Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How To Profit From A Bursting Bond Bubble

Commodities / Resources Investing Jun 02, 2015 - 04:36 PM GMT

By: SecularInvestor

Commodities

Recent economic data do not show much strength, at least not in the U.S.  The Q1 Gross National Product in the U.S. pointed to an economic contraction of -0,7%.  It was the second consecutive year in which the economic activity declined quarter-on-quarter.  That has not happened since the credit crisis of 2008.  Chart courtesy: Marketwatch.


GDP_US_2011_2015_585

The American economy clearly has been impacted by the strengthening dollar. But we also believe that real growth is fading. Additionally, we know an interest rate hike will occur sooner or later, which will undoubtedly have economic repercussions. Considering those elements the peformance of the broad averages should not come as a surprise.

It seems that the American economy, as well as its monetary policy, are arriving at some sort of “end point.” What is the reason for continual stimulation of an economy, which after 5 years of extreme stimulus, is not growing?

This will be a tough challenge for financial markets in the years to come.

However, every problem contains an opportunity. Likewise, every crisis creates new heroes. John Paulson became famous because of his ‘Big Short’ in 2008. He traded the other side of those financial products which were so hot in the real estate market before the financial crisis hit (ABC’s, CDS, CDO’s, MBS, etc). John Paulson became a multi-billionaire.

Today, we see another rich investor who has turned his attention to the next ‘Big Short.’ His name is Paul Singer. Do not forget his name. He is calling his trade ‘the Bigger Short’!

Singer is telling his subscribers today the same thing we have been telling our subscribers for years. The monetary interventions of central banks are unprecedented and have never been implemented on such a large scale. Therefore, even the monetary masters (i.e. central bankers) find it impossible to predict the effects.

Singer is convinced these policies will have dramatic effects on the bond market, sooner or later. Consequently, his “Bigger Short” is focused on government bonds … from all over the globe!

“Bond holders still believe it is safe to own 30-year German government bonds with a yield of 0,6%, or 20-year Japanese bonds with a 1% yield, or American 30-year Treasuries with a 2% rate. That is an unrealistic belief.”

Obviously, Paul Singer is correct. However, he does not want to be the first one to short bonds. Many have tried to short bonds but were hurt by the ongoing outrageous bond bull market. Still, Singer believes that the current bond market justifies a short trade from a risk/reward perspective.

Only time will tell whether Singer will become the “next Paulson.” We definitely support Singer’s vision in theory, but from a practical point of view we prefer to execute differently. The rationale behind our vision is that a collapse in the bond market will lead to a gigantic exodus of capital which will seek new investment opportunities.

Instead of shorting bonds we believe it is better to invest in the assets that will benefit from the capital that will come out of bonds. We believe an exodus from bonds will be inflationary, hence we are looking into inflation sensitive assets: commodities, precious metals, and stocks. We believe they will be the next secular trend, and recommend secular investors focus on those segments.

We do not see a bust coming, similar to the collapses of 2000 and 2008. The exit of capital out of the bond markets will be a slow process which will take years. An appropriate analogy would be a tanker leaving port. It will initially move extremely slowly, but once it has picked up speed, there is no way to stop it!

We believe that commodities will benefit not only from the inflationary effect, but even more importantly, supplies are shrinking. The inexpensive minerals in the earth are being exhausted and are less available each year.

Oil, copper, zinc, … it is increasingly difficult and expensive to mine those assets. Not coincidentally, China is very focused on most of those commodity segments.  Why? On the one hand, the Chinese are bargain hunters.  But also, that country has a culture with a focus on long term value, so they must be recognizing that there is enormous value at current prices.  Hence, it is very likely that it is China’s “Big Short” trade, in line with ours.

Mark Bristow, chief executive officer at South African-based Randgold Resources Ltd., recently explained that gold companies are mining “a shrinking reserve base,” adding to it there is no way they can continue to mine a declining reserve grade at current prices. The price has to go up, or production has to come sharply down.

New gold discoveries are at their lowest level in decades. Gold production is expected to peak in 2015. That is because the typical development cycle between discovery and production lasts 20 years, and peak discovery took place in 1995 (source: Eugene King, Goldman Sachs).

China answer in the precious metals market is one of increasing control. It is empowering its Shanghai Gold Exchange to experiment with a gold price fix denominated in yuan. That should give more weight to be a price setter on the global market, as currently the COMEX futures market and the London fix are in a dominant position. Meantime, China is steadily increasing its gold reserves, month-on-month, year-on-year.

Another example with different market dynamics is zinc. In 10 years we might be looking at a yearly shortage of 10 million tons of zinc on the global market if we continue down the current path of supply and demand. At this point it is unclear where all the extra zinc will come from to satisfy the growing global demand, especially from Asia.  Chart courtesy: Glencore, CRU Metals, via Foran Mining Corporation.

zinc_supply_demand_2013_2015_585

About 48% of the total demand for zinc comes from China and this number is expected to go up, since China is still in full expansion-mode and the demand for zinc is expected to rise by 6% per year on average until 2020.

What to think about uranium? Its small size does not reflect the true demand. Additionally, it is a critical asset for the economy since the richest countries in the world use nuclear energy.

Every uranium contract offered on the market has been bought by China for several years. As the world has recently stopped offering contracts to them, because of the extremely low uranium spot price, China reacted by buying uranium deposits globally. That is what Mr. Wang Ying said, chief executive of the CNNC (China National Nuclear Corp), during a recent interview. The Chinese Republic has committed to make the acquisitions in 5 years. The aim of the Chinese authorities is to increase their nuclear capacity from 17 Gigawatts today to 58 Gigawatts in 2020.

Uranium-forecast-2020_585

Our vision is that hard assets will continue to play a key role, both economically as for investors. In that respect, we believe that China is setting the scene: the country is making use of the current cheap valuation of most commodities. Secular investors should follow that example, in our view.

Our Commodity Report is created for secular investors. Read the newest edition.

Secular Investor offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies are transformed into the Gold & Silver Report and the Commodity Report.

Follow us on Facebook ;@SecularInvestor [NEW] and Twitter ;@SecularInvest

© 2015 Copyright Secular Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in