Thread by @BULLReturns

Predictability of #commodity cycles:

Undersupply stimulates rising prices as inventories are depleted

Oversupply stimulates falling prices as inventories build

Demand growth depleted inventories and stimulates rising prices

Demand reduction builds inventories and prices fall

Great #commodity investors focus on returns, overweight commodities near cycle bottoms (recently that was 2nd and 3rd quarter 2020), now in 1st half 2022 there are may signs (use cycle prices and sector margins as a guide) of a maturing cycle (65%+ cash margins above cost curves)

Maturing = 4th quartile of the cycle

#oil recently moved into that club with the likes of #coal, #lithium and several other commodities.

What does this mean? Elevated risks vs returns, death of asymmetric trades, scaling down positions, harvesting early entry 5-15x gains.

Length of #commodity cycles: are they speeding up?

Often over the last 50 years the commodity cycle was in a bear market for a decade plus. Bull markets for 3-4 year periods.

We are heading towards 2 years into a potentially 3 year bull commodities market currently.

We are not buying #oil, #lithium or #coal stocks, we are in harvesting mode, they move up 30-200% we scale down this exposure given our cycle view.

A few key requirements when investing in #cyclicals:

A) 80% of success is getting the #commodity cycle right

B) Exiting strategy determines the outcome

C) No idea of where one is in the cycle = rudderless boat = best avoided

D) Super normal margins are never sustainable