The Slope of Hope

Bull markets climb a wall of worry. Bear markets ride the slope of hope.

Hellenic Shipping News: Iron ore rally built on China hope, not fundamentals

The spot price of iron ore for delivery to north China has surged almost 25% in the past three weeks, bouncing off a 19-month low as the market takes an optimistic view on Chinese steel demand next year.

H/T: The Sounding Line

I keep things simple. Optimism about China and inflation-memes push commodity prices up for a couple years. Then it all collapses when reality hits. I can boil the whole inflation-deflation debate down to this pattern. The cycle is assumed intact until it is proven dead. Trading is more nuanced, for example oil made a higher high this time. Is the cycle broken? My hunch is commodities will not make a new low in the next downturn (seems impossible outside of deflationary depression) and then there will be a higher high and higher low in place. My hunch is the market has learned, or will learn, to buy commodities instead of stocks in the next round of stimulus/interventions. I can see the exit now because the pandemic, Green policy and Baizuo arrogance has finally reached the point where economic devastation comes to everything the ruling class touches. Inflation will be unleashed by political incompetence or intentionall by the ruling class, with the Federal Reserve as a hapless bystander and likely scapegoat. Until then, I assume Lucy will pull the football away again. Investors all-in on inflation trades will look up at the sky wondering how prices are collapsing with so much "money printing" going on.

What if I'm wrong? If I'm wrong I will make more money. Based on how I expect the macro to play out, I believe rising inflation is more bearish for the financial markets. I am not heavily shorting commodities. On the contrary, I accumulate resource producers and will be buying heavily if there is another panic like 2020 that causes spike drops in junior mining share prices.