In a recent interview, the chief strategist for energy research at the Carlyle Group, Jeff Currie, shared insights that have drawn attention across financial circlesCurrie, who had an extensive 27-year tenure at Goldman Sachs as the head of commodity research, provided a detailed analysis of the current economic landscape, focusing on various driving forces that he believes will influence asset markets significantly.

One of Currie's primary observations is that since 2019, there has been a critical inflection point in the U.Sinterest rate cycleThe impact of this shift on various asset classes, particularly in green energy and commodities like copper, is profoundThe initial response to declining interest rates tends to stimulate demand for these assets, making them attractive to investors looking to hedge against inflation and broader economic uncertainty“The rates are sensitive, and as they drop, you see an increased flow of capital into these sectors,” he explained.

Among the commodities, gold has maintained a resilient narrative, particularly influenced by geopolitical tensions such as asset freezes on Russian holdings

Central banks around the world are increasingly looking to diversify their reserves, pushing them towards gold, which remains a stable asset in tumultuous timesCurrie anticipates that emerging market countries will continue to accumulate gold as a safeguard against fluctuating fiat currencies.

When discussing raw materials, Currie coined the acronym RED—redistribution, environmental policies, and deglobalization—as the three powerful factors driving commodity pricesHe posits that these elements have gained momentum and will continue to shape the economic landscape moving forward.

On the oil front, Currie presents a bullish outlook, forecasting a significant reduction in oil inventories as demand spikes, particularly as summer approachesHis estimates suggest that crude oil prices could reach around ninety dollars, echoing sentiments that the supply-demand dynamics are tightening.

Moreover, with copper, he notes that new supply incentives are being triggered at approximately $12,000 per ton, expecting that inflation-adjusted prices could soar to $15,000 per ton within a few years

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This observation underscores the potential for a renewed cycle in commodity investments.

However, beyond a mere positive outlook on commodities, Currie introduced a compelling concept—the “revenge of the old economy.” This term encapsulates the revival of sectors that have traditionally driven economic growth but have recently been overshadowed by the rise of the new economy, particularly in technology and digital services.

The concept first appeared in an article Currie wrote for the Financial Times in October 2021, where he articulated that the recovery from the pandemic has unveiled a crisis in commodity supply, rooted in historical underinvestment in the post-financial crisis eraHe contends that the lack of investment in the old economy, coupled with insufficient growth in the new economy, will inevitably lead to renewed pressure on commodity prices, signaling the start of a new supercycle.

Historically, supercycles describe periods where significant demand surges occur in tandem with supply disruptions or shortages

For instance, after World War II, the global economy experienced a boom in capital expenditures, leading to expansive production capacityHowever, this was soon followed by an era of excess supply and low inflation, culminating in bull markets driven by the dynamics of supply and demand.

The discussion of past supercycles brings us to pivotal moments such as the oil crises of the 1970sPrices skyrocketed from an average of $3.29 per barrel in 1973 to $11.58 by the end of that year, showcasing just how quickly markets can shift in response to geopolitical tensions and changes in supply chainsThe resultant price spikes during the subsequent crises exemplified the volatility that can arise from such disruptions, indicating that the markets operate within complex interdependencies.

Now, as we look towards the potential emergence of a new supercycle, Currie points to emergent factors that could drive this transformation

He identifies government-led spending initiatives such as the Inflation Reduction Act in the U.Sand the European RePowerEU strategy, which collectively allocated roughly $750 billion this year alone towards bolstering green energy investments.

Currie emphasizes the importance of three transformative policies: redistribution, environmental focus, and deglobalizationHe theorizes that as wealth shifts from affluent to lower-income populations, overall demand for commodities could consequently rise due to higher consumption levels within these communitiesYet, he acknowledges the challenges posed by the current economic climate, particularly the influx of new energy investments which might simultaneously restrain traditional energy sources, leading to an overall static demand scenario.

Critics of Currie's optimism point out that, globally, there exists a trend of increasing disparity where poorer populations are becoming further impoverished, which may limit the efficacy of the wealth redistribution narrative

Furthermore, China, a leading consumer of commodities, is facing a downturn in real estate and construction, further suggesting that demand may not rebound as readily as hoped within the next five years.

Furthermore, there's the overarching issue of technological stagnation affecting economic expansionsWhat’s missing from this demand narrative is a semblance of actual new growth; technological buzzwords like AI and humanoid robots remain largely aspirational without immediate applicability, leaving many economists questioning where the new demand will originateIf we keep considering the hard commodity landscape, it’s plausible to argue that the bear market that began in 2011 has yet to conclude.

In the short term, the dynamics suggest that we might be staved of a resurgent bull market within commoditiesCurrie appears to expect that the resurgence of the old economy is an upward movement soon, yet within a short timeframe, the lack of robust stimulus on the demand side may hamper such aspirations.

This doesn't dismiss the possibility of structural bull markets within select commodities; however, the rules of engagement have evolved