Clearly the markets are signalling for commodity producers to bring in more supply. But where is it going to come from? For example, Canada is a big commodity producer. COVID has broken out there much worse than here. There’s been lockdowns and disruption. Not exactly ideal conditions for putting a team together to either find a deposit or build a new mine, is it? It’s also not so easy to always separate industry insight and fluff put out in the mainstream press if you’re a casual observer. For example, the Australian Financial Review reported on Gina Rinehart’s iron ore operation Roy Hill and wrote, in part:
‘A spokesman for Roy Hill said governments should avoid the temptation to introduce new taxes and cost burdens on the industry amid record iron ore prices, given rival nations would soon drag down prices with new supply.’
I saw no evidence to justify the ‘soon’ comment, or even the notion of new supply coming on anytime this year.
The iron ore industry is making so much money right now they have every interest to talk down the prospect of further price rises.
A commodity bull market forming tight supply is one thing. But now we have governments running riot with deficit spending. This has the potential to send demand into overdrive. All the Modern Monetary Theory nutjobs who think governments can spend without consequence will find out shortly that central banks can create credit, but not, say, staff trained in geology or running an underground mine. Inflation from all this is as certain as anything in markets can ever be as far as I’m concerned. The only question is when it shows up. You have every right to be sceptical. Gold stocks tanked midway through last week after the release of the latest consumer price index data. That showed ‘record low inflation’, according to the Australian Financial Review. The paper continued: ‘Cheaper housing costs were included in core inflation.’
It’s at moments like that you don’t know whether to hold your stomach from laughing — or wipe the tears from your eyes at the absurdity of it. Anyone bidding on the ground right now for real estate would know the housing market is roaring. Reserves are being smashed. The used car market is roaring too, by the way. The latest reports show they are up 40% on a year ago because of shortages. And finally, there is perhaps the most important industry in the world experiencing shortages: the semiconductor industry. Hello. These go into practically every modern product that moves, blinks or turns on. No chips, no products. Do you think this might not cause prices to rise too? Or are you going to believe government statistics? I know which choice I’m making. The only thing left to crumble is the US dollar, which is looking decidedly weak. It could break sharply lower sooner rather than later. Keep accumulating those things that can’t be created on a keyboard or printing press: bitcoin, land, gold, art, cars, collectables. You might even like to consider a few tin stocks! Regards, Callum Newman,
Editor, The Daily Reckoning Australia | 
