In my book, “Haunted By Markets,” in a chapter entitled “The Algo Boys Are Baaaaack!” dated June 10, 2016, I stated the following: “The reemergence of the algo boys and the HFT (high frequency trading) funds has sparked the largest rally with commodities in eight months. After declining for a record five years in a row, it seems the odds are high that hard assets in general will post a year-over-year gain. For agricultural producers that is great news because selling into a rising market is far more profitable than selling into a declining market.”
As it turned out, commodities, per se, did post a year-over-year gain in 2016. However, in 2017 and thus far this year, most commodity markets are range bound. Prices are stuck in a trading range where rallies fail and so do declines. Ag producers are faced with a frustrating scenario where rising or declining markets are short-lived.
Two months later, Aug. 12, 2016, in a chapter entitled “A New Era With Reflation,” also from “Haunted By Markets,” here is the final paragraph: “My work suggests the time has arrived for commodities to start showing signs of reflation. If so, a new era for commodity speculation is at hand that will reward the bulls but punish the bears. A new era is at hand due to reflationary pressures that have been building slowly since late 2008. And that is a welcome relief from the eroding and depressing ag-markets seen in the years, 2010 to early 2016.”
Investopedia defines “reflation” as “A fiscal or monetary policy, designed to expand a country’s output and curb the effects of deflation. Reflation policies can include reducing taxes, changing the money supply and lowering interest rates. The term ‘reflation’ is also used to describe the first phase of economic recovery after a period of contraction.”
And from a June 2013 column entitled “Algo Trading,” also from “Haunted By Markets,” I wrote: “F.C Stone used the slang expression ‘algo’ for algorithm trading which is nothing more than high-speed computers buying or selling stocks or commodities in fractions of a second.” I also stated: “Going forward, whenever any market, stocks, bonds, currencies or a commodity moves with the speed of light, leaving you breathless and a tad lighter in the wallet, rest assured it is the algo boys, with high-frequency trading once again rearing its head.”
A few weeks ago, CNBC posted an article entitled “Goldman says case for owning commodities has ‘rarely been stronger’ than it is now.” Here are a few comments from that article:
- “We believe the macro backdrop for commodities is as good as we have seen in years.”
- “Commodities have been the best-performing asset class of 2018, setting new multi-year highs. They have returned 7 percent year to date and are outperforming equities by 8 percent, the strategists said in a note.”
- “Commodities are also attractive because as the business cycle ages, high levels of demand deplete supplies, creating a ‘scarcity premium,’ which is now showing up in the futures market for 13 of 24 commodities.”
My work is screaming loudly that a new super cycle for commodities has returned. Wikipedia defines a commodity super cycle as such: “The 2000s commodities boom or the commodities super cycle was the rise, and fall, of many physical commodity prices (such as those of food, oil, metals, chemicals, fuels and the like) during the early 21st century (2000-2014),[ following the Great Commodities Depression of the 1980s and 1990s.”
In a super cycle, environment markets tend to rise far higher and drop far lower than pre-existing trading ranges. There also is a tendency for new all-time historic high prices to be carved out. For example, in the past year, lumber prices have doubled in value and in the process posted new historic highs. If a super cycle is now at hand, other commodity markets are poised for dramatically higher levels, as well.
The hot money boys, the algo traders, thrive in an environment of inflation and have done exceptionally well when a commodity super cycle surfaces. Moving forward, those that have access to timely and accurate information also will do well. And all my work suggests strongly that a new and dynamic super cycle has indeed arrived.
In my view, the best place to learn about the history of the commodity markets during the years 1990 to 2015 is found at www.commodityinsite.com. It is there you will find “Haunted By Markets,” all 758 pages worth! Check it out if you happen to be like me and perpetually haunted by markets.