Commodities, inflation, interest rates.

[786Trader]

Life can be viewed as a series of random events to be survived. Others may prefer to see patterns within the random. Others again see patterns repeating and the random chaos being slightly more organised than previously envisaged. Other fatalists see it all as the omnipotent ones' great plan and who are we to question? Which is great if one passively accepts the seemingly inevitable, not so great if one sees the chance to change and actively seeks to affect change. As the planet spins and we experience constant change in motion.

Commodities have boomed, on a Bull run last witnessed during the Crash of 2008/9. Commodities, especially those related to energy are drivers of interest rates and inflation. We are currently in a super low interest rate environment. It is expected that these super low rates will continue on indefinitely.  I question those expectations. Those poor  folk freezing their cabooses off in Texas must also be beginning to question these expectations. Why would freezing Texans question anything except how do I heat my house/food/water at the moment? For Texas is symptomatic of the very question of energy use, rising prices that effect rate of inflation and rate of inflation which influences the rates of interest.  Texas consummately failed to expect the unexpected (bad weather) and the energy grid (designed for maximum economic efficiency) comprehensively seized up and failed when it snowed.  The price of power went through the freezing roof.  Those with power banks and their own generators  carried on as usual. Texas uses Gas, Wind and Solar to power the grid. The wind is free, though generators are not, the sun is free, though panels and rare earths are not, natural gas is free as it is under the ground, though extracting it is not. The price of Natural Gas (being a finite resource) is 33% higher than Feb 2020. No inflation there then. 

Oil has recovered all of its losses from 2020 and is on a  serious tear. The technicals suggest there is ample room for more upside. Opec+ appear to have learned the error in their ways and are acting in a more concerted manner to achieve price certainty and seem in no mood to drive the price down for market share. Better a higher price for less oil. It's finite after all.

Rumours the Oil business is dead are grossly exaggerated. 

Back to the original point, commodities are booming, Oil especially. There is a direct translation to inflation. Which inevitably has a direct effect on interest rates. Which effect equities....

The price of Oil could go to $100 again. Higher even. I expect to see the price of WTI to exceed $72 this year. $75 for Brent. I also expect a correction of 3-4% soon, but with a rebound. 

I haven't even mentioned Copper, Iron, rare earth or even and especially Food, feedstock and grains....

Deflationary environment? For how long exactly? Continuing with low interest rates when inflation is rising surely only enhances a K shaped recovery, those on the up who have, will be fine. Zero interest rates are great if you have borrowed to the moon (like most Governments and Federal banks), folk with massive mortgages, businesses with vast leverage... but if you haven't? 

Sooner or later there will be a reckoning between the reality of surging commodity, food and feedstock prices and the expectation of low/negative interest rates.  

 

 

[THT]

I don't look too much at comm's as I can't get the price data I require, apart from Gold

One thing on Int rates - and its only an observation - the stock market has clearly followed a precise cycle for centuries - from observation and research its my belief that the stock market and by stock market I mean the USA markets (UK had been following suit) is repeating the 1929-1951 cycle, overlay that cycle from 2000 and it's all complied pretty nicely

If Int rates follow that 1929-1951 cycle then very soon we should be seeing rising int rates - I'm only observing, I haven't bothered running the int rate cycles as they don't concern me too much

 

[HMB]

guess this played some role:

and this (maybe to a lesser extent):

https://www.yardeni.com/pub/commit.pdf

Plus GS and JPM pumping things up with the "supercycle" story.   Considering the US situation hopefully gets fixed soon, then I could imagine an unwind of speculative positions (for whatever reason) might trigger a reversal