The best of Materials Risk 2020

As always at this time of year its helpful to look over your shoulder and glance back and see what has worked, and what hasn’t. The most popular posts from the past year show that Materials Risk readers are keen observers of history, eager for insights and clues from the past. I hope to produce even better content in 2021 in what I think will prove to be just the beginning of an exciting decade for commodity markets and a profitable one for investors.

1) The predictive power of the copper-gold ratio

One key ratio to watch out for signs of a return to inflation is the copper-gold ratio. The copper-gold ratio is calculated by dividing the copper price (per lb) by the price of gold (troy oz)…(read more)

2) What I learned from “Alchemy: The Surprising Power of Ideas That Don’t Make Sense” by Rory Sutherland

I first heard Rory Sutherland speak in an interview he did for the State of the Markets podcast. Unlike almost every other interviewee he stood out as being able to make completely nonsensical suggestions for why people behave the way they so, but in a way that actually kind of made sense…(read more)

3) What I learned from “Mastering the Market Cycle: Getting the Odds on Your Side”, by Howard Marks

Howard Marks is the founder of Oaktree Capital. He has been writing memos about markets to his clients since 1990 (they are all published on their website). Marks’ first book, “The Most Important Thing: Uncommon Sense for the Thoughtful Investor” is a collection of the best insights from his memos…(read more)

4) What I learned from “Capital Returns: Investing Through The Capital Cycle”, by Edward Chancellor

Capital Returns: Investing Through The Capital Cycle was published in 2015 and outlines the capital cycle approach to investing used by Marathon Asset Management. Introduced and edited by financial historian and investment strategist Edward Chancellor the book includes a number of Marathon client essays published between 2002 and 2015. As pointed out by Chancellor, the essays are unashamedly a cherry picked list of client notes chosen with a big dose of hindsight bias. That being said they offer a useful way of illustrating the points made in the introductory chapters and so many of them are also worth a read…(read more)

5) The South Sea Bubble: 300 Years Later

2020 marks the 300-year anniversary of England’s most notorious speculative mania, and the first of many economic and financial crisis. During the first half of 1720, the price of South Sea Company stock rose eight-fold reaching a peak in early July. Restrictions on the supply of shares, coupled with surging credit availability fueled the share buying bonanza. The fear of missing out on riches drove the share price even higher…(read more)

6) What is the Cantillon Effect?

When the US Federal Reserve and other major central banks embarked upon their quantitative easing programs shortly after the Global Financial Crisis many feared that the impact would be inflationary…(read more)

7) How to buy oil? Here’s what you need to think about to avoid getting burnt

Over the space of a mere two months the price of oil has more than halved in value and are now at their lowest values since the early 2000’s. A cursory look back over that period reveals two periods (early 2009 and 2016) where oil prices plunged to levels close to where we are today, only for prices to more than double in value over the following two years. Tempting to think the same will happen again isn’t it?…(read more)

8) Timber! What do recent trends in the price of lumber and gold tell us about equity markets?

Gold prices hit record levels this week. That much is old news now. What has escaped the front pages is that another commodity is also nearing record levels. That commodity is lumber…(read more)

9) It’s time to build: Here’s what that might mean for commodities

In August 2011, venture capitalist Marc Andreessen published an article in the WSJ entitled Why Software Is Eating The World. Marc argued that, despite much deep seated scepticism of company valuations “many of the prominent new Internet companies are building real, high-growth, high-margin, highly defensible businesses”, before then outlining several examples of how software was eating the world across industry sectors. He concluded the article by calling on investors and others to embrace the opportunity…(read more)

10) The future of forever – My interview with diamond industry analyst Paul Zimnisky

The diamond industry has always fascinated me. But as I started learning more about it I always came up with even more questions. Fortunately, I was lucky to be able to contact one of the most authoritative people in the business to find out more – Paul Zimnisky…(read more)

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