I write continually on commodities, mainly because it is the largest underweight to our direct equity portfolios. Although we had a substantial oil and gas position, which performed very well, we did unwind it in its entirety over two months ago, and as oil appears headed for $150/bbl we keep revisiting our thinking.


Most things work with a lag. US fiscal policy saved households during the pandemic, facilitated hand in glove with monetary policy.

Households continue to draw down on those excess savings, which remain ample for now. But they will run out eventually.

The bow I attempt to draw here is that extreme commodity prices are a function of a) supply and b) demand, and here the demand side is an (in part) function of prior monetary and fiscal working its way through (e.g. digestion). That will eventually clear the economic colon, removing a key pillar of support for commodities.

The first graph, and this one below, shows those stimulatory features fading away (into outright contractionary). Eventually, albeit with a lag, it would seem, this will restrain demand, which appears to have spilled over globally, most notably into commodity prices.

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