industry from the North to the South. This Southern industrialization—together with the commodity super-cycle it launched—propelled emerging market income growth rates to unprecedented levels. The result was the “shocking share shift” shown in Figure 1. In a nutshell, this is how the ICT revolution transformed globalization and its impact on the world economy; up to 1990, globalization was mostly about goods crossing borders; now it is also about know-how crossing borders . Taken together, these developments may dramatically change the nature of globalization in coming decades.


pages: 537 words: 144,318

The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money by Steven Drobny


Albert Einstein, Asian financial crisis, asset allocation, asset-backed security, backtesting, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business process, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, Commodity Super-Cycle, commodity trading advisor, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, diversification, diversified portfolio, equity premium, family office, fiat currency, fixed income, follow your passion, full employment, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, North Sea oil, open economy, peak oil, pension reform, Ponzi scheme, prediction markets, price discovery process, price stability, private sector deleveraging, profit motive, purchasing power parity, quantitative easing, random walk, reserve currency, risk tolerance, risk-adjusted returns, risk/return, savings glut, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, The Great Moderation, time value of money, too big to fail, transaction costs, unbiased observer, value at risk, Vanguard fund, yield curve

Even though we are in a general strong upward trend in commodity prices, interim volatility can be huge, as we saw in the second half of 2008. Commodity Super Cycle The Commodity Super Cycle is an economic theory based on demographic trends and the resultant effect on demand for basic commodities. According to the theory, it is generally believed that by 2050, the global population is expected to number 9.1 billion people, assuming declining fertility rates. Finite raw materials, coupled with an increasing population base, will translate into higher prices. Over the past decade, Jim Rogers (Inside the House of Money, Chapter 11) has become one of the best-known advocates of the “Commodity Super Cycle” theory. According to Rogers, the twentieth century has seen three secular bull markets in commodities (1906-1923, 1933-1955, 1968-1982).

I knew from that initial conversation that he understood how to construct great risk-versus-reward trades and would be a moneymaker, which has proven correct. Nearly two years later, I sat down with the Commodity Trader again at a mahogany table in an art-adorned conference room in his high tech offices, where currently he presides over one of the largest commodity hedge funds in the world. He is a firm believer in the commodity super cycle, and spends a great deal of time thinking about the second-order effects on other markets and products. He says that pension funds and other real money investors have an economic reason to invest in commodities as an inflation hedge, but the devil is in the details. It’s all about how you construct the trade. How did you get into the markets? I had family working in finance and in The City so I had always been fascinated by that world.

When structuring a trade in an industrial commodity, you can make reasonable assumptions on supply, but the economic cycles have been so violent in recent years that they have been an even bigger driver of commodity prices than the underlying supply cycles for example. The volatility during 2008 and 2009 reminds me of the 1997-1998 period (see Figure 8.1). Back then, the Asia crisis and the collapse of emerging markets caused a massive sell-off in commodities. It looked like the commodity super cycle that people even back then had been talking about for so long was off the table. It looked as if it was going to take years for some of the emerging market countries to pay back the IMF for their loans, creating a strong headwind to a commodity price recovery and an environment of extreme bearishness. What transpired instead was commodity markets, and particularly oil, bounced back very quickly on the heels of a quicker and stronger than expected global recovery, largely created by a reduction in interest rates by global central banks.


pages: 417 words: 109,367

The End of Doom: Environmental Renewal in the Twenty-First Century by Ronald Bailey


3D printing, additive manufacturing, agricultural Revolution, Albert Einstein, autonomous vehicles, Cass Sunstein, Climatic Research Unit, Commodity Super-Cycle, conceptual framework, corporate governance, credit crunch, David Attenborough, decarbonisation, dematerialisation, demographic transition, diversified portfolio, double helix, energy security, failed state, financial independence, Gary Taubes, hydraulic fracturing, income inequality, invisible hand, knowledge economy, meta analysis, meta-analysis, Naomi Klein, oil shale / tar sands, oil shock, pattern recognition, peak oil, phenotype, planetary scale, price stability, profit motive, purchasing power parity, race to the bottom, RAND corporation, rent-seeking, Stewart Brand, Tesla Model S, trade liberalization, University of East Anglia, uranium enrichment, women in the workforce, yield curve

Food and raw material prices also rose markedly, although they remain well below the highs reached in the 1970s.” The International Monetary Fund’s food price index has dropped from its 2011 high of 192 points to 147 points in February 2015, a fall of about 25 percent. Was this rapid run-up in prices a sign that the limits to growth were now upon us? Certainly many ideological environmentalists have interpreted the price spikes that way. Peak Commodity Super-Cycle? “The world is at, nearing, or past the points of peak production of a number of critical nonrenewable resources—including oil, natural gas, and coal, as well as many economically important minerals ranging from antimony to zinc,” warned prominent environmentalist Richard Heinberg in his 2010 article “Beyond the Limits to Growth.” Heinberg had earlier made plain his collapsist beliefs in his 2007 book Peak Everything: Waking Up to a Century of Declines.

Similarly, the consultancy Synapse Energy Economics projected in its 2012 report that carbon dioxide prices would range between $35 and $90 per ton by 2040. What will the price of oil be in the future? One can find just about any estimate one wants. For example, in late 2013, Reuters polled twenty leading oil industry experts and obtained estimates for 2020 prices ranging from $70 to $160 per barrel. The International Energy Agency projects that the price of oil will be around $128 per barrel (2012 dollars) in 2035. In their analysis of commodity super-cycles, Erten and Ocampo report: “In contrast to these trends in non-oil commodity prices, real oil prices have experienced a long-term upward trend, which was only interrupted temporarily during some four decades of the twentieth century.” This suggests that the price of oil will not likely fall back to its 1998 average of $17 per barrel (2014 dollars). High oil prices have, however, drawn forth substantial investments in new production.

Maugeri’s suggestion that oil prices could dip below $50 per barrel in the near term was realized in January 2015 when the price for benchmark West Texas Intermediate crude hovered around $45 per barrel, but he generally assumes that the price will remain above $70 in the run-up to 2020. Despite reassuring petroleum reserve estimates and the downward pressure on prices that increased production and the waning of the current commodity super-cycle generates, a peak oil crisis might still happen. How? Through political mismanagement. Political Peak Oil “The real problems concerning future oil production are above the surface, not beneath it, and relate to political decisions and geopolitical instability,” notes Maugeri. It is a disquieting fact that government-owned oil companies control nearly 90 percent of the world’s oil reserves and produce about 75 percent of current supplies.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma


3D printing, Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, knowledge economy, labor-force participation, Malacca Straits, Mark Zuckerberg, market bubble, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Peter Thiel,, Plutocrats, plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

In the 1970s similar exercises in extrapolation led some American scholars and intelligence analysts to predict that the Soviet economy was destined to become the largest in the world. Instead, it collapsed at the end of the 1980s. By then forecasters had handed the next century to Japan, but it became the next economic star to falter. None of that prevented a new round of excitement in the early 2000s, focused on the rise of the BRICs, or BRICS (some included South Africa in the group), and the commodity super cycle. As the hype was peaking around 2010, the historical pattern for commodity prices—which tend to boom for a decade, then fall for two decades—was about to reassert itself. Today talk of these nations fulfilling their destinies as regional economic powerhouses seems like a dim memory. Recognizing that this world is impermanent leads to the second principle, which is to never forecast economic trends too far into the future.

Scott, David. “Deflationary Boom—Some Random Thoughts and Questions.” Cha-am Advisors, March 2, 2015. Sharma, Ruchir. “The Oil Shock with No Pain.” Newsweek, October 31, 2005. ——. “Cracking Inflation Should Be India’s Priority.” Financial Times, December 8, 2013. Stephens, Bret. “Book Review: ‘The Myth of America’s Decline,’ by Josef Joffe.” Wall Street Journal, November 6, 2013. Ward, Justin. “Commodity Super Cycle Analysis.” Wells Fargo Research, January 15, 2015. Warsh, Kevin, and Stanley Druckenmiller. “The Asset-Rich, Income-Poor Economy.” Wall Street Journal, June 19, 2014. Wilson, Dominican. “Emerging Markets: EM Macro Daily—Who in EM Can Live the Australian Dream?” Goldman Sachs Global Investment Research, February 26, 2014. “World Bank Tackles Food Emergency.” BBC News, April 14, 2008. Chapter 8: Cheap Is Good Ahmed, Shaghil, and Andrei Zlate.


pages: 519 words: 136,708

Vertical: The City From Satellites to Bunkers by Stephen Graham


1960s counterculture, Berlin Wall, Buckminster Fuller, Chelsea Manning, Commodity Super-Cycle, deindustrialization, Edward Glaeser, Edward Snowden, energy security, Frank Gehry, ghettoisation, Google Earth, high net worth, housing crisis, Howard Zinn, illegal immigration, Indoor air pollution, Jane Jacobs, late capitalism, means of production, megacity, megastructure, mutually assured destruction, new economy, New Urbanism, nuclear winter, oil shale / tar sands, planetary scale, Plutocrats, plutocrats, post-industrial society, Project Plowshare, rent control, Richard Florida, Ronald Reagan, Skype, South China Sea, the built environment, The Death and Life of Great American Cities, trickle-down economics, urban decay, urban planning, urban renewal, urban sprawl, white flight, WikiLeaks

In the process, the City unleashes utterly new geo-dynamics that will play out for thousands – and in some cases millions – of years to come’.11 Indeed, such urban geological processes work through generations, drawing precious metals and resources from mines and pits at the ends and depths of the earth to be refined, processed, manufactured, and dug into the city in the form of vast concentrations of subterranean pipes, wires and conduits. Here a stark irony presents itself. World urbanisation and economic growth regularly create spikes in commodity prices as even the frenzied extension of mining (largely in the Global South) fails to meet demand. The so-called ‘commodities super cycle’ between 2000 and 2014 is a powerful example. Thus, as metals become more expensive and valuable, the very manufactured geology under the world’s cities becomes a lucrative ‘mine’ itself. Authorities in Scandinavian cities are already exploring techniques that will allow them to dig into their manufactured ground to pull out the valuable metals within unused, obsolescent or previously forgotten ‘hibernating’ infrastructure – old tram lines, disused district heating pipes, abandoned power and telephone wires, forgotten nineteenth-century gas networks and so on – as resources to sustain contemporary economic development.