Thursday, September 26, 2013

McKinsey Sees No End to the Global Commodities Supercycle

Life is easiest if you get on the right side of major trends. Gold from $42.22 to $875, 1971-1980; John Templeton, Japanese stocks at 2x earnings, $100K to $55 mil. 1954-1999. Anything-but-gold 1980-2001 etc, etc.
Or you can trade and commodities are for trading, not investing, something that CalPERS and the other big funds forgot when the friendly Goldman GSCI swaps salesman came calling and said "they were an asset class and would you like to bypass speculative position limits by using our designation as a Commercial?".
For the last couple years the short side has been more remunerative than the long but going forward, who knows.
Just to make things interesting we have a real love/hate thing with McKinsey.*

From Bloomberg:
Commodities ‘Super Cycle’ Is Seen Enduring by McKinsey
Commodity supply constraints and demand from emerging markets mean it’s premature to talk about the death of the super cycle that brought a longer-than-average period of rising prices, McKinsey & Co. said.
Energy, metal and agricultural prices that more than doubled since 2000 are still close to highs reached before the financial crisis, even after commodities from gold to wheat dropped into bear markets, McKinsey said in a report today.

The surge in raw-material output in the past two years and signs of cooling economic growth in China, the world’s biggest consumer of everything from cotton to zinc, prompted Goldman Sachs Group Inc. and Citigroup Inc. to say the super cycle ended. McKinsey said producers are being forced deeper into remote areas to secure supplies that require increasingly sophisticated technology to extract as consumption expands.

“When we look forward, we see a separation between new technology and productivity on the one hand, and emerging-market demand and supply constraints on the other,” Fraser Thompson, a senior fellow at the McKinsey Global Institute, said in a telephone interview from London. “We don’t want to bet against technology, but what we think often gets overlooked is the scale of the challenge we’re facing.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 2 percent this year. Since 2000, the gauge posted only two annual declines...MORE
From Mckinsey & Co:
Resource revolution: Tracking global commodity markets
September 2013 | byRichard Dobbs, Jeremy Oppenheim, Fraser Thompson, Sigurd Mareels, Scott Nyquist, and Sunil Sanghvi


It may be tempting to view recent declines in commodity prices as the end of the resource “supercycle”—the period of sharp price rises and heightened volatility since the turn of the 21st century. Yet rumors of the supercycle’s death are greatly exaggerated. Despite recent falls, commodity prices are still near their levels of early to mid-2008, just before the global financial crisis hit. (To track the movements in commodity prices over time, see the interactive, “MGI’s Commodity Price Index—an interactive tool.”) At a time when the world economy remains below full power, this phenomenon is striking, and a sign that the supercycle is alive and well....MUCH MORE

*See for example:
"Is McKinsey & Co. the Root of All Evil ?"
Yves Smith Says Nice Things About McKinsey & Co. (they're in the business of propping up diseased managements)

McKinsey says Germany in terminal decline
That one was from 2008.

And on the other hand:

McKinsey--"Disruptive technologies: Advances that will transform life, business, and the global economy"
Sure we poke fun at McKinsey ("Is McKinsey & Co. the Root of All Evil ?") but all-in-all and averaged over the whole firm, especially if you include support staff, they're smarter than I am....