A little over two years ago, Financology forecast that the 2020s would see surging commodity prices. Our post Outlook for the 2020s made this prediction based primarily on fundamental and valuation grounds.
Of course every bull market is made up of a series of advances and declines, so we have been turning to our more technically based Synthetic Systems computer model to refine this by identifying the times at which rallies should be expected. Synthetic Systems predicted this inflation as long ago as 2017 … readers can consult the annual charts going back to 2018 on the Annual Charts page, where the 2020’s surging copper prices were fingered over two years in advance, before even Covid was on the radar screen. (Since the 2017 SS chart has expired from the Annual Charts page, a copy is reproduced below.)
At the beginning of this year, again, in Synthetic Systems Update 2022, as well as subsequent posts, we noted that industrial commodities had the highest return expectations of the five assset classes through the first three quarters of this year.
This week has been explosive. Bloomberg reports that its commodity price index recorded the biggest increase in five decades. The catalyst is all over the headlines … the war in Ukraine and the sanctions imposed on Russia in response.
How did Synthetic Systems foresee the outbreak of war in eastern Europe? It didn’t, of course. SS has no grasp of geopolitics whatsoever. The point we’re making here is that commodity prices were due to spike anyway. The Ukraine war and sanctions simply exacerbated a process already under way.
The more fundamental driver of soaring commodity prices is the central bank monetary excesses of the past fourteen years. SS of course doesn’t have an opinion on those policies either, but can read the fingerprints central banks have been leaving all through the financial system. SS is proof the seeds of the 2020s commodity and consumer price inflation were being sown at least as early as 2017. It’s noteworthy that even though Russia is not an especially critical copper producer, according to Bloomberg copper prices hit all time highs this week. It’s hard to avoid the impression that war and sanctions are being, if not outright scapegoated for reckless central bank policy, disproportionately blamed for surging prices.