Explosive gains in short order … a commodity supercycle … a bull market in battery metals … Eric Fry’s subscribers are cashing in
400% since March …
That’s what Eric Fry’s Speculator subscribers just locked in on a portion of their Freeport McMoRan Inc. (FCX) trade.
What’s remarkable is that if Eric’s right, these gains will pale in comparison with the returns that are coming for patient, longer-term investors.
Today, let’s look at “why?”
In short, Eric believes we’ve just begun one of the most compelling investment opportunities to come along in decades.
It involves something called a “commodity supercycle.”
You see, Freeport McMoRan is a mining company. Among other commodities, one of the primary metals it mines is copper.
Here’s Eric with more:
… copper mining stocks, as a group, are still trading 60% below their 2011 highs.
These prices might be telling little white lies.
In fact, the entire natural resources sector may be playing fast and loose with the truth.
The relatively depressed prices that typify the sector are concealing the realities about their superior growth prospects.
Thanks to a newly hatched commodity supercycle, many resource stocks possess considerable profit potential … perhaps their greatest potential in 20 years.
Today, let’s look at what Eric views as one of the best sector set-ups to come along in decades.
It’s the same set-up that just created 400% gains for subscribers … which could be just a preview of even bigger returns to come.
***What is a commodity supercycle?
For readers less familiar, Eric is InvestorPlace’s global macro specialist.
This means he starts his investment analysis by looking at the big-picture forces that are driving global markets.
That could lead him to, say, a frontier-market stock … or possibly an opportunity in South American currencies … or in this case, a possible boom in commodities.
Now, commodities work differently than stocks. So, when investing in this sector, it’s important to understand how their cycles play out.
Here’s Eric with more:
Unlike stocks, which tend to move higher over time, commodity prices cycle through powerful multiyear booms, followed by spectacular multiyear busts.
These are called “supercycles.”
No two supercycles are identical. But they all share two distinct traits:
1. In their youth, they produce huge investment gains.
2. In their advanced years, they produce huge investment losses.
That’s why it’s so important to pay attention to them early on. They grow up so fast.
Eric believes the previous commodity supercycle lasted 21 years … and ended about six months ago.
You can see the rise and fall of this supercycle below by looking at the TR/CC CRB Commodity Index (CRB).
Notice how CRB quadrupled between 1999 and 2008, only to then lose 77%, which completely erased all its prior supercycle gains.
Back to Eric:
Obviously, without the benefit of hindsight, no one can be certain that this year’s commodity rally is the birth of a new supercycle.
But the devastating commodity bear market of the last decade was exactly the sort of event that creates conditions for a new bull market.
***Why do these supercycles happen? Why can’t supply and demand remain in better balance?
Eric has explained that when commodity prices fall, resource companies lose money. As losses mount, companies do whatever they can to preserve cash.
This often means shutting down money-losing operations and halting exploration activity. And that reduces the global supply of the commodity.
Meanwhile, many weak companies can’t survive in a low-price market. So, they close doors completely. This further reduces the global supply of the commodity.
Back to Eric:
This vicious cycle is exactly what vexed the resource sector between 2011 and early 2016 …
During the worst phase of this severe bear market, the combined annual earnings of the world’s 40 largest resource companies imploded from a profit of $132 billion to a loss of $106 billion …
The most destructive phase of the bear market in base metals ended in 2016. But because their prices have remained relatively low during the last few years, most mining companies have continued to pinch pennies. They have been slow to ramp up exploration activity, and even slower to advance projects into full production.
There are more mothballs in the mining sector than in a warehouse full of wool sweaters.
But in typical boom/bust pattern, this destruction is merely creating the conditions for an ensuing boom. Or as Eric writes:
… the death throes of one commodity supercycle breathes life into the following supercycle.
And that’s exactly what appears to be underway.
***Go long Nickel — here’s why
One of the defining features of this decade will be technological innovation.
From must-have consumer goods like smartphones, to life-enhancing health-monitoring devices, to electric vehicles, the innovations we’ll see will be jaw-dropping.
Yet, each of these devices requires the same thing — power.
And that will come through batteries.
Now, one of the most in-demand metals for energy storage and batteries is nickel.
In an update earlier this month, Eric quoted Elon Musk, Tesla’s founder and CEO, imploring the world’s mining companies to boost their nickel production.
I’d just like to reemphasize, any mining companies out there, please mine more nickel.
Wherever you are in the world, please mine more nickel and don’t wait for nickel to go back to some high point that you experienced some five years ago or whatever, go for efficiency … Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.
So, hopefully, this message goes out to all mining companies. Please get nickel.
This echoes Eric’s comments about global supply reductions, and how they fuel these supercycle gains.
Now, Eric says that, for the moment, nickel supplies are sufficient to meet current demand.
But industry insiders expect a growing supply deficit to develop in the nickel market within the next two or three years. And it’s likely to lead to massive demand.
Below is a chart from Eric showing projected nickel demand soaring through 2030.
Back to Eric:
Bloomberg New Energy Finance (BNEF) expects total global nickel demand to jump about 16-fold from 2018 levels to 2030.
Based on that forecast, the research group states that even a doubling of nickel production capacity through 2030 would not be sufficient to satisfy demand.
For the last few years, global production of metals like iron, zinc, copper, nickel, and graphite have been flatlining.
This is while demand for most metals has continued to climb.
And that’s why their prices are rising from multiyear lows … and are likely to rise much higher over the coming years.
If Eric is right and we’ve just started a new bull market in commodities, then you can see the enormity of the gain-potential in front of us.
***Eric’s subscribers are already seeing huge returns from this supercycle
A quick word of congratulations to Eric’s Speculator subscribers who are benefiting from their commodities plays.
As noted earlier in this Digest, they just locked in 400% gains on a portion of their Freeport McMoRan trade.
In preparing this Digest, I checked Eric’s portfolio returns and saw live commodities trades that are sitting on gains of 324%, 314%, 141%, 139%, 133%, and 95%.
Last Wednesday, Eric sent me an email about how five of his 16 open stock positions were up 100% or more, for an average of 55.3% …
And his eight open options-trades were up an average of 125%.
Again, a big congratulations to Speculator subscribers. To learn more about becoming a subscriber yourself, click here.
As we wrap up, I’ll gave Eric the final word:
… the trend is clear. And this trend points quite clearly to booming demand for battery metals.
As these metals climb from their lows, look for them to lead the entire CRB Index higher. This new commodity supercycle could produce the mother of all mean regressions …
The base metals boom is here … and so is a brand-new commodity supercycle.
Have a good evening,