The meetings of world leaders concluded yesterday in Germany. The meeting of the G7 finance ministers last month was to prepare the groundwork for the world leaders to meet.
While most countries are caught up in some sort of economic crisis with record-high debt, deficits, inflation, and low-interest rates, the economy was not the real priority of the world leaders. Their top priority was support for Ukraine. Ukraine was mentioned 24 times in their communique while the world economy was mentioned only four times.
The word most used throughout the communique was the climate. While past meetings of such nature were about global coordination in averting economic disaster and developing growth worldwide their priorities have changed now.
Now it is all about coordination in executing the transformational agenda for climate and social changes which is already determined by the political lobby. Fighting inflation has taken a back seat and surely this will continue to reflect in the quality of life and will be amplified in the coming months and years.
While Fed Chairman Powell as the head of the world’s biggest central bank has been sloppy in addressing the inflation issue and leading the rest of the world, he cannot be blamed fully for the inflation conundrum that we are faced with now. The truth is that the lawmakers will make him the sacrificial lamb. He is not fully responsible for the unlimited money supply that was pumped into the system in the last two years. That was all largely the work of the respective governments.
Now the G7 leaders’ further commitments for wartime spending and climate issues only accelerate more dependence on oil. Oil is the major input for most price increases in all essential commodities.
There was a time OPEC was no more important but that has swung back 180 degrees. Saudi Arabia and Russia will continue to dictate oil prices at least until various alternative energies become mainstream. The supply shortages, supply chain bottlenecks, and the cold war will only compound to an already rising problem worldwide. A European crisis on many fronts can cause an implosion this coming winter.
This all sets up for something very interesting in the markets. The ducks are lining up for a major bull market in commodities. Commodities have never been this cheap relative to stocks in the last 50 years. Commodities are at a major cycle low. The continued strength of the USD has kept the price of the precious metals subdued. But when priced in another currency they all have moved up. The rise in cryptocurrencies also has had a major role to play. During the dot-com bubble, there was price destruction of nearly 5 trillion dollars. But in this crypto winter cryptos themselves have lost 2 trillion.
However, this in itself has not had much impact on the world economy as it was all speculative money. Since its inception Bitcoin itself has not faced a full economic cycle. So the current situation is a major testing period for Bitcoin and some utility altcoins should emerge as winners when the dust settles down. So we are at major turning points, especially in commodities. The general ambivalence and despondency are very supportive of the commodity cycle. Opportunities exist in all economic cycles.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.