Thread by @ManihiB

1/ Thread: Commodities vs Hubris

Every commodity bull is wrestling with the same question at this moment: I'm seeing the best set up for a mega cycle in my life time, but I also see financial bubbles everywhere.

#shipping #grains #oil #uranium #Commodities

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Do I need to wait for a crash in markets before I go in or will I be late? Will markets rotate into cyclical or will my portfolio get wrecked when the hubris in ESG, tech and NFTs comes to an end?

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"History doesn't repeat it rhymes "- said so many times it has become a cliche.
We all look back at the internett bubble of the late 90's /early 20's. A tech boom followed by a crash in equities and eventually the beginning of a commodity mega cycle ending in 2008.

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So if history repeats you should wait for the hubris to end, only then will the time be right to buy your #shipping, #uranium, #oil exposure. But what if it rhymes, couldn't rotation from one sector into another without a deflationary crash be a possibility?

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In my view it's not only a possibility, it's the likely scenario. The monetary and fiscal system is completely different if you compare to 2001.

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First let's look at why a crash in EV equities or online kittens could ruin the party for commodity markets.
Every crash is by nature deflationary: If you startet the year with a portfolio of online kittens worth $5million, you would be likely to spend money on travel (fuel),

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a new vacation house (steel, cement) or a new car. When the online kittens suddenly are worth $0, you will be a seller of those same assets, pushing the price down and creating less demand for those commodities.

So what's "different this time"?

8/

We have a global effort to stimulate the economy through both monetary and fiscal stimuli, that's why we even have the "online kittens" in the first place. If the kittens fall in value, the response from governments and SB's around the world will be to increase stimuli.

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Most importantly, the market understands this dynamic.

Online Kittens increase in value = inflationary

Online Kittens crash=more stimuli= inflationary

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The question becomes, do you think SB's and government have the tools to act quick enough if we were to see bubbles starting to burst. I think the aftermath of March 2020 have showed us that they have. It used to be billions, now it's trillions.

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I hope my rant makes some sense....
The conclusion is simple. Hubris in financial markets are not the risk to my commodity thesis, it's the fuel.