On Saturday, we talked about electric vehicles (EVs) and energy storage as one catalyst behind a new commodities “supercycle.”
That’s because energy storage technologies require spectacular volumes of nickel, copper, manganese, lithium, and other battery metals.
This “Second Electric Revolution” — the massive worldwide transition from combustion-based modes of power generation to renewable modes that feed an array of electric- and battery-based technologies — isn’t the only commodities trigger on the horizon, however.
If President Biden’s legislative priorities play out, he’ll soon fire a $4 trillion bazooka of capital into the commodities sector.
U.S. President Joe Biden next week will travel to Pittsburgh… to unveil a multi-trillion-dollar plan to rebuild America’s infrastructure, choosing a backdrop of an American city with a long union history.
Biden is expected to push for a “Build Back Better” plan that could have a price tag as high as $4 trillion to pay for traditional roads and bridges while also tackling climate change and domestic policy issues like income equality.
The first part of the plan likely will focus on U.S. infrastructure projects, while the second will target the president’s domestic priorities, such as universal prekindergarten, national childcare, and free community college tuition.
We’re focusing on the first part. For more on that, here’s The Washington Post:
“Biden’s proposal is expected to center on infrastructure spending, with hundreds of billions of dollars to repair the nation’s roads, bridges, waterways, and rails.
It also includes funding for retrofitting buildings, safety improvements, schools infrastructure… as well as $100 billion for schools and education infrastructure…
The infrastructure component is expected to include $400 billion in spending to combat climate change, including $60 billion for infrastructure related to green transit and $46 billion for climate-related research and development.
The plan also would aim to make electric-vehicle charging stations available across the country. The measure would also include $200 billion for housing infrastructure, including $100 billion to expand the supply of housing for low-income Americans.”
Bottom line, if Biden gets his way, we’re about to build and repair an enormous amount of infrastructure.
And that should definitely put commodities even more on your radar.
Another Commodities Tailwind
Now, commodities work differently than stocks. So, when investing in this sector, it’s important to understand how their cycles play out.
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:
- In their youth, they produce huge investment gains.
- 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.
The previous commodity supercycle lasted 21 years… and ended roughly one year 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.
Obviously, without the benefit of hindsight, no one can be certain that last 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.
Fast-forward to today, and here’s the same chart from above, updated. I’ve circled what’s happened in green…
Now, why has FCX done so well? And why might it be poised to continue benefiting if the administration’s infrastructure plans come together?
Freeport-McMoRan is one of the world’s largest, best-run copper mining companies. We already know that copper is a key battery metal. It’s also the go-to metal when it comes to building.
Copper is the must-have metal when it comes to electrical wiring. It’s also a major component of plumbing. If you’re building something, copper probably plays a role.
In fact, about 43% of all mined copper is used in building construction. Another 20% or so goes to transportation equipment — and that figure will only climb as our world increasingly turns to electric vehicles.
Copper.?com reports that EV sales growth will increase demand for copper by 1,700 kilotons by 2027.
The world’s transition to renewable energy and electric vehicles will require unprecedented amounts of copper from potentially new mining operations…
The global need for copper could increase by an estimated 350% by 2050, with current reserves depleting sometime between 2035 and 2045, as wind and solar energy generate an increasing percentage of electricity and more people adopt electric vehicles.
Now, you may ask, if copper and Freeport are poised to do so well, why did I recently close out a position for 1,350% gains?
Even Bigger Returns on the Way
Because that’s what smart investors do to protect outsized gains. It doesn’t reflect a shift in my beliefs about Freeport or the commodities supercycle.
Here’s what I wrote to my Speculator subscribers when recommending the closed position:
To be clear, I still like this position and I expect it to continue working its way higher over the next few months.
That said, I would repeat the trader’s aphorisms I cited yesterday:
“Little pigs get big, big pigs get slaughtered.”
“You never go broke taking a profit.”
With the Freeport trade, we have been very successful “little pigs.”
Even within the upside of a supercycle, there will be mini-outflows for a variety of reasons.
And I don’t think the latest commodity “pause” — which we used to take profits on Freeport – pullback — is anything more than a pause.
At the end of the day, the most important thing is the big trend… the supercycle. And that appears to remain in a strong upswing.
Wrapping up, I’m not wild about the government creating and blowing through another $4 trillion. That’s a debt that we’re sticking our children and grandchildren with.
But as investors, we must acknowledge that there will be long-term consequences to this degree of spending.
So, I encourage you to take advantage of these potential gains now.
That’s why I’m always looking for new ways to set my subscribers up for big returns in the commodities sector.
Find out how to join us here.
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On the date of publication, Eric Fry did not own either directly or indirectly any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls —in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.