Thursday, February 23, 2012

Commodities and the super-cycle


Source: Hackett Financial via Maclean’s
Price return series













There is still talk about a commodity super-cycle. Here are just a few of the super-cycle graphs that have been presented over the last few years to explain the increase in commodity prices. There are some recurring themes:

1. The super-cycles are related to wars when there is strain on commodities. Prices usually decline after the war when those resources are no longer needed.
2. Super-cycles will be associated with large changes in the global economy like the industrial revolution which causes a large increase in demand.
3. Wave theory is suggestive but may not be a good explanation.

We still have the long-term trade-off between Malthusians and Cornucopians. The large increase in demand requires technological progress to avoid "peak-oil" type problems.  




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