Over the past three weeks, we’ve seen major political events in some of the world’s most important countries.
Brazil, Israel, and the US held elections that saw a potential change in power dynamics. China held its 20th National Congress, where the party confirmed a third term for President Xi.
In the case of the US, the midterm elections saw a twist, with the anticipated ‘red wave’ (a massive surge for the Republican Party in both the House and the Senate) manifesting differently from what many thought.
The Republican Party appeared to have taken control of the House of Representatives but picked up fewer seats than what pundits from both sides of the aisle estimated. However, the Senate remains up for grabs.
Even our own Jim Rickards’ predictions turned out too bullish on the side of the Republicans. But to be fair, I was looking for an even bigger victory for the Republicans. Oh well.
So, the next two years could see the US Congress being split once more…a recipe for a political logjam.
From Wall Street’s perspective, this outcome wouldn’t bode well for the economy.
And indeed, the US market traded down strongly on Wednesday night as vote counting pointed to a higher possibility of a divided Congress.
While market pundits were guessing how investors would respond to the midterm election by way of how the markets will move, they’ve missed the true extent of the problems faced by the US economy, and the global economy for that matter.
Frankly, there’s a gap in the global economy, so big government and business leaders worldwide will take years to solve. And that’s if they take the right course of action. But the leaders in this day and age aren’t of one heart and mind. They’re divided by differences in ideology, values, and goals.
Worse still, they appear to be going in the wrong direction with their agenda. Many are on board the green energy revolution, while their environmental agenda places more obstacles on developing new mining projects.
It’s like going on a weight-gaining program while insisting on eating only one meal a day.
This type of thinking is ridiculous at the outset.
But throw into the mix a global supply chain crippled by almost two years of on and off lockdowns, labour shortages, an undersupply of fossil fuels, and governments rushing to close fossil fuel power plants to meet carbon emission targets…
…and you’ve got yourself a clown show of epic proportions.
But don’t sit there, popcorn in hand, and have a laugh; instead, take the opportunity to ride what may be the next commodities supercycle.
The uranium nuclear winter — will other commodities
face a similar fate?
Most of you may remember the massive earthquake and tsunami that struck northeast Japan on 11 March 2011. This freak natural disaster caused the death of almost 20,000 residents and billions of dollars in damages.
The world mourned the deaths, but the sorrow soon gave way to fears over the potential meltdown of the Daiichi nuclear reactors at Fukushima, which could turn into a major environmental disaster. Engineers worked around the clock in short shifts going into the reactor to inspect the damages to the plant infrastructure and monitor the core temperature to ensure it was under control.
The world waited with bated breath for almost a month.
While no meltdown occurred, evidence showed that some radioactive waste leaked into the Pacific Ocean, affecting marine life, and contaminating the water.
The response to this disaster was the widespread suspension of nuclear power plants around the world. Environmentalists took advantage of this situation to push governments to curb nuclear energy and uranium mining, despite its cleanliness and relatively solid track record of safety.
The price of uranium fell dramatically and remained at depressed levels for more than eight years, as shown in the figure below:
Source: Business Insider
Uranium went through a nuclear winter, pun intended. Many uranium mining companies went broke. Even the largest players in the market, including Australia’s own Paladin Energy [ASX:PDN], were forced to sell some of their assets and raise capital to stave off bankruptcy.
Some of you may have done what I did and invested in uranium companies during those years, expecting the recovery to come earlier, only to end up with bleeding hands from repeatedly catching a falling knife.
But years of underinvestment caused a chronic shortage in uranium supply (see below):
Source: Paladin Energy Roadshow Presentation, October 2022
In early 2021, the chickens came home to roost as the price of uranium started to make a dash. Many countries started to look at nuclear energy once again as a source of clean baseload power.
There’s a uranium bull market underway now. How long will it last? And how big will the windfall gains be for those who ride it?
I’m raising this example of uranium because we may be on the brink of something similar for the broader commodities market.
I mentioned earlier in today’s piece about how we’re facing a perfect storm in the supply of commodities thanks to a combination of bad luck, poor planning, and unrealistic goal setting.
We all know about the mad dash to phase out internal combustion engine cars and replace them with electric vehicles. Battery technology is also attracting a lot of capital investment.
That’s what is driving the lithium boom and the scramble by Western mining companies to find cobalt deposits outside of Africa.
But many base metals like aluminium, copper, iron ore, lead, and zinc have been in a bear market thanks to a hobbled global recovery, especially with China battling to open due to sporadic shutdowns. On top of that, debt has weighed down governments, businesses, and households. Central banks worldwide have added petrol to the fire by raising interest rates, thus prolonging economic stagnation.
Mining companies worldwide are resuming operations now that many countries have opened reopened. However, they’re competing in a tight market for skilled labour while also battling inflation and rising operating costs.
Some have resorted to reducing the scale of their operations, even temporarily suspending them to minimise losses.
What do I see happening in the coming years?
A chronic undersupply caused by low prices will give way to much higher prices as reality sets in.
Introducing ‘The Age of Scarcity Attack Plan’
Most of you know my expertise is in precious metals mining, though I know a thing or two about the broader commodities market.
But when it comes to identifying which commodity is hot and the movers and shakers, I prefer to step aside and let someone more qualified take the lead.
Last week I spoke about our newest member of the team, James Cooper. He’s our resident resources guru.
For more than two months, James has been working with the team to develop our latest project, ‘The Age of Scarcity Attack Plan’.
It’s just as well he’s come on board now, as you’re at the edge of the upcoming boom. James has been researching commodities that will benefit from the supply crunch and finding specific stocks best positioned to take off when the market comes around.
I welcome you to register here for the event and hear what James has to say.
Don’t miss out on this excellent opportunity. It could be life-changing!
Editor, The Daily Reckoning Australia