The 4 Feb Bloomberg Odd Lots podcast took a little side track into the Wallstreetbets' alleged attempt to squeeze the silver market.
The discussion then moved back on track. The guest is Jeff Currie, the global head of Commodities Research at Goldman Sachs. He talked about what he thinks is the coming commodities boom and the potential for inflation to return. Here are the more interesting points:
- Oil benefits from green stimulus in near term (next 3 to 5 years), before it is hit by green energy (around 2024)
- While vaccine offers tactical upside, the pandemic itself creates the structural catalyst for a commodities bull market
- Themes that will play out:
1) structural underinvestment in supply. "Revenge of the old economy" as the new economy has suck investment away from old economy, similar to the dot-com boom.
ESG concerns overlaid on top of that will result in a tight supply of oil
2) Policy driven demand
Re-distributional policy: distribute downwards to lower income households. If stimulus goes through asset price rises resulting in the wealth effect (such as the last 2 decades), it goes to high income groups who spend 3 cents of each dollar (low marginal propensity to consume). The Biden administration intends to distribute to the lower income group, who tends to spend 100 percent of what they are given. Furthermore, the lower income group tends to spend on goods that are more commodities intensive.
Environmental policy: green capex used to drive re-distribution of income
Versatility in supply chain: the drive to create security in supply chains of critical commodities
- Inflation is likely to rise during the commodities boom
The last point is particularly interesting. If inflation returns, what happens to interest rates and bond prices? I'm no economist so your guess is probably better than mine.
None of the above should be construed as investment advice. Do your own due diligence as I will not be responsible for any loss/risk.
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