The best ideas are the simplest and the biggest markets are the best. So here is a simple idea for one of the biggest markets out there. It is oil.
For roughly 10 years after 2005 to the later part of 2014, oil (in this case West Texas Intermediate) was above $100 a barrel, peaking in 2008 just below $200 a barrel. In that period it spent years in a channel between $120-$140.
The thing about commodities like oil is that while they can be acutely volatile because of supply and demand and political events, long term their price is a function of the technology needed to create them and the state of inflation in the denominating economy. As a baseline commodity prices go up in line with inflation. So in a country with high inflation commodities become currency and as any gold fan will tell you, dollars are priced in ounces of gold, not the other way around.
Oil can be seen as a good example of this idea. Dollars are priced in barrels of oil, not the other way around. You can also say that implicit in the whole definition of a commodity is that it is something fungible with money.
It is an interesting metaphor because since 2005 there has been a lot of U.S. inflation. So right now, $1 back in 2005 is worth $1.57 in 2023. You need 57% more money to buy you the same stuff in 2023 than you did in 2005. That sobering, but let’s look at a chart of oil:
When I was a child I noticed that in a boom everyone cared about the environment but no one cared about the economy and that when a recession appeared no one cared much for the environment and everyone worried about the economy. Should this pattern repeat this time around then oil will lose the tarnish of the recent past. This will be great for oil stocks. Then there is the question of consumption. It was fashionable to predict that oil was going to become an orphan commodity eschewed by all, a bid-less energy source no one would tap. This always seemed ridiculous to me but it was a heartfelt idea which was embraced by many and saw oil companies on the back foot for years. The call now is, is this all about to change?
Countries need to grow, if they are to keep up with their democratically granted and mandated spending. They need to be adding as much valuable “real” GDP as possible as their figures are currently stacked with phony public sector GDP, which will not pay for the retirement of armies of public servants dreaming of their feather bedded dotage. Cheap energy and lots of it is needed and none of the new tech yet has the flexibility or infrastructure to deliver it.
However, it doesn’t take a bull oil case to do the job, inflation has already loaded the price cannon, a shift away from energy abstinence will only increase the price tension.
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