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Commodities - The Big Picture

Post a Comment January 11, 2009 – 8:00 am |   | Permalink |  Print This Post |

The Big Picture

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Historical Commodity Chart

Whilst we are bullish on commodities long term, we believe prices will remain depressed for at least 12 months, if not a few years. Those expecting a a quick rebound will be disappointed. There is a fundamental paradox that the commodity market will have to go through - and that is a phase of sustained low prices. It needs to be long enough to wipe out most explorers and more importantly uneconomical producers. This will ultimately improve the supply demand of commodities and be a setup for the next commodity boom. During the Great Depression, commodities fell along with everything else during the initial crash in 1929, went lower for about 2-3 years to early 1930s, and subsequently decoupled from the market as (depressed) demand outstripped supply.

The worst is certainly not over, expect more casualties before we see a turn. It is early days. For now, TheInflationist hopes to take advantage of a rebound by buying cashed up producers or explorers trading significantly below cash (with net cash > $50 mil and a low cash burn).