IN-DEPTH: TRANSCRIPTION - LONGWave - 09-11-24 - SEPTEMBER - The BRICS and Their Commodity Producers
SLIDE DECK
TRANSCRIPTION
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Thank you for joining me. I'm Gord Long.
A REMINDER BEFORE WE BEGIN: DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are COMMENTARY for educational and discussions purposes ONLY.
Always consult a professional financial advisor before making any investment decisions.
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We haven’t talked Commodities in awhile as the sector completes a large degree corrective consolidation which we believe to be a Wave 2 in Elliott Wave parlance.
There is more to go, but it is time to put this sector back on your radar screen.
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As such I would like to cover the areas outlined here.
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For our new subscribers and as a refresher for others let’s start with a highlight recap of our tracking of this sector and why we are constructive on it.
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We first showed this chart in 2019 when our interest in the sector began. We always look for value especially when the distortions get as significant as this.
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We initially got serious in the fall of 2020 when we published the October 2020 LONGWave edition entitled “2021 YEAR OF HARD ASSETS”.
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Though we felt it wasn’t quire time to enter in the fall of 2021 we continued to research the sector as more and more tell-tales became obvious.
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On February 2nd 2021 we then published this chart suggesting we felt it was a high probability entry point.
- Long Cycles as represented by the domes were supportive
- A Long term ending Diagonal looked complete, with a decisive price breakout having occurred.
- Our MATASII Proprietary Momentum Indicator in the bottom pane was clearly showing overhead resistance had additionally been broken.
- We felt the next stop over the next 12-18 months had a good probability of being significantly higher shown by the yellow overhead resistance level in the chart.
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Well, that is exactly what happened!
We published this chart 13 months later in March of 2022.
We felt there was a little more to go but cautioned we were approaching an intermediate term peak.
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Three months later in the June 2022 LONGWave entitled “Peak Inflation V Gold” we talked about Inflation topping and what it meant for Commodities like Gold.
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In the first newsletter that went out with this video we published this chart suggesting the Intermediate top was likely now complete for Commodities.
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Two months later in the August 2022 edition of the UnderTheLens video entitled “Geo-Politics of the Commodity Super Cycle” we felt though the corrective consolidation was occurring, there were significant structural Geo-Political events occurring. These developments would eventually lead to even further attractiveness of the sector when the technically driven corrective consolidation was completed. Technically, the overall sector had just come too far too fast
The Commodity Sector is a big sector with a lot of moving components within it as this title slide attempted to illustrate.
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That was a highly abbreviated recap of what has occurred – so the real questions now facing us are:
- Where do we stand now??
- What should we expect? … and
- What will be the key drivers going forward?
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You can see it turned out we got the price level of the top pretty well and within our initial 12-18 months prediction (~16 months).
The corrective consolidation we are still in should last anywhere from 30-48 months according to its cycle frequency pattern.
If the “ABCDE” triangle we appear to be developing, as shown here is correct, the correction will end in the area of this coming February – not long after the inauguration of a new US President.
No doubt with their increased economic stimulus deficit spending plans?
So far everything we have been showing is using the CRB Commodity Index.
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Let’s look at some others Commodity Indexes.
Here is the Goldman Sachs Commodity Index showing it may possibly end earlier but within the overall timeframe.
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If we look at the Bloomberg Commodity Index it is more reflective of what the Goldman Sachs index and is suggestive of a bottom later this fall.
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So what would drive the reversal and the beginning of Elliott Wave 3 up?
Well increasing deficit spending and a consequential weakening US Dollar no doubt would certainly do the trick!
However, there are further structural changes occurring. We have shown the schematic on the right many times before.
It reflects our current expectations that we should expect another two possible inflation waves through the rest of this decade.
The next Wave is the one currently most important to us. It is likely to be driven by rising:
- Services As delivered by Skilled Wage Pressures.
- Rising Import Costs Tariffs which both Presidential candidates are talking about
- Rising Energy Regulatory Energy impediments crippling of public Utilities
- Rising Food Costs Shortage of Agricultural Land
Wave 3 is likely to be more about
- Rising Shelter Costs Shortage and Rising Property Tax Rates
- A Falling US$ As a result of Currency Debasement
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The markets are already starting to sniff this out.
Although inflation as measured by the CPI has fallen in its rate of increase, it is now flat.
Commodities as measured by the S&P 500 GSCI Equal Weight Commodity Sector are already rising.
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The well followed and accurate Bank of America chief strategist Michael Hartnett feels that … and I quote
“that while most commodities appear to be in a secular bear market right now - once again largely thanks to China's economic slowdown - that is about to change.
That is because the secular commodity bull market in the 2020s (11% annualized returns) is just getting started...
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… as
- Debt,
- Deficits,
- Demographics,
- Reverse-Globalization,
- AI and
- Net Zero policies
… are all INFLATIONARY. (end of quote)
This means that commodities are a better "40" than bonds in the 2020s for the 60/40 balanced portfolio approach, and sure enough, total returns over the past 4 years demonstrate that:
- 30Y UST -39% vs Commodities +116%;
- Commodity indexes annualizing 10-14% returns even amidst falling inflation,
- Dovish Fed vs. AGG just +6%.
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If you look at the Asset Quilt: Commodities after two years at the bottom have no place to go from here but up!
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It isn’t just that the Commodities to S&P 500 is historically weak, but additionally how long it has been this low!
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Typically, an Elliott Wave Principle Wave 3 is the largest Wave in terms of price.
Very importantly we are seeing Inflation drivers while at the same time we are witnessing structurally retreating Disinflation elements.
These are important drivers. The potential Commodities’ Elliott Wave 5 Wave count may actually be signaling something much bigger and more strategic in nature.
We have long held that we are in the midst of a very important advancing transitional shift from a Uni-Polar World of primarily US leadership to a Multi-Polar world competing with other major global factions such as the BRICS and their member states.
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Charles Hugh Smith and I put together a Macro Analytics video entitled “Tectonic Shift: Mercantilism Revalued” where we explored the impact of the growing importance of the BRICS and their rapidly expanding member states. (as an aside, all the video’s I mention can be found in the public domain on YouTube)
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I encourage you to review it as you do your Commodity due diligence of since it covers a lot of key ideas about the evolution of the global commodity nations, as initially colonies supplying the Imperial nations … and their transition to today’s modern Industrial world.
These nations now are both consumption economies and burgeoning industrial niche players.
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We are now in the early stages of a period which Charles and I dubbed the Era of “Revalued Mercantilism”. This is an era where Mercantilist Economies that had succeeded by exporting their production to dominantly the US are finding it ending as global economic stagnation becomes more prevalent.
- The fact is that the dependence on mercantilist exports for growth distorts the domestic economies of the dominant mercantilist economies such as Japan, China, S. Korea and Germany, to name the big ones,
- Mercantilist Economies seek domestic growth at the expense of other economies by heavily subsidizing exports,
- As global growth slows and cheaper competitors arise (Vietnam, Pakistan for clothing assembly, etc.) the mercantilist economies have nowhere to go but down, as they've optimized their economies via massive subsidies to rely on exports for growth,
- Once global growth declines or cheaper competitors arise, then the path of decline is set. Japan is showing accumulated overseas wealth can support stagnation but neither S. Korea, China, Germany or other mercantilist economies have the same massive stock of wealth to tap to fund their stagnation.
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This is likely to result in commodity nations having more leverage in attracting new industries as well as shifting the importance of producing to actually being the supplier of the key physical materials or commodities.
Elements of Reshoring, De-Globalization and De-Finalization will all benefit the ever increasing importance and value of commodity producers.
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Commodity and material suppliers are heavy users of Energy. With developments in Green and Renewable Energy, The Commodity countries dependence on imported coal, oil, natural gas and refined fuels is likely to be better balanced and less burdensome to their developing economies.
Standards of Living rise when energy costs fall and become more abundant
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With the BRICS consisting initially of the larger nations such as Brazil, Russia, India, China and South Africa they have expanded to include on 1 January 2024 major countries such as Egypt, Ethiopia, Iran, and the United Arab while on September 2nd 2024, Turkey officially applied to join the bloc..
The China led Road & Belt Initiative, the Shanghai Cooperation Organization and the African Free Trade agreement have all added to the scope and reach of the BRICS-10 consortium.
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The reach is now broad and captures significant global market shares of GDP, Population, Oil Production and Goods Export.
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Most importantly, we have approximately 138 countries or 3/4 of all countries on the planet economically dependent on the export of commodities rushing to joins the BRICS trading structure.
In many ways they feel they are being treated as feudal mercantile “slaves-of-old” through Western Imperial pricing.
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Never forget that in an era of fiat currencies dominated by the major western economies wealth can only be created by Growing it, Mining it or Building it. All three are held hostage by the real tangible wealth of the Commodity nations.
BRICS-10 is acutely aware of this as they effectively are creating a new powerful global cartel along the lines of OPEC.
OPEC is about oil. The new, much larger cartel is seen to be about Commodities.
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What now is referred to as the “Southern Nations” is about an organizing structure to leverage their natural resources and their export product’s value.
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China’s Belt & Road Initiative is exploding with new signatures that bring these countries into an organizing structure with commitment on bi-lateral trade, De-Dollarization and financial systems other than the US controlled SWIFT system.
All of this will highly lead to structurally rising value of Commodities.
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As global conflicts are likely to increase along with Tariffs we should also expect to see Commodity Scarcities.
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Choke points for scarcities will come from many points of attack.
- TRANSPORATION ROUTES
- STRATEGIC MINERALS
- LIMITED COMMODITY SUPPLIERS IN SPECIFIC AREAS
- COUNTRY REGIME CHANGES
- PRODUCTION LAGS
- COUNTRY ENVIRONMENTAL REGULATIONS
Lithium, Cobalt, Nickel in Solar Panels, Rare Earths and Silver in Technology, Uranium in Nuclear Energy … and list goes on are areas that are likely only going to propel commodities higher even in a period of potential economic stagnation beginning to occur in the advanced developed economies.
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What is the conclusion here?
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It’s time to start doing your due diligence as this is an incredibly large sector of products and opportunity. It will take time which you currently have before the Elliott Wave’s Wave 2 finishes its’ corrective consolidation.
It may potentially be one of the best investment ideas over the remainder of this decade?
Only time and unfolding events will tell for sure? Currently, I like the probabilities here.
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As I always remind you in these videos, remember politicians and Central Banks will print the money to solve any and all problems, until such time as no one will take the money or it is of no value.
That day is still in the future so take advantage of the opportunities as they currently exist.
Investing is always easier when you know with relative certainty how the powers to be will react. Your chances of success go up dramatically.
The powers to be are now effectively trapped by policies of fiat currencies, unsound money, political polarization and global policy paralysis.
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I would like take a moment as a reminder
DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are for educational and discussions purposes ONLY.
As negative as these comments often are, there has seldom been a better time for investing. However, it requires careful analysis and not following what have traditionally been the true and tried approaches.
Do your reading and make sure you have a knowledgeable and well informed financial advisor.
So until we talk again, may 2024 turn out to be an outstanding investment year for you and your family?
I sincerely thank you for listening!
