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They say that history doesn’t repeat, but often rhymes. When it comes to the market, you see that all the time. Talk to someone who has been around for a few market cycles and you’ll often hear them reference market conditions or events from decades long past in order to put current events in context. Now, I wasn’t even around in the early seventies, but anyone who knows anything about gold and commodities will tell you that it was a remarkable period for “stuff stocks”. I found this summary on the commodity boom of the early seventies online a couple of weeks ago and I think it’s definitely worth a read if you’re at all a student of the market: link to the paper here.
Along the same lines, there’s a great interview with Jeff Currie from Goldman Sachs on the Odd Lots Bloomberg podcast about what he calls the “Volatility Trap” (search for that at your leisure). Currie cites a few past commodity bull markets, including the 1970’s, and goes on to describe the “capital light” decade that has set up the market that we find ourselves in today. As we stand on the threshold of the Great Energy Transition, investors in general are still grossly underexposed when it comes to energy and commodities. This is because investors, and banks, have little faith in the earnings sustainability of “old economy” stocks, which means that the capital needed to ensure the adequate supply of the commodities of tomorrow is hesitant to commit to the long term investments needed today. Currie suggests that until this attitude changes, price backwardation (near term prices being higher than future ones) and shortages will persist, which makes for a strong case for commodities.
