With John Hampson
Today’s exercise is to look back in history at the previous secular commodity peaks of 1917, 1947 and 1980, that correlate with the solar peaks of August 1917, May 1947 and December 1979, and see how close to the solar peaks individual commodities peaked. This can then assist in expectations for commodities into and around 2013′s solar peak, which I suggest will again be the scene of a secular commodities peak. The data available is spotty, so I have to make do with a selection of four differing commodities for each of the 3 periods in history, but it is nonetheless a useful guide.
Firstly, 1917. Copper, corn and wheat all peaked between 5 months before and on the actual official solar peak. Whilst silver did not peak until 2 years later, its acceleration began around 12 months before the solar peak.
Source: St Louis Fed
Secondly, 1947. Oats, corn and wheat all peaked around 6 months after the solar peak. Whilst copper did not top out until 15 months after the solar peak, the bulk of its gains occurred in the run up into the solar peak.
Source: St Louis Fed
Thirdly, 1980. Copper and gold peaked with the sun, with oil and sugar peaking 4 months and 9 months after the solar peak respectively.
Source: St Louis Fed
On current forecasts, a solar peak should occur sometime between Q2 2013 and Q4 2013, with SIDC projecting nearer the former and NASA and Jan (of Sibet) closer to the latter. Based on the historical examples above, we might therefore look out for commodities making final parabolic tops as of the start of 2013, right through to 2014. The bias from history is more towards commodity price peaks later than the official solar peak, so we might rather look to the second half of 2013 or even early 2014, subject to solar progress. To add to this, another look at the charts above shows that most of the commodities made a big acceleration of around a year’s duration before reaching their tops (or the solar tops). Right now, the CCI commodities index (a broad measure of commodity momentum) is some way beneath its 2011 high and not yet in a major acceleration. By Gann, that acceleration should just have begun, in late November. I believe Gann methodology to some degree reflects solar methodology, in that it draws together mirrors from history to predict the future – only by my reckoning, it is the influence of the sun that makes for these repetitions in time. Nevertheless, it’s a cross reference.
One further conclusion from the above charts is that there was broad commodities participation in each period, so we might also expect the majority of, or even all, commodities to participate in a final ascent (though perhaps with a lag between individual peaks) this time round. If we consider our current period as a K-winter, similar to 1947, where gold is the lead asset, then nevertheless we can see back in 1947 a range of commodities also participated in parabolic ascents into and around the peak. Therefore, exposure to a range of commodities ought to serve well this time around, without the need to specifically cherry pick.
To repeat, 2013 is a major test for my solar theorising. I consider I have a true sample of 3 from history (three secular commodities / solar peak correlations), which by any statistician’s measure is a fairly meagre sample, and a 4th would add substantial weight. However, when we draw in my historical correlations between solar peaks and secular stocks peaks, and solar minimums with crashes, panics and bottoms, the relations through history between secular asset cycles and solar cycles are more compelling and the sample significantly larger. I also look on it another way, in that commodities secular peaks occur only every 30 years or so, and it has been amazing how close to solar maximums these secular commodities peaks have all fallen (including several exact hits shown above), given that huge window in time. The validity of this current cycle is already partially formed in that commodities again broke into a secular bull market in the decade leading up to the solar peak and the secular commodities peak occurred at the earliest 2011 (until that CCI high is taken out), which is again close to the solar maximum, in the context of a 30 year cycle. But I maintain 2011 was not the high, and that the secular peak will be closer to the solar peak, and that the final parabolic ascent is right ahead. If commodities rather continue to rise for some years following the solar peak, rather than topping out with the sun, then that would of course reduce the validity. As fossil fuel exhaustion and natural resource scarcity are real threats, that could be caused by a paradigm shift whereby commodities are permanently repriced higher. However, by my previous analysis, I do not expect that scenario in this secular cycle, but rather in the next secular commodities cycle of mid-century.
I maintain a broad long commodities exposure, with the largest exposure in precious metals, but significant positions in energy and agriculture too.