Commodity Super-Cycle

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pages: 606 words: 87,358

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

"Robert Solow", 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, commoditize, Commodity Super-Cycle, David Ricardo: comparative advantage, deindustrialization, domestication of the camel, Edward Glaeser, endogenous growth, Erik Brynjolfsson, financial intermediation, George Gilder, global supply chain, global value chain, Henri Poincaré, imperial preference, industrial cluster, industrial robot, intangible asset, invention of agriculture, invention of the telegraph, investor state dispute settlement, Isaac Newton, Islamic Golden Age, James Dyson, Kickstarter, knowledge economy, knowledge worker, Lao Tzu, low skilled workers, market fragmentation, mass immigration, Metcalfe’s law, New Economic Geography, out of africa, paper trading, Paul Samuelson, Pax Mongolica, profit motive, rent-seeking, reshoring, Richard Florida, rising living standards, Robert Metcalfe, Second Machine Age, Simon Kuznets, Skype, Snapchat, Stephen Hawking, telepresence, telerobotics, The Wealth of Nations by Adam Smith, trade liberalization, trade route, Washington Consensus

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.

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.

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 .

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, Bear Stearns, Bernie Madoff, Black Swan, bond market vigilante , Bretton Woods, BRICs, British Empire, business cycle, business process, buy and hold, capital asset pricing model, capital controls, central bank independence, collateralized debt obligation, commoditize, 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, George Santayana, Hyman Minsky, implied volatility, index fund, inflation targeting, interest rate swap, inventory management, invisible hand, Kickstarter, London Interbank Offered Rate, Long Term Capital Management, market bubble, market fundamentalism, market microstructure, moral hazard, Myron Scholes, 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 free rate, risk tolerance, risk-adjusted returns, risk/return, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, special drawing rights, statistical arbitrage, stochastic volatility, stocks for the long run, stocks for the long term, survivorship bias, tail risk, The Great Moderation, Thomas Bayes, time value of money, too big to fail, Tragedy of the Commons, transaction costs, two and twenty, unbiased observer, value at risk, Vanguard fund, yield curve, zero-sum game

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.

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.

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, Asilomar, autonomous vehicles, business cycle, Cass Sunstein, Climatic Research Unit, Commodity Super-Cycle, conceptual framework, corporate governance, creative destruction, credit crunch, David Attenborough, decarbonisation, dematerialisation, demographic transition, disinformation, disruptive innovation, diversified portfolio, double helix, energy security, failed state, financial independence, Garrett Hardin, Gary Taubes, hydraulic fracturing, income inequality, Induced demand, Intergovernmental Panel on Climate Change (IPCC), invisible hand, knowledge economy, meta-analysis, Naomi Klein, oil shale / tar sands, oil shock, pattern recognition, peak oil, Peter Calthorpe, 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, Tragedy of the Commons, two and twenty, University of East Anglia, uranium enrichment, women in the workforce, yield curve

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.”

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).

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

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, 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, creative destruction, 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, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, 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, Paul Samuelson, 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 Future of Employment, 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

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.

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.

pages: 249 words: 66,492

The Rare Metals War by Guillaume Pitron

Albert Einstein, Berlin Wall, carbon footprint, cleantech, cloud computing, collapse of Lehman Brothers, Commodity Super-Cycle, connected car, David Attenborough, decarbonisation, deindustrialization, dematerialisation, Deng Xiaoping, Donald Trump, Elon Musk, energy transition, full employment, industrial robot, Internet of things, invisible hand, Jeff Bezos, Kickstarter, knowledge economy, Lyft, mittelstand, offshore financial centre, oil shale / tar sands, planetary scale, Silicon Valley, smart cities, smart grid, smart meter, South China Sea, spinning jenny, Tesla Model S, Yom Kippur War

The colossal investments needed to build the downstream industry were delayed, and the country’s trade balance began to teeter as budget shortfalls accumulated. In 2017, the country had no choice but to loosen its strategy by allowing several minerals to be exported again.49 The drop in commodity prices was largely responsible for this setback, as this nationalistic approach was for the most part implemented during a global ‘commodities super cycle’ — fifteen years of plenty that began in 2000, during which market prices skyrocketed. It was a boon for buyer countries, but also put seller countries in a position of force that aroused their nationalist instincts. But the super cycle ended in 2014. The consumer-producer trade power returned to an even keel, and producer countries began to think twice before investing higher up the value chain.

pages: 232 words: 70,835

A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan by Ben Carlson

Albert Einstein, asset allocation, backtesting, Bernie Madoff, Black Swan, business cycle, buy and hold, buy low sell high, Commodity Super-Cycle, corporate governance, delayed gratification, discounted cash flows, diversification, diversified portfolio, endowment effect, family office, financial independence, fixed income, Gordon Gekko, high net worth, index fund, loss aversion, market bubble, medical residency, Occam's razor, paper trading, passive investing, Ponzi scheme, price anchoring, Richard Thaler, risk tolerance, Robert Shiller, Robert Shiller, South Sea Bubble, sovereign wealth fund, stocks for the long run, technology bubble, Ted Nelson, transaction costs, Vanguard fund, Vilfredo Pareto

Investors need to understand themselves to be able choose wisely among the assets they include in a portfolio. Myth 11: Commodities Are a Good Long-Term Investment Want to know the best way to find your way into a financial advisor's asset allocation model? Exhibit supremely strong performance over the most recent period. Case in point is the mid-2000s commodities super-cycle that caused many investors to consider an allocation to commodities. Most diversified baskets of commodities more than doubled in value in the 2001 to 2007 period. Precious metals equities—the stocks of the companies that extract these commodities for use—were up an astonishing 615 percent.

pages: 310 words: 85,995

The Future of Capitalism: Facing the New Anxieties by Paul Collier

"Robert Solow", accounting loophole / creative accounting, Airbnb, assortative mating, bank run, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, Bob Geldof, bonus culture, business cycle, call centre, central bank independence, centre right, Commodity Super-Cycle, computerized trading, corporate governance, creative destruction, cuban missile crisis, David Brooks, delayed gratification, deskilling, Donald Trump, eurozone crisis, financial deregulation, full employment, George Akerlof, Goldman Sachs: Vampire Squid, greed is good, income inequality, industrial cluster, information asymmetry, intangible asset, Jean Tirole, job satisfaction, Joseph Schumpeter, knowledge economy, late capitalism, loss aversion, Mark Zuckerberg, minimum wage unemployment, moral hazard, negative equity, New Urbanism, Northern Rock, offshore financial centre, out of africa, Peace of Westphalia, principal–agent problem, race to the bottom, rent control, rent-seeking, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, Silicon Valley, Silicon Valley ideology, sovereign wealth fund, The Wealth of Nations by Adam Smith, theory of mind, too big to fail, trade liberalization, urban planning, web of trust, zero-sum game

The global boom in commodity prices of 2000–2013 appeared at the time to be powering Africa and the Middle East forward, but this now looks doubtful. Remarkable new global data has collated comprehensive measures of national wealth per capita, including not only the conventional components such as the capital stock, but education and natural wealth as well.1 The data provides two snapshots – 1995 and 2014 – fortuitously spanning the commodity super-cycle. From it, we can see whether the unprecedented temporary increase in the natural resource earnings of many poor countries has led to gains that can be sustained. What it reveals is that the poorest countries fell further behind everyone else. Not just the absolute increase, but the percentage increase in per capita wealth was much less in the low-income countries than in all other income groups, and in much of Africa wealth actually fell.

pages: 519 words: 136,708

Vertical: The City From Satellites to Bunkers by Stephen Graham

1960s counterculture, Berlin Wall, Boris Johnson, Buckminster Fuller, Buy land – they’re not making it any more, Chelsea Manning, Commodity Super-Cycle, creative destruction, deindustrialization, digital map, drone strike, Edward Glaeser, Edward Snowden, energy security, Frank Gehry, ghettoisation, Google Earth, Gunnar Myrdal, high net worth, housing crisis, Howard Zinn, illegal immigration, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, late capitalism, low earth orbit, mass immigration, means of production, megacity, megastructure, moral panic, 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, Right to Buy, 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, William Langewiesche

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.

pages: 442 words: 130,526

The Billionaire Raj: A Journey Through India's New Gilded Age by James Crabtree

accounting loophole / creative accounting, Asian financial crisis, Big bang: deregulation of the City of London, Branko Milanovic, business climate, call centre, Capital in the Twenty-First Century by Thomas Piketty, centre right, colonial rule, Commodity Super-Cycle, corporate raider, creative destruction, crony capitalism, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, facts on the ground, failed state, Francis Fukuyama: the end of history, global supply chain, Gunnar Myrdal, income inequality, informal economy, Joseph Schumpeter, liberal capitalism, Mahatma Gandhi, McMansion, megacity, New Urbanism, offshore financial centre, open economy, Parag Khanna, Pearl River Delta, Plutocrats, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, Rubik’s Cube, Shenzhen special economic zone , Silicon Valley, Simon Kuznets, smart cities, special economic zone, spectrum auction, The Great Moderation, Thomas L Friedman, transaction costs, trickle-down economics, Washington Consensus, WikiLeaks, yellow journalism, young professional

“Indians are no longer going to remain subdued and live in a simple fashion…Young Indians want to be like me.”36 But he rose to prominence in a particular moment in Indian history, namely the economic boom of the mid-2000s. In the consumer economy, millions of Indians bought cars, built houses, and took flights for the first time. What was called the global commodity “super-cycle”—driven in particular by rising demand in China for minerals like coal, bauxite, and iron ore—kicked off a dash for natural resources across India too. Stock markets roared ahead, creating a bulging new billionaire class. It is hard to pick an exact date, but at some point between the time of Manmohan Singh’s election victory in 2004 and Mallya’s fiftieth birthday party the following year, something in India changed, and a new gilded age began.