'The World Changed 12 months ago'
Comment of the Day

April 20 2023

Commentary by Eoin Treacy

'The World Changed 12 months ago'

Thanks to a subscriber for this summary of an interview with Zoltan Pozar. Here is a section: 

Rearming, Reshoring, Energy transition.
Taken in combination examples of these would be:
• Building factories for batteries, Chips, subsidizing energy transitions,
• Military expansion in Japan, Europe etc, inventory mgt increases. Onshoring of factories etc
• All of these amounts are government money. It will be matched by company money as well

This will cause Two Outcomes
1. Commodity prices will remain high from constrained supply and increased expenditures
2. We are at the beginning of a domestic infrastructure investment renaissance

Notable: ‘The investment portion will be quite powerful, perhaps to the point of us not even having a recession’
The 3 Gov’t themes will push counter the recessionary forces that undoubtedly accompany rate hike regimes. Consumption will get crushed. But investment will grow.

All these things are being done with a sense of urgency as (economic) national security and sovereignty is a big factor in each.. we need to do it yesterday

Eoin Treacy's view

Here is a link to the full report.

The above paragraphs argue against the old commodity adage “the cure for high prices is high prices”. I think there is another way of thinking about it that. Nothing has changed to alter the underlying relationship of the commodity markets but perhaps prices are not yet high enough to cure themselves.

Copper prices today are almost exactly where they were in 2006. India’s potential for industrialization alone is enough to fuel a bull market. I’m a little reluctant to pin my hopes on government directed investment in the West. Germany successfully sped up the construction of floating regasification terminals but industrial construction on the scale required to compete with China and simultaneously decarbonize will required massive private sector incentives. The USA’s Inflation Reduction Act is an example but is nowhere near enough.

Meanwhile, where is the metal to fuel this construction going to come from? No one wants to build new mines and not least because Chinese demand has been unpredictable for the last three years. To me that suggests a very volatile trading environment for industrials metals. That is particularly true because I do not believe there is any chance of fresh stimulus arriving in time to avoid a US recession. 

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