It seems as though we may have finally reached the tipping point…
US inflation data for October came in overnight, and it was ‘better’ than many expected. Easing to a 7.7% rise — this is the lowest that inflation has been since January.
Of course, this level is still far from sustainable. The US still has a ways to go before inflation is truly tamed. But due to the lagging nature of the data, it seems as though the Fed’s radical hikes may finally be taking effect.
This, of course, jolted stock markets back to life after a poor day yesterday.
The Dow Jones climbed 3.7%, the S&P 500 was up 5.54%, and the Nasdaq rocketed 7.35% higher!
Could the bear market finally be behind us, or is this a perfect bull trap?
That is something that investors will need to gauge for themselves. All I have to say on the matter is that today’s surge proves there is a lot of interest on the sidelines looking to get back into the market.
So, if inflation and bigger hikes are likely behind us, one has to wonder what major trend will dictate where markets head next. And in our view, commodities are where people should be looking…
Copper comes into focus
As I explained yesterday, Canada’s decision to force three Chinese firms to divest from local lithium miners was perhaps a bigger story than many believed. It is the epitome of what looks to be a looming scramble to secure any and all mining project sovereignty.
Not that that will come as much of a surprise to anyone, given China’s growing tension with the West.
What was surprising, though, was Canada’s decision to postpone Rio Tinto’s bid for Turquoise Hill Resources. The news came yesterday that the Quebec financial regulator had stopped the deal, possibly indefinitely.
Now, the circumstances of this fracas are a little different to the lithium one.
Canadian officials seem to have taken issue with Rio trying to squash shareholders voting against the deal, rather than any inherent concerns over ownership. But it is the prize that Rio is trying to secure that is of more interest to us: the Oyu Tolgoi copper and gold mine.
With an estimated output of 450,000 tonnes of copper, this mine will likely be the fifth largest in the world when up and running.
For Rio, that is exactly the kind of project they would love to lock down given the relative underinvestment we’ve seen in the copper sector.
After all, as demand ramps up into the years ahead, supply is the big concern…
Underappreciated and undersupplied
Here is the crux of the matter, as summarised by investingnews.com:
‘Furthermore, the lack of investment in new copper projects could see the sector enter a period of shortage right at the time when the metal will be needed the most. In a recent study, S&P Global outlines a scenario in which production remains largely at current rates; in this case, the annual copper supply shortfall would reach almost 10 million MT in 2035.
‘In a more optimistic scenario in which mines increase utilization and ramp up recycling, the market would still be in a deficit for most of the next decade.
‘Further to that point, a new copper mine takes 16 years, on average, to get off the ground, as per the International Energy Agency.’
In other words, even if investment in new mines starts now, it is likely still too late.
We are very likely looking at a scenario where concern turns from inflation to a very dire materials shortage. Or, as our new commodity expert, James Cooper, is calling it: ‘The Age of Scarcity’.
The good news, though, if you’re prepared, is that this can still be a profitable time for you. By looking for and hunting down the best mining stocks the ASX has to offer, you can still make some fantastic gains.
That’s why James is putting together a detailed ‘attack plan’, as he refers to it. This is a way for everyday investors like yourself to not only survive this materials shortage but thrive amidst it.
For all the details and to learn more about James’ plan, click here now.
I can guarantee you that it is well worth your time to at least hear him out.
After all, if inflation concerns really are behind us, the next big focus has to be commodities.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
