Strategies

30 Year Commodity Cycle

30 Year Commodity Cycle

Parent Strategy

Commodity prices generally follow a 30 year boom and bust cycle

Asset Classes

Commodity

People

Harry Dent

Mentioned by the Following

Entities

Dent Research

People

Harry Dent

  • commodity prices generally follow a 30 year boom and bust cycle
  • what causes these cycles?
    1. When prices are low, miners, drillers and other commodity producers normally don't add production capacity
      • adding capacity if typically capital intensive and expensive
      • less efficient produces also tend to go out of business
    2. When prices are low, consumption of commodities tends to increase
    3. Increased consumption and reduced supply lead to higher prices
    4. When prices are high, companies add capacity and thus supply increase.  Consumers also find effeciencse
    5. High prices end up reducing demand at hte same time capcaity is increases - this cause prices to fall
    6. The cycle repeats

Recent Commodity Cycle Peaks
  • Peak:  1980
  • Trough:  2001
  • Peak:  2008 to 2011

Commodity Cycle Examples
  • Oil was cheap in the 90s and early 2000s.  Consumers could buy gas cheaply and switched to larger gas-guzzling SUVs from smaller sedans
  • When oil became expensive in the late 2000s, consumers switched back to sedans and improve efficiency by using hybrid cars