Source: Streetwise Reports 05/08/2018
Conditions may be in place for increased demand and increased prices for a number of commodities. In this interview with Streetwise Reports, Frank Holmes, CEO of U.S. Global Investors, discusses the commodity supercycle and the factors behind it, why some commodities may get more of a boost than others, and ways investors can profit.
The Gold Report: Frank, thank you for joining us today. Let’s talk about the commodity supercycle. Would you explain what the supercycle is?
Frank Holmes: There’s lots of research on the supercycle; new research came out around five years ago that found evidence on commodity supercycles in particular, and experts believe that we’re in the middle of one.
To back up one step, I definitely think government policies are a precursor to change; in fact, that’s written in all of our prospectuses, that we really believe in this. Government policy bifurcates to either monetary or fiscal policy. Fiscal policy is tax and spend, along with regulations. Monetary policy is real interest rates and money supply. So, the real significant factors are the fiscal policies of the government and if they’re materially strong enough. When you get into the cycle, you need to ask if the government is smart with the money. The first part of the last wave took place in Latin America and Africa when they had the commodity boom, but a lot of those tax dollars that came in were wasted or stolen. So, they never really got the recycling of the money into building an economy.
The exception is China. It did build infrastructure, 20,000 roads and also pushing for 25,000 miles of light rail and super railway trains that go over permafrost at lightning speed. I took my board several years ago from Shanghai to Beijing at 220 miles an hour 30 feet above the ground. They’ve seen firsthand how the Chinese redeploy that capital. And that’s the reason why China has had such a big economy.
The last big cycle was in America. And this big 50- to 60-year cycle is China. The first big wave was building dams. Then we had roads and super train stations. The next big push is the Silk Road, and that’s to connect something like 65 countries. And China is going to finance it and then bring in its latest technology because it can build roads faster than any company in America, and it can lay track and railways. This is so important as it can go and touch all these countries along the Silk Road. How those governments deal with the capital flow will create a sustainable supercycle, or it will end it.
So far, everyone keeps betting negatively on China, and I think that’s a mistake. I’ve heard this since 1994 when I started the China Region Fund (USCOX).
In that 60-year commodity supercycle, you have 10-year cycles. We’ve basically come out of a 10-year downdraft. We had this big wave up, then we had the correction, a balance, and then we drifted lower and lower. And we’re seeing that there’s been a lack of exploration and development for any major discoveries for commodities, but the world continues to print money at a rate that’s just incredible. People continue to have babies. Even China’s gone to a more than one child policy. I think that bodes well that a lot of the inventories, the excess supply from oil or whatever the product was, was basically used up in the downdraft of this cycle. Now, we’re in the next wave, the upcycle.
TGR: What do you think are some of the factors bringing us into this next upwave?
FH: I’m not a Trump fan and I don’t really like bullies, but I must admit that he has had the courage to take on the status quo. I was at a hedge fund conference recently where Ben Bernanke spoke and he said that Trump is like Jimmy Carter. The whole room was shocked by him saying that. He said it doesn’t matter if it’s a Democrat or a Republican. Whenever that president takes on the beltway party, the entrenched regulators and lobbyists, then you start seeing them attack using the media, leaks by our government to go and attack that president. So, a year ago, Bernanke said to expect lots of leaks coming out, and so far he’s been correct on that.
But the beneficial part for the commodity cycle is that Obama passed what’s called the Obama checklist that basically said if your corporation spent a million dollars going through this checklist, you complied with the law. The Environmental Protection Agency (EPA) had approved you to build that highway, redo the bridges, etc. But the EPA snubbed the president.
When I was in Washington with a group of analysts and met with the EPA and the energy department, etc., what we discovered was that President Trump took the Obama checklist and said that if a company complied with it and the EPA did not approve it, then the EPA would have to report to the Department of Justice to justify why it hasn’t done it. And since that date, you won’t believe how much infrastructure spending has been approved. You talk to engineering firms, they’re on fire. They’re just booming with business. So, I think if you had America really focus on redoing all of its bridges, airports—so our airports are cutting edge like when you go to China—and tunnels and subway systems, etc., then we could be in that next important, critical leg for that cycle along with what China’s doing on the Silk Road.
TGR: In this next cycle, do you think that all commodities will react equally? Which ones are going to be the winners?
FH: Well, clearly natural gas is going to be a big winner. You can see that in the prices of liquefied natural gas (LNG) which Japan, South Korea, Taiwan and China import, and it’s cleaner than some other energy sources.
Solar energy is another area of opportunity; there have been greater advancements in solar …read more
From:: Mining.com