The cat was
let out of the bag on Tuesday at the second day of the Qatar Economic
Forum. Glencore’s CEO of commodities
trading, Ivan Glasenberg, told the crowd that “commodity prices will stay
strong for a long while longer”. How
does he know this? He pointed to two big catalysts for commodity prices, China
and the US. In China, Glasenberg sees a
big investment in infrastructure spending.
He sees the same happening in the US.
While the US congress has been battling back and forth over how large
the infrastructure bill should be, China has plowed ahead with it’s One Belt,
One Road initiative. Glasenberg was
concerned about how long new mining projects would take to come online and meet
the new demand. He also thought the
mining industry would struggle to keep pace with the new demand from “green”
economy initiatives. Something that
caught my ear was when he admitted that China has been pushing their strategic
stockpile into the market to hold down commodity prices.
Unlike
Canada’s strategic reserve pictured above, China has been stockpiling copper,
aluminum, and zinc. China rarely sells
off its reserves, they don’t even publish how much they have. Citigroup estimates that China has 2 million
tons of copper, 800k tons of aluminum, and 350k tons of zinc. They believe it to 16% worth of China’s
annual copper consumption, 2% of their annual aluminum usage, and 5.2% of their
annual zinc consumption. The last time
China announced that they were doing a sale from their strategic reserves of
metals was 2010. This makes it an
infrequent event. I believe the market
has been pricing this in and once China can no longer talk the market down,
we’ll start to see new highs in miners like FCX, RIO, BHP and associated
futures contracts like /HG.
Speaking of
strategic reserves…
Biden is
moving forward with a Trump-era proposal for a US Uranium Strategic Reserve. Last week Energy Secretary Jennifer Granholm
told the Senate Energy and Natural Resources Committee that she is beginning to
lay the ground work to establish a reserve and that the money had been
allocated for it during the Trump administration. Once established, the US will begin
purchasing and stockpiling uranium.
Taking a quick peak at the last budget bill that passed, Congress
allocated $75 million for the reserve and outlined a 10-year $1.5 billion
program. While the administration said
they’ll be purchasing from US miners, this amount of purchasing will put a real
floor under the price of uranium, boosting all miners.
The last time
I talked yellowcake I mention that Buffett and Gates had teamed up to build a
new reactor in Wyoming. Not to be
outdone, Jeff Bezos is backing a company in the UK that is set to build a
nuclear fusion reactor in Oxfordshire.
The big boys are getting in this space in a big way and its time to pay
attention.
Subscriber Questions and Comments
Q. Robert Wenzel’s book talked about
his forecast of the 2008 real estate bubble that popped. Do you foresee a similar “correction” in the
current crazy real estate market?
A. In time I do believe we’ll see a
correction but the madness of the Fed is preventing it with their printing
press. Here’s what Robert saw in 2008:
The maroon
line is 2008. I put on the previous four
years so you would have a reference.
Money supply was running hot at 17% and 16% in weeks 16 & 17 but
then it fell off a cliff. It’s typical
to see a slowdown in the money supply from weeks 16-30 (like I mentioned
yesterday), but this slowdown was dramatic.
The supply had gone from a higher high to a lower low. This is what triggered Robert’s response in
2008. If you look back to the S&P in
2008, you’ll see that the market was having a tough time gaining momentum. It had traded sideways from March to July. Then it took a 7.5% month-over-month drop. It held it together for two more months until
October which had a 12.6% m/m drop, November had a 13.4% m/m drop and December
a 15.2% m/m drop. Even though the Fed
only updates the M2 money supply on a monthly basis, we’ll have a good month or
two head start towards the exit if something were to develop.
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