Investors must be positioned for commodities long before CPI readings start to return to pre-COVID levels.

 

Keep in mind, the global bond market is in a very different environment than past recessions. There is such terrible convexity in bonds, 3% inflation would be a real problem now, investors are going to need an inflation hedge through commodities.

 

Another way of seeing this dynamic is by looking at the duration of the global bond market (Barclays Agg, Macaulay Duration graph below).

By definition, all-time high bond duration means all-time high price sensitivity to changes in interest rates. Investors are going to have to hedge this inflation / interest risk.

The way to hedge this is through the commodity market.

With the world so crowded in sovereign bonds and mega cap stocks, even a fraction of this capital leaving these asset classes points to massive upside in the much smaller commodity market!

Produced in partnership with The Bear Traps Report / Bastien Chenivesse