Guessing Game

The surfeit of articles and research pieces  on deflation/dis-inflation and the end of the commodity supercycle does not seem to be showing any signs of slowing down, particularly as we near years end. What we find lacking in most of this research is a clear understanding of the role of price in the supply/demand dynamic. We find it laughable to hear of price projections for  such diverse commodities as copper and corn not only extending out several years but to several decimal points as well. What is missing in these projections is the disruptive nature inherent in a price that does not adequately reflect reasonable economics. In short, prices send very loud signals to the market, the volume of which we maintain will only increase going forward. We understand the  often long -lived nature of commodity production, but after a three year drought in capital market access, many new projects can already be discounted as scrapped. However, the linear projections involved in many of these commodity price projections still simply do not reflect this reality. We would maintain that the physical nature of  commodity production exerts more mean reverting pressure  on price than something like, for example, technology. Think about that when reading “research” pieces projecting the future value of a Bitcoin.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s