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sdholloway56
Senior Advisor

30 yr commodity cycle

30 yr commodity cycle

just since a cycle has been very regular doesn't mean it won't disappear.

Highs 1920, 50, 80, 2020ish.

The 2010 one skewed a little- if you use an oil heavy index it peaked in '08, gold heavy peaked in '11. Anyway, good enough for government work. A few thoughts-

'20 and '50 were at the culmination of war driven demand/scarcity.

-'80 was inflation/gold driven- followed the unpegging of the dollar.

-'08 was oil driven (and pegging food to oil). Oil was arguably a lot more important monetary commodity than gold by then- petrodollars and all that.

-'11 was just an echo bubble- everybody playing for the inflation that never came. Thought for the day- doesn't mean there wasn't a very great deal of money made from being wrong- or lost from being right, but early.

-a very good chance that March '20 was a major low in the 30 yr. cycle although that doesn't mean a Commodity Supercycle by any means. In the most recent cycle the '92 low was retested in '98 before we began to go into the upswing of the major cycle. '95 was still nice for corn anyway.

-whatever the driver is in the coming cycle- it probably won't be oil, which won't be dead by '40, but dying.

- nearly unrelated but worth observing- interest rates rose for 39 years from '42-'81. Then they fell for 39 years from '81 to 2020. Very high probability that the .55% yield on the US 10 year in April '20 was a very, very significant low, although you have to think in terms of decades. The major implication of that is that asset prices were swimming with the current for 39 years. They won't be if rates are now rising over the long haul.

A lot of money was made '42-'81, just in a different way than '81-2020.

 
 
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7 Replies
roarintiger1
Honored Advisor

Re: 30 yr commodity cycle

Was this a thing back in 1890, 1860, and 1830 as well?

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BA Deere
Honored Advisor

Re: 30 yr commodity cycle

Cycles of course work a little bit because of human nature.  But look at how things changed in 40 yrs, there always was a glut of hog in the fall because many farrowed one litter per sow in the spring, there was no "Brazil", Chinese lived off a "daily handful of rice", the Soviet Union was faltering along.   

Now improvements in pigs per sow, bushels per acre, feed efficiency "just in time inventory", improved diets.  And look at rates of private & public debt that`s now seen as acceptable.  0% interest rates even negative interest rates, the world is "smaller".

I always point to the 60 yr depression cycle that we slipped by the goalie in 1990, however government spending is most of the GDP, a fed funds rate of .07% has taken the place of a "normal" 5% rate or the whole sucker goes splat.  That was the Faustian bargain which was required.

The Great Depression of 1990 - Wikipedia

 

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k-289
Senior Advisor

Re: 30 yr commodity cycle

Mathew 24  :  6   wars  &   rumors  of  wars  might  apply  here ,  with  extrapolating  debt  being  a matter  only  when  the  election  cycle  results  don't  make  favor - - -

As  a  Senator  from  Florida ,  crying  from  the debt  wilderness , although  placing  a  yacht  order  has  a  waiting  list  for  a  delivery  and  harboring  docks ,   being  several  months  backlogged  -  -  -

Record  ca$h  rent$ ,  a  sign  of   end  times  -  ?

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BA Deere
Honored Advisor

Re: 30 yr commodity cycle

Smiley Happy  Well, the remedy of a depression isn`t a very successful political campaign platform, nobody wants to be "Hoover".  So, understandably, dealing with debt (as if anything could be done about it at this point) gets put off like cleaning the rain gutters.   You see how the mob behaves these days when a cop unholsters his ..or her gun, imagine cutting their welfare?  Glad I live in Hooterville. 

There`s talk of a "global reset" that`s just another term for depression only certain winners & losers will be picked unlike past depressions where the hardest working, prepared, smart people came out of it.  As it is now, low interest rates keep homes artificially high out of the reach of first time home buyers.  Farming to they shovel money to farmers that already have $100 hogs, $6 corn, $14 beans, anyone surprised Iowa rent auction results $417/acre and $15,000 land sales?  Why don`t they spend it on women and whisky instead of wasting it on renting land?   Smiley Happy 

erikjohnson61y
Veteran Advisor

Re: 30 yr commodity cycle and Interest Rates...

SD - I disagree that your observation on interest rates is "nearly unrelated"...  falling interest rates since the '80's, following the decoupling of the dollar from a fixed exchange rate for gold, have facilitated the gradual increase since then of reckless government (and to a degree personal) spending. 

Now, however, as you pointed out, we seem to be at the top in the bond market (a bottom in interest rates), and all the accumulated debt will be the immovable object trying to resist the irresistible force of rising interest rates. Regardless of whether you like the current administrations giveaway packages, the debt will likely top $30 trillion by the end of this year. "Normal" interest rates of 5% would mean federal interest payments on the debt of $1.5 trillion annually (once all the old bonds roll over to new ones), IFF they stop any additional deficit spending. LOL. They only take in $3.6 trillion a year in taxes, and even if they raise taxes like they are proposing that would raise federal revenues to maybe $4 trillion.  

Gold is money. The Dollar is a gold substitute that is forever being diluted. An once of gold was once what an semi-skilled laborer would make in a month. From 1792 to 1936, that was $20.  Now $20 barely buys you lunch at McDonalds. BUT, $1750 now for an ounce of gold divided by 40 hours/week for 4 weeks = $10.94/hour, still about what a semi-skilled laborer would make.  So the value of gold is unchanged for hundreds of years, but government currencies come and go.  The US government will have no choice but to continue to print more dollars to try to keep this going (as opposed to cutting welfare and entitlements, which is what they should do, and eventually will have to do). This will not end well. Not tomorrow, not next year, but probably within 10-15 years people will lose faith in the US dollar.

k-289
Senior Advisor

Re: 30 yr commodity cycle and Interest Rates...

61  -  Interesting  points ,   excepting  being ,   were  do  we  go  for a  better  option , with   Credit  Suisse International  headlines  on  every  corner  of  the  globe - ? 

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k-289
Senior Advisor

Re: 30 yr commodity cycle and Interest Rates...

Credit  Suisse  stock  from  2007 ,   till  now ,  is  an  eye  opener  - - - 

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