The whole time, hopefully a few copper projects have floated and sunk into obscurity, the price has rallied then dumped and interest has withered as other sectors caught the speculative interest. And yet the demand for copper is essential to modern life in a myriad of forms. The proposed surge in electric vehicles merely adds what we can term ‘the exciting cause’. But the investment into copper mines and projects really hasn’t been there for a long time now. That means any hint of a shortage could see the price barnstorming up. It’s already moving strongly. See for yourself: It’s not as if high copper grades are easy to come by in the best of times, either. And governments just continue to pour money on top of this potential speculative bonfire. From Reuters: ‘British finance minister Rishi Sunak will announce the heaviest public borrowing since World War Two when he spells out his spending plans next week after the biggest economic crash in over 300 years… ‘Government borrowing this financial year is likely to be around 400 billion pounds, according to Citi, while HSBC has forecast 365 billion pounds. ‘This is equivalent to between 17% and 20% of GDP, well above its 10% peak at the height of the global financial crisis.’ And don’t forget we have the US stimulus package to come somewhere in 2021 if the US government gets settled eventually. There’s a big old commodity boom brewing in my view. All the elements are there for it to happen; years of underinvestment and investor disinterest, lots of building and spending to cause a demand shock, plus a weakening US dollar to kick prices along too. I’ll admit something else. I expected this to happen a few years ago. So did a few others I respect. The drawdown has gone on longer than anyone thought possible, as is the way of markets. That doesn’t mean you can be indiscriminate. Oil is unlikely to go over $50 anytime soon you would think. There’s too much of it around, and demand is problematic before you even get to the climate implications. And I simply cannot get excited about uranium, though there are plenty in the market prepared to back this idea. I no longer bother trading or investing in anything except where I have high conviction. The future of energy is solar as far as I’m concerned. But I don’t begrudge anyone making a buck if I’m wrong, early or both. The logical plays for a commodity boom — if this thesis is correct — is copper, rare earths, and the base metals. Lithium may have run already in the short term…but the longer-term case looks very solid. Such an outcome would likely pressure the Aussie dollar higher. Despite the media blather about interest rate differentials, the Aussie is much more tightly correlated with commodity prices. A rising currency could add extra appeal to Aussie stocks for those investment fund managers with an eye to two catalysts instead of one. Therefore, my bias is to think Aussie stocks could outperform US stocks over the next year or two. My friend and colleague Greg Canavan showed a chart last week that Aussie stocks haven’t been this cheap relative to US stocks in decades. One reason is that the big US tech stocks are wildly profitable and innovative, and we don’t have the equivalent here in Australia. But we do have a solid natural resource sector that, globally, has been out of favour for a long time. But with bonds as an asset class now barely generating a return, if any, commodities look astonishingly cheap on a relative basis. And all that money governments and central banks are pumping out has to go somewhere. Buckle up for what could be an exciting 12 months. Best wishes, Callum Newman, Editor, The Daily Reckoning Australia |