'Revenge of the old economy': Is this the start of the next commodity supercycle?
5 min read
With austerity abandoned by all major economies, a global spending surge may turbo-charge oil demand. The vaccine catch-up rally for unloved commodity stocks over the last three weeks may just be the appetizer before the supercycle gets going in earnest.
All the major economies have abandoned austerity and declared a collective war on inequality. The planned spending surge on green deals and social welfare in Europe, America and the OECD bloc will be buttressed by a consumer spending expansion in China. The combined largesse will match the "BRICs" investment bubble of the 2000s in scale and outrun the supply of "almost all commodities". If correct, the vaccine catch-up rally for unloved commodity stocks over the last three weeks is just an 'amuse bouche' before the supercycle gets going in earnest. That is the broad thrust. If correct, the vaccine catch-up rally for unloved commodity stocks over the last three weeks is just an "amuse bouche" before the supercycle gets going in earnest. The Bloomberg commodity index has fallen 60 per cent since its last hurrah in 2011. In synthetic terms, it is back to half-century lows. Goldman Sachs says there is no political appetite for the contractionary debt-reduction policies seen after the global financial crisis: whether the Tea party and the fiscal "sequester" in the US; or Osbornian austerity in the UK; or the draconian Schauble cuts of Europe's Lost Decade. It predicts something more like the "guns and butter" policies of Lyndon Johnson in the Sixties, the era of the Great Society and the welfare programmes of the War on Poverty. LBJ's Keynesian deficit spending was coupled with the Vietnam War and the budget-busting costs of Soviet containment. This time the strategic imperative is to counter China and the Xi-Putin axis. We already see it in the rising British defence budget, with the once unthinkable backing of Labour. Military, technological and cyber rearmament is the new Western consensus. Running to hit 'escape velocity' The bull case is that central banks will accommodate this fiscal expansion much as they did 50 years ago (bar Germany's Bundesbank), deliberately letting their economies run hot to achieve "escape velocity" after the long malaise of secular…