All cycles eventually come to an end. In the case of commodity bulls, 16 years is the average duration. The longest lasted 24 years (1896–1920), the shortest lasted 8 years (1972–1980), and the most recent secular bull ended in 2011 after 12 years.
What ends a commodity bull cycle? Success. Success invites increasing amounts of capital—oil is a prime example. High prices over a number of years invite competition; capital races in, with more drilling, new technology, fracking, shale, natural gas, and alternatives. High prices drive the need for improved fuel efficiency. Supply and demand imbalances force corrections, but in commodity cycles, those corrections tend to take time. Producers need to cut production, but no one wants to.
There are conspiracy theories surrounding the Saudis, Syria, the United States, and Putin’s Russia; however, the real bull market cycle killer is success itself. With capital committed and drilling in place, the players exit the game slowly.
In this weeks shortened On My Radar, let’s take a look at several charts that detail the long-term commodity market secular (long-term) cycles. What do they mean for 2015? In short, expect a wide trading range, leading ultimately to even lower prices. We are in the early innings: the average commodity secular bear cycle is 20 years.
Founder & CEO CMG
Stephen Blumenthal founded CMG in 1992. He is CEO, Chief Investment Officer and portfolio manager at Capital Management Group, Inc. where he manages equity and tactical investment portfolios. He is a frequent speaker and writer on investment strategies and has been featured in various media sources including the Wall Street Journal, Barron’s, Investor’s Business Daily, Pensions & Investments Magazine, Investment News, RIA Biz and Smart Money. He has been a guest on CNBC, Wall Street Journal Live, and Bloomberg. Mr. Blumenthal is a frequent speaker at industry conferences (NAPFA, IMCA, Index Universe, Opal Financial Group Indexing & ETF Summit and NAAIM) and is author of CMG’s popular investment research commentary. With 30 years of investment management and industry experience, prior to founding CMG, Mr. Blumenthal worked for Merrill Lynch Institutional, Merrill Lynch Retail and Prudential Securities.
Mr. Blumenthal graduated with a Bachelor of Science degree in Accounting from Pennsylvania State University. He is married, has three children and is active in his community coaching youth soccer.