Is the Commodity Supercycle Real?

Hello friends. How are you doing out there? This is Vijay Bhambwani. I hope the market is treating you well and you're able to navigate through the ins and outs, the traffic of the market profitably so.

Now this video is about a topic which I have received a lot of feedback, lot of questions. People still seem to have a lot of doubts. This is a continuation of the video which I had made on fifth of March 2021 which was a tackling the issue of whether metals are in a super cycle.

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I'll take the video forward from there. I pick up the pieces where I left and now I am asking you whether commodities themselves are in a super cycle, not just base metals but commodities.

So it's a little broader in its perspective, and my view for better off overs from your point of view still remains the same. I am of the opinion that prices are rising, have risen, and might just possibly continue to rise but for the wrong reasons.

A super cycle is when there is an undeniably strong demand. There is a whole lot of buyers banging on the doors of the sellers. Hey, give me more metals, give me more commodities, give me more fuel, give me more energy, give me more food because these are agri commodities also.

So is there banging on the doors of the sellers from eager buyers who are willing to pay top dollar, outbid each other and say if somebody is offering you US$5, I am gonna give you US$10, but I want this stuff first.

Do you see that happening? It's not happening. So why are prices rising?

Now I tackle this issue in my 19th May video, which was titled Is Bullion Rising? Question mark. Is bullion rising? I urge you to see that video again.

The question is not whether bullion is rising. The question is, why is bullion rising?

Now I said it's because a whole lot of unbacked paper currency, also known as fiat currency, is being printed, is being sloshing around in the markets and when easy money, free money starts sloshing around in the market, this is exactly what happens.

I showed you the chart of lumber, lakdi, wood, in that video, I showed you how lumber has appreciated 600% in the last 13 to 14 months.

Are Americans buying a whole lot of new houses? This information is very easily available from many news-based websites, week on week, month after month, in new home sales and existing home sales.

You can actually visit the website of the National Association of Realtors and see how many homes are being bought and sold. Are people renovating their homes like never before, like there's going to be no tomorrow? Is the price of lumber or wood going up because demand is shooting through the sky?

In that video also showed you the hyperlinks and the articles of FAO, which is Food and Agriculture Organisation, which is a subsidiary of the United Nations Organisation. As credible a source as can be. Food prices are running at 7, 9 or 13 year highs, depending on what category of food you are talking about.

Now, unfortunately, when free money is being thrown in the market, it has to deploy itself where it can earn a profit. So initially it started with the equity market. Throughout the pandemic times from end of March 2020, the market has been zooming up and defying gravity. It's all easy money which is pushing prices.

Businesses are shut, losses in in job markets are big, pay cuts are rampant and yet stock markets are going up.

This is because of what the Fed and the other central bankers learned in 2001 after 9/11, those terror attacks of two aircrafts dashing into the WTC and after that, even more effectively and forcefully, the lesson was learned in the global financial crisis of 2008.

Simply print money and start throwing it in the market and there you have a bull market. Call it by any name Quantitative Easing, fiscal stimulus, pump priming the economy but it's easy money.

Now, this easy money is triggering inflation because there's a lot of money chasing fewer assets, and it has to earn profits. Therefore, it is pumping up prices, and therefore, commodity markets are basically rising.

Like I said, lumber had no reason to go up 600% the way it has. Indian traders unfortunately, don't even know that wood is traded in the US markets. A whole lot of stuff is traded in the US market. Pork bellies, beef, orange juice, etcetera.

So when you see those prices, those are really eye popping, and this inflation is likely to hit people where it hurts most. The gut. The stomach.

Now let's look at the price of aluminium. Do you know that 8% of the Earth's crust is made up of aluminium? After iron ore, it is the second most commonly found metal in the universe, and yet it has appreciated over 75 to 80% in the last one year or so.

Look at copper. Latin American countries provide a huge share of base metals in the export markets. Now, this is something that I keep putting on my social media accounts, and sometimes I do receive a lot of interesting feedback also but that's the learning process by itself.

Now, many of these Latin American and South American nations are indebted up to their necks with the international borrowings in US dollars and they are basically trying to make opportunity out of adversity by trying to impose very high taxes on these base metals.

For example, some days ago, I put up a tweet with a hyperlink to a Bloomberg article, which said that countries like Chile and Peru are trying to impose taxes of hold your breath 75% on the selling price of copper.

Now, as an intelligent person who is watching this video, all you need to do is google search how much do Peru and Chile constitute in the global export market, where copper is concerned and you'll see what I mean.

Now if this become a president where beleaguered nations either to raise revenues for fiscal stimulus in the pandemic times or to repay their international borrowings or to even service that borrowing by paying interest on borrowing, start raising taxes on these metals, what do you think happens?

People start to rush to buy these metals before the new taxes come in place, which is why copper shot up way beyond Rs 800 then talk, 'intelligent' talk started coming into the social media about Rs 850 Rs 900 for even Rs 1,000 per kilo.

My overseas viewers, please note, we are talking about Indian national rupees per kilogram of copper. So then the wise guys started talking about 850, 900, and 1,000 kilogram, and yet once Big Brother America started waving is stick, bang! Rs 730 a kilo from 800 plus. What really happened?

Bang! Aluminium from 205-207 to 180 bucks. This is what will happen in the rally, the ongoing rally, which I am seeing in commodities.

I admit prices are going up, but I don't think this is a super cycle or a grand supercycle because, like I said, buyers are not banging on the doors of the sellers and outbidding themselves.

So unlike equities, where supply is limited because the paid up capital of a company does not change on a day on day basis but demand can be stimulated by the media and the social media of course, commodities have almost infinite availability of resources.

All you need to do is dig a little more into the ground, plant a few more seeds in the ground or mine a little more. Sure, the cost can vary depending on fuel wages etc, but you can't justify a 50, 70, 80, or 100% rise in commodity prices.

So as an experienced trader and I've been in this market since 1986 this is my 35 years of experience talking, we've heard this kind of supercycle talk in 2005. We've heard this grand supercycle talk in 2007-2008, and let's not forget the magical years of 1997-1998 when the entire Asia was punch drunk and behaving like a drunkard in the so called Southeast Asian currency crisis, where any and everything was on a one way ticket to the moon where asset prices were concerned.

Do you remember if you are as old as me and were trading in the market in 97-98, the kind of talk we used to hear on television and the kind of a research reports that we used to read in those days in the print media newspapers? It will tell you wat is happening right now.

Seldom does the market change. It's only the participants that change, and what changes is the mode of delivery of the content.

Now it is right into your cell phone by way of what WhatsApp SMSs and what not. In those days, information spread a little slowly. Now, information is spreading much faster, which is why you're seeing the market's getting drunk even faster.

Do remember that research reports are just that. Research reports. They are opinions of the research report writer. They need not be the gospel truth. It's your money. Be extremely careful. Go long by all means. I am not saying that you should go short or not participate. Go along by all means.

But remember, it's your money, and it's not even your money. I consider the money that I trade with as money that belongs to my parents, my wife, my children and their future and of course me. So you're putting at risk a whole lot of dependents of yours by trading recklessly.

Trade carefully. Go long if you must but do remember that this is not a one way ticket to the moon.

With these sombre words of warning, I bid goodbye to you in this video not before reminding you to subscribe to my YouTube channel if you haven't already done so.

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This is Vijay, Bhambwani signing off for now. I wish you have a very profitable day ahead. Thank you for your patience. Take care. Bye.