24 AUGUST 2020

The following is the biggest trade you can make in the coming decade. Investing in this part of the economy can give you 5x, 10x and even over 100x returns. For some, the next several years can set you up for retirement. And others still can make hundreds of thousands, if not millions of dollars. Ignoring this investment opportunity is like throwing away suitcases full of cash; please don’t do this to yourself.

A decade-long bull market

In the last decade, US equities have been in a bull market. Tech and growth stocks led the way. Meanwhile, commodities and energy has been in a 12 year-long bear market.

The tech bull market makes sense:

  • The last decade saw the birth of the smartphone, allowing for the first time in history, billions of people to access the internet anywhere and anytime.
  • Social media becomes an integral part of everyone’s daily life.
  • Amazon becomes the largest online retailer.
  • The general proliferation of tech products and services in traditional industries and life. Companies store files in the cloud, people transact with PayPal and chip makers are needed to make better semiconductors.
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But as with all bull markets, investors get lazy and think the good times will continue forever. Investors bid up stock prices far more than they are worth hoping to make a quick profit, creating a bubble. For specific data points on the tech market, read my August 14 article.

When growth promises fall short, where will all the money move to?

Like a mirror image, value stocks, comprised of many commodity and energy stocks have suffered in the last 12 years.

SP500 Value Index vs Growth Index Chart

SP500 Value Index vs. SP500 Growth Index

What caused natural resources to go bust?

Resources are highly cyclical by nature. When commodity prices rise, it encourages companies to produce more of that commodity so they can cash in on high prices.

Naturally, higher prices discourage consumers from consuming the commodity, decreasing demand.

When demand falls and supply increases, prices fall. The result is a bear market.

Beginning in the 2000s, many hard commodities like oil, precious and industrial metals, and food rose in price. Natural self-correction of the 1990s commodity depression and China’s industrialization caused the bull market.

GSCI Commodity Index

Commodities are in a decade-long bear market.

Many commodities peaked with the Great Recession of 2008. Fears of economic hardship and lower demand sent many commodities down. Combined with China’s slowing manufacturing growth, commodities entered a bear market, which we are still in today.

Another reason for the resource bust, although less significant, is the growing environmental movement. 

Ask anyone on the left of the political spectrum what they think the biggest problems in the world are and they will have global warming in their top three. Ask any centrist or apolitical person the same question and they’ll have it in their top five. The point is, the public hates energy and commodities. Everyone who invests in commodity and energy companies is evil and society must ostracize them.

Environmentalist Hypocrite Cartoon

A coiled spring waiting to burst

At the peak of the last commodity bull market, producers overproduced. All excess resources were stockpiled. The oversupply caused prices to drop, discouraging companies to explore and produce more resources.

Today, consumers are still consuming stockpiled resources. Production continues to shrink, taking a big dip from government lockdowns in 2020.

Meanwhile, consumer demand has only grown. The West’s energy consumption is steadily climbing while emerging countries are just about to industrialize.

The world spent the last decade working through resource reserves all the while production kept decreasing. It’s only a matter of time when this trend must reverse; otherwise human civilization will cease to thrive.

The situation is like compressing a spring until you can no longer hold it down.

Commodities enable civilization. Energy powers everything that upholds our standard of living. The reason we aren’t cavemen is because of all the innovations, machines, tools and technology enhancing society; all of which natural resources fuel.

No amount protesting against pipelines or defunding oil, natural gas and uranium will change the fact that humans need more energy for civilization to improve.

What the numbers show now

The data shows commodity and energy markets are at historical lows.

The Commodity Stock Index is the cheapest it’s ever been relative to the Dow Jones.

Commodity Stock Index vs Dow Jones Industrial Average Chart

Commodity Stock Index vs. Dow Jones Industrial Average

I still think precious metals are undervalued based on what smart gold bugs have to say. That being said, the Commodity Research Bureau Index (CRB), mainly consisting of energy and agricultural commodities is near its 50 year lows relative to gold.

This means, while gold is still undervalued, resources as a whole are even more undervalued.

Gold vs Other Commodities 2020

Gold continues to climb while other commodities plummet

Relative to the SP500, energy stocks are at all-time lows. Investors and Wall Street have taken so much money out of energy stocks and put them in inflated tech and healthcare.

Soon, they will realize the returns they are expecting out of tech are not feasible. Where will all their money move to then?

My bet is a reversion to the mean – investors will pour money into high-yield, undervalued energy stocks.

SP500 Energy Sector Weight by Percent

Specific example: oil

Almost all commodities are in the dumps, but each has their unique story. To better understand the macro play, let’s look at oil specifically.

Since the crash of 2014, capital spending in the oil market has dried up. Nobody wants to drill for oil when they can’t make any money or their margins are really thin.

Major Oil Companies Capital Spending

Major oil companies lowered spending each year since 2014

The Russian-Saudi oil price war caused many more oil producers to slash spending. 

Even before the oil price crash of 2014, oil explorers were not finding much new oil in the ground.

Conventional Oil Discoveries Chart

Barrels of oil discovered are not replacing consumption.

Since oil is an extractive industry, for business to continue, any oil consumed must be replaced. Oil producers aren’t drilling enough oil to replace what we consume.

On the demand side, politicians and environmentalists are being proved wrong year over year. Oil demand will continue to increase and will likely accelerate as emerging markets enter their growth stage.

False Oil Demand and Supply Projections Chart

Department of Energy is completely out of touch with what humans need.

Unless some scientist invents a perpetual motion machine, the only inevitable conclusion is increasing oil prices.

It all boils down to supply vs. demand. The same goes for other commodities.

Maybe the greatest opportunity of your life

Now, many commodities are in a tight space. We are in a time where utility companies are at risk of not having enough raw materials to generate energy for society.

Either the lights go out or commodity prices will rise to incentivize producers to dig up resources.

I am betting on the latter.

When that happens, resource companies can experience gains that can set you free for the rest of your life!

That last sentence is not an exaggeration! Take a look at some real life examples…

Laramide Resources Chart

Laramide Resources: 300,000%

Africa Oil Corp Chart

Africa Oil: 2,600%

Pan American Silver Corp Chart

Pan American Silver: 1,500%

I will be writing more about this opportunity in my free articles and research reports.

I have already written a research report on one industry in the energy sector. The investments haven’t taken off yet, so there’s still time to get in. My readers are enjoying ridiculously high dividends in the meantime.

The next bull market is here!

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