How to Profit from the Outsized Potential and Avoid the Risks'
I Mike Norman, your host. Well, my guest today says we are in a commodity super cycle, and it going to last longer and be bigger than anything that we seen in the past. His name is Adrian Day, president of Adrian Day Asset Management. Adrian, thank you very much for coming on the show.
Adrian Day, president, Adrian Day Asset Management (Day): Well, thank you.
Day: Well, I not sure about anything in history. But it certainly going to be a lot longer, and a lot bigger than most cycles. And a lot bigger and longer than most people are imagining.
You know, commodities by their nature are cyclical. They very cyclical, as we know. And they respond to the economy generally louboutin outlet uk in an exaggerated manner. But commodity cycles tend to be, in the normal course of events, longer than a normal economic cycle anyway.
So for example, for the last 250 years, the shortest copper cycle ever has been 17 years. The shortest gold cycle has been 12 years. So cycles in the commodities tend to be long.
Norman: Why is that?
Day: Well, it because commodities are at the early stage of production. So they take longer to respond to economic signals from the consumer. So when a consumer demand starts to pick up, the shoe retail store sees that immediately. He sells more shoes. So he orders more shoes because he ran his inventory down in a depression.
The commodity manufacturers, they at the early stage of production, right? christian louboutin for men They make the stuff that goes into making stuff that goes into making stuff. And so they take longer to pick up these signals. And even when they pick up the signals, they tend to take longer. There a delayed response before they respond. If you got to put $1.2 billion into a new copper mine, you want to make sure the copper prices are really going to stay up.
Norman: So you saying they actually farther removed from the first line of demand.
Day: Absolutely. And so it takes longer to respond.
Norman: When did this cycle begin? Date it.
Day: Well basically in the year 2000. Some of the metals didn start Norman: So we 10 years into it.
Day: Yes. Some of them didn start moving until a year or two later. So copper has been nine mbt outlet years now. So we are only halfway through what would be the shortest cycle for the last 250 years. The reason this cycle is going to be bigger is because over the past few centuries, you typically get the biggest moving commodities when you have a new source of demand. You can obviously get spikes when you have supply disruptions and wars and things like that.
Norman: Like you had the oil embargo back in the Day: Exactly. But the biggest moves and the sustained moves come when you have a new source of demand. So in the British Industrial Revolution, 1825 to 1840, one of the biggest moves in commodities; 1870 to 1914, prior to the First World War, as America was industrializing, you had a big, sustained move for that 35 , 40 year period in commodities. Now mbt sandals we in the same situation, but with China. China represents 20 percent of the world population. industrialization and British industrialization. And at the same time as that increase in demand, we having increased constraints on finding new deposits technological, political, environmental and economic, frankly.
Norman: So I was just about to ask you that question in response to some major paradigm shift in demand. You mentioned China. A supply shift. Oil is a good example. In the early there were major new oil discoveries. You had the North Sea. You had new discoveries in Saudi Arabia. If you talk about commodity markets now, raw materials particularly, I think a lot of metals look at the continent of Africa. Africa right now seems like a situation where, look, mbt kisumu governments are starting to change. Much more exploration is going in there. The Chinese themselves are spending billions of dollars going into Africa to extract minerals from them.
Day: Absolutely. And please understand, I am not a doomsdayer. I am not saying, world running out of metal. No more commodities in the Earth's crust; we not going to find it. I am saying is, with metal being a depleted asset, first of all you got to run pretty hard just to stand still. For every pound of copper you produce, you got to find a pound or more, because you don extract everything you find. We are not doing that. That what I saying. We not doing that.
Now, you have new governments opening up, as you mentioned in Africa; absolutely, no question. Democratic mbt trainers Republic of Congo has a lot of copper. Maybe in 20 years time that will be a nice place to work. It isn at the moment.
You also have a situation of new techniques, new technology. And we seen that across the board. We saw heap leaching with SX/EW, heap leaching for gold; SX/EW for copper and so on. Also as the price of these commodities goes up, more low grade material becomes economic, of course.
So you have all these things that are mitigating. But what I saying is, right now, when you look over the next five or 10 years, we definitely see a huge increase in demand, but we do not see where that huge increase in supply is coming from.
And if I may give just one quick example: copper. Of the top 10 producers of copper in the world, the last mbt chapa mine of those top 10 producers to come on stream was in 1997, right? That 13 years ago. And it was discovered 20 years before that. It was discovered in 1977 20 years to explore, to develop, to raise the money and to put it into production. So you would think that right now we would know which copper mines are going to be coming on stream in the next few years. And the truth is, there only one major mine that is scheduled to come on stream in the next five or six years.
Norman: When looking at the total picture, the big picture, is copper the most bullish of all of them, do you think?
Day: I think copper is probably the most bullish of the base metals, no question. And it one of my top resources.
Norman: Your top five picks would be what?
Day: christian louboutin black pumps That a difficult question, because you always got to look at risk and reward. I like gold a lot, but that a risk/reward issue. That not a pure potential commodity. But I like gold. Of the precious metals, I think platinum is very strong, because of the increased demand. I like copper a lot. And I think also uranium, but not immediately; maybe slowly accumulate uranium. We got excess supply, excess capacity at the moment. So give it a couple of years before that Chinese demand comes on stream. And maybe oil.
Norman: All right, there you go. Adrian Day. And the book again is in Resources: How to Profit from the Outsized Potential and Avoid the Risks. That the end of this part of my interview. See you next time folks; this is Mike Norman. Bye bye.