Let me start with a couple of basic fundamental truths.
"Liquidity will eventually find it's way into undervalued assets." & "Starting in 2000 we entered a secular bear market for paper assets and a secular bull market for commodities."
These two big picture fundamentals have been the driving force behind my main investing themes for the last 5-6 years.
So starting in 2000 liquidity began the lengthy process of moving out of overvalued stocks and into undervalued hard assets. No where was this more evident than the energy and base metal sectors.
The explosive growth in emerging markets was a big driver behind the impressive gains in these two sectors.
Commodity bull markets unfold in two phases and the principle of liquidity moving to undervalued sectors will govern what sectors will lead the second phase.
By that I mean the commodities that underperformed during the first phase will be the leaders during the second phase as liquidty finds its way into the cheapest commodities.
The commodities that underperformed during the first phase were agriculture and precious metals. During the second phase we will see these sectors outperform energy and base metals.
That doesn't mean these two areas won't see gains. I suspect they will see big gains but they aren't going to be anything like what we are going to see in Ag and PM.
The fundamentals are now on the side of agriculture and precious metals. The global depression is going to put a damper on demand for energy and base metals. However food supplies are now at multi decade lows and every central bank in the world is printing money as fast as they can trying to stem the economic collapse.
These two fundamentals are going to be the main driver of the second phase of the commodity bull.