Tag Archives: Commodities

Because You Know I’m All About That Base, ‘Bout That Base, Base Metals…

People tend to get preoccupied with things that are shiny. Investors often fall prey to the same instinct – especially those that are obsessed with gold. Such people are often referred to as ‘Gold Bugs’.

This years, Gold Bugs have been excited to point out that gold has outperformed the S&P 500 index year-to-date:

Congratulations! However, there is a far more interesting metals trade going on at the moment: base metals.

After a slow start to the year, base metals such as copper (sometimes referred to as “Dr.Copper”), zinc, and nickel have seen their prices appreciate significantly:

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Keeping up with Lithium demand becomes more challenging

Electric vehicles have been in the spotlight lately, which creates an opportunity as well as a problem for the producers of the metal that the batteries of electric vehicles are made off – lithium. A mineral for which, as long as the demand for electric vehicles continues to increase and an economically viable alternative is not found, the demand is also going to increase respectively. The prices of lithium carbonate have more than doubled in the last two years.

Currently, 67% of global lithium reserves are located in Chile and Argentina, even though Australia is the biggest lithium producer.

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Lithium: A Study in Some Old Fashioned Commodity Speculation

The recent rise in the price of gold and the possible bottoming out of industrial commodity prices has some brave investors flocking back into mining stocks. While the gold rally looks like it is primarily based on sentiment, the move in the price of lithium over the past year exhibits a more classic example of what drives the cyclical nature of mining stocks perceived supply and demand.

Lithium is the primary component of the lithium ion batteries. You have a lithium ion battery in your cell phone as well as in countless other personal electronic devices. Currently, the billion dollar question revolves around the future demand for the considerably larger lithium ion batteries that are used in electric cars.

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Genies and Asset Prices

In this link, Tyler Cowan of George Mason University is asked the following question:

You are an investor with $10 million planning to cash out in 20 years. A genie appears and offers to send you the price of one but only one asset 20 years from now to inform your investment decisions (a stock, currency pair, commodity, equity index, etc.). What do you want to know?

LINK: MARGINAL INVESTOR

This simple question is actually quite an interesting thought experiment. Cowan states that he would look for “a price with some persistence, and which contains lots of information about other prices too.” He settles on the Shanghai Composite Index. It makes sense that an economist would provide this answer. China is poised to become the world’s largest economy and surely the performance of its major stock index should be a revealing indicator of many other asset prices as well.

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Oil & Stocks: Time to Break Up

The corollary dynamic between oil prices and major stock indices is one of the more confounding trends in financial markets right now. This article sums this complicated relationship nicely.

LINK

To expand upon the theme of lower oil prices being a benefit to consumer, it is worth pointing out that two years ago, American consumers were paying $4 per gallon at the pump. Now they are paying $2 per gallon. Therefore, filling up the tank on an SUV has gone from $120 to $60. If you filled up your tank twice a month, that’s an extra $120 in your pocket every month. To borrow from one of the commentators in the article – that’s a lot of Starbucks! (Actually, my illustrious uncle Mal pointed out the gas price/Starbucks trade to me over a year ago. Great call Mal!)

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