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Drink and be merry, for tomorrow ... Posted: Mon, 08 Oct 2007 [miningmx.com] -- THE old adage “avoid hangovers, stay drunk” comes to mind when contemplating the current commodity market, the biggest commodity bull market in several decades. I keep waiting for the music to stop and headache to start but then someone offers me another drink and the music gets louder! But we’re in good company: Ben Bernake’s the barman, beer is cheap and the party rages on. Having spent the first of my formative years in the market in a protracted gold bear market, I sometimes feel like a soccer player that’s wandered into a NFL game and can’t understand who changed the rules. All that we learned in the last 15 years about what starts and stops commodity cycles has changed. The fat tail arrived like a Tsunami on an unsuspecting tourist beach. The vicious cocktail of cheap money, synchronized global growth, the re-awakening of the Chinese Dragon, geopolitical tension and 15 years of underinvestment in exploration and production capacity, has made for an acute and prolonged undersupply of commodities in a world that seems to have an insatiable appetite for all basic materials. On an almost daily basis we are presented with IPO’s and bought deals by bankers eagerly selling new exploration and mining offerings. Fear not, the engine has started, the wheel is turning, and the end is in sight, or at very least the dreaded mid-cycle pause. It may take a while, possibly several years, but the foundation has been laid for balanced and surplus markets in certain commodities. It’s time to be alert. Just as we battled to detect the onset of this golden age in commodities, we are likely to be blindsided by arrival of the bear and the end of the party. What the catalyst will be is hard to say, but the market’s reaction in August to the sub-prime mortgage crisis in the US was symptomatic of two things: firstly, excessive cheap money always ends in tears; and secondly, the market is very nervous. For the time being, all is forgiven and markets have recovered sharply. But clearly the market fears that a broad-based demand shock is possibly in the offing and any sign of a derailing of the US consumer will not go unnoticed by equity markets, nor commodity consumers. Click Here to subscribe to our daily newsletter
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