Commodity Supercycle Expected to Deliver up to 900% Outperformance
The Investor Verlag, actively involved in stock market events, sees permanently higher inflation as the basis for a new commodity supercycle. A decade characterized by steady and sometimes even falling inflation has come to an end. Neither prices on the stock market nor those for bonds or real estate have yet reacted to this shift. Due to consistently high P/E (price-earnings) ratios for these assets, some are already speaking of the “everything bubble.” Not included in this are commodities, which enjoy brilliant prospects in times of high inflation.
The Investor Verlag concludes that high inflation is the basis of a commodity bull cycle by comparing current events with previous commodity cycles. In both 1970 and the period from 1999 to 2021, commodities managed to outperform stock markets. For example, the value of gold rose by 400% during the latter period, while that of oil increased by as much as 700%. In both periods, an inflationary market cycle supported the commodity markets.
The current commodity cycle began in 2000, triggered by the end of low inflation, excessive monetary policy, and supply chain problems. While COVID-19 temporarily slowed it down, it is now gaining momentum again. Since the 2008 financial crisis, stocks have been overvalued compared to commodities. For instance, the P/E ratio of the S&P 500 stands at 22.2 points, the energy sector (oil and gas) at 5.7, and commodities in general at 11.3. Such exceptionally favorable commodity investments indicate that a higher valuation of the sector is practically inevitable. While stocks are likely to fall, Investor Verlag therefore foresees a potential outperformance of 700% to 900% for commodities.
High inflation is caused by high prices, especially for commodities. The best protection is therefore to invest in commodities, which are a cause of inflation. As the value of money decreases, the asset value of commodities increases, particularly those increasingly in demand by industry. Technology metals and rare earths represent a bottleneck for many industries; an investment in them therefore offers the best possible protection and is, moreover, tax-free.