Commodities, including gold, have been seeing initial signs of a long-term bull supercycle, said Steve Hanke, professor of applied economics at Johns Hopkins University.
Steve hanke professor of applied economics at Johns Hopkins university is back to give us his year end forecast for 2021 on gold, the commodities stocks and the economy. Professor hanky. Welcome back, Michelle. Good to be with you, David. Start with the commodities and offline. You were telling me that we're about to start a new Supercycle.
Can you explain what that means and why? Yes. Uh, in the, in the past few years, commodity prices have really in general been beat up, uh, and some of them have been really absolutely annihilated. And when that happens, what, what you get, you, you start running down inventories. A lot of producers. I actually go to the law and shut down.
So supply gets very constrained. Inventories are very low. And then as a economy starts kicking in and moving forward, commodity prices go way up and you, you do start a Supercycle. And I think. We are seeing the initial signs that that might be in the wind. If you look at some of the commodities I like to look at, or a lot of people think there may be a little bit exotic, but they're the ones that are give you the insight.
And the one on one of these super cycles are really cranked up in the last quarter. Nicole has increased 22% in price. Molybdenum is increased 18%, uh, lithium carbonate, uh, 25% aluminum, 19%, uh, antimony, 19%, silicone metal, 15% magnesium, 26%. And my favorite of course, because I meant. Walden producing Faro vanadium at the advanced metallurgical group.
That's up 8%. So watching these very carefully, you can see they're all coming off the bottom, uh, with substantial strength after being totally wiped out in the past year and a half or two. And I think that's a sign that that's on the supply side inventories are low and et cetera, et cetera. So on the demand side, you always have to have a model for national income determination.
And the national income determination means how fast does a nominal GDP going to grow? And the nominal GDP includes a real component and an inflation. And, and that's all very closely geared to the growth rate in the broad money supply and the economy at present. The only place you can get a reliable indicator for broad money as a center for financial stability in New York.
Professor bill Barnett. Measures this very accurately and what something very sophisticated. Thank God for division and for center for financial stability reserve data professor, it's not junk. It's it's not as good and they're having all kinds of problems redefining. Money supply and everything else.
The, at the fed right now, which is another separate issue, don't waste your time. Go to the center for financial stability. Professor Barnett's numbers of the Visy M for the Vizio, him for the broad money is growing at 27.7% per annum. They're goosing this thing big time, and that means nominal GDP will, will be a goose and big time.
No nominal GDP includes that real and inflation component. And the, and the real component is, is in fact, very constrained. The real economy can only grow so fast. And let's say even if it's 4% subtract 4% from 27, 27.4. People can get their pencil on and do the arithmetic. And you end up with a lot of inflation surge and the economy that's that is very much consistent.
Or shall we say compatible correlates with a super cycle. We're going to have more inflation. We're going to have more inflation. That's that's always good for commodities. And. We'll also probably have a continued weakness. So the dollar, the dollar has gotten a little weaker since we last were speaking with you.
I think the last time against a Euro is about one 18. It's about one 22 today. So yeah, so it's gotten a little weaker and it'll, it'll stay a little on the weak side. So if you put all that together, more inflation, more economic growth. Supply. That's been very constrained inventories that are very down.
All of that's a formula to crank up the commodity market. Why do you think the economy is going to grow? Uh, you just mentioned that, uh, uh, you said that GDP is going to be a goose stop by an increase in the money supply is productivity and output. Are those actually going to increase and improve as well?
Professor? Well, uh, They, they probably will improve slightly because as economic growth increases and is more robust, you, you always get a little bit of a productivity pop in there. And the reason for that is that, you know, if demand is hot, you're, you're using capacity at a hot rate. It's, it's better than if you're running Slack.
If you're running Slack and. And, and a worker is, is kind of taking a long lunch break and really only working six hours a day versus a hot capacity utilization, or he's working eight hours a day. You get increase in productivity because, because everybody's more fully engaged, more and more intense. So I would anticipate as growth picks up, we'll get, uh, you know, a little bump up in productivity.
Okay. How do you see the jobs market professional? I ask this because, uh, offline, we're talking about the Phillips curve. Now some economists have spoken to an analyst have said that unemployment is likely to remain high. Now, as you know, the Phillips curve say it's at the inverse relationship.
Unemployment is high inflation is likely to decrease the Phillips curve. You know, you, you, you learn that it's in all the economics textbooks point number one. Point number two, the journalist repeat this at nausea. Uh, uh, and, and, and, and when you repeat it in the press, it's like an echo chamber.
Everybody is echoing the same thing. There's this one problem. The Phillips curve is rubbish and should have been trashed on time ago, or there should have been a warning sign and signs put up in the textbooks. Just let me give you two examples. That you know about that inverse relationship. Look at the seventies in the United States where you had stagflation, remember stagflation, you had increasing unemployment and increasing inflation.
Well, that's, that's contrary to the Phillips curve kind of thing. Look up, look at the last period prior to the pandemic. W with the Trump economy. We, uh, we, we reached a record low and unemployment and prices were absolutely flat. We had no inflation. Everyone was wringing her hands at the fed because we didn't have enough inflation, even though we had record low unemployment.
So, so Pete, it's unfortunate. It's the same. It's a 95% rule, David. 95% of what you read in the French press is either wrong or irrelevant. And this Phillips curve thing is wrong and irrelevant. All right. Well, so you think inflation is going to happen next year? What about the jobs market? Do you think the jobs market will improve?
I think as the, as the economy comes back, that the jobs market will probably come back. Now, I say probably. And I hesitate there. The reason why, if they're still handing out these stimulus checks and paying people more to stay home, then go back to work. They'll stay home. We went through this a few months ago when, when the stimulus checks ran out and people stopped being paid more to stay home than go to work.
They went back to work. So if, if the stimulus checks. Dry up and the economy starts coming back. People will go back to work and the job market will be pretty strong and unemployment will come down. Uh, professor, what about the stock market? Now you were talking about fiscal stimulus. The market participants were depending on fiscal stimulus to drive the equities markets higher.
What do you see stocks headed for the next three months or so? I think stocks will, will stay on the bid side, stay robust. Uh, and the reason for that, it's pretty simple. We have real interest rates that are actually negative right now. Nominal rates are very low. They will stay very low. And in that's in that environment, multiples of stock stay very high.
So, so the stock market we'll, we'll stay, we'll stay a bit. And, and, and I think, I think we'll continue to be on the strong side. Now, when you, you mentioned the stimulus, it's very interesting. If we look at the gold market, the gold market is very sensitive to the stimulus and, uh, Abe cough and this, and I, we, we, you and I have discussed this.
We, we, we do. Let's call it text mining. We're we're mining the text, the news that's coming out. Literally. Now we can do it on an hourly basis or looking at intraday what's going on and whether the markets are what the, whether the, the market information put out in the press is either bullish. Or bearish on gold.
And, and right now it's fluctuating hour to hour, almost between bullish and bearish. The market's very confused. So when they think the stimulus is coming, it gets bullish a little bullish and then they, and then they cool off on the thing. And then the stories start coming out a little Berry, the market's kind of confused and gold.
It's kind of indifferent about the stimulus. Can't make up its mind about weather. The vaccine's going to work and the economy is going to come roaring back or the vaccine isn't going to work. The economy will come back, et cetera, et cetera. So the gold market's in a holding pattern. Short-term long-term given what I told you about increasing inflation and the increases in the money supply.
It looked pretty positive for gold. Gold is going up. Okay. So go, it's going up with long with the IRS, the commodities and the broader Supercycle is what you're saying. I think, I think it will. Yes. Okay. Now I know you're an expert in geopolitics, so I have a few questions regarding geopolitics for you, but just over the weekend, Trump added a few more companies to his, uh, entity list.
The companies that he deemed to be a national security risk and should be banned from the United States, DJI, the maker of drones is one of them. And so, you know, what I'd like to know is even towards the end of the year, we're still seeing escalations and the trade Wars. Can this be reversed? With Biden or not.
I, I, what I think what we'll see is the rhetoric and the Biden administration vis-a-vis China will, will, will change. In other words, uh, particularly with secretary Pompeo was, you know, very aggressive against China, even more so than, than the president Trump. You, you will see that re that kind of re bombastic rhetoric.
Good at the sidelines, the reality, however, the rhetoric will change, but the reality will not change with Biden. The policies I think will stay pretty much what they're, what we're seeing right now. And the main reason for that, you have to realize China is run by the communist party and they have a course set.
It's like a big, super tanker. You, you don't, you don't change directions in a supertanker very rapidly. So China's not going to be changing no matter what the us does, it's going to keep going. And therefore, I think the reaction on the U S side and the Biden administration in reality will be almost exactly what the Trump administration has been embracing.
So you don't think the Democrats are going to try to be, uh, more open to trade and reverse some of these protectionist measures like tariffs. Okay. So, uh, tailwinds from geopolitics, then we wouldn't expect any to boost stocks from the, from this year, any positive news coming out of the world that you might be looking forward to.
The biggest positive news is this, this damn pandemic, because that's the biggest net as I could. You, you, you can see what's going on in Britain today. I mean, they're there, the cases have spiked up. They've gone into heavy duty lock down in London and people are absolutely panicked trying to get out of Wanda.
The, he, all the airports are packed. The rails are packed. The highways are packed. It's panic time. If that goes away. Meaning the pandemic. Uh, Bates, we will see a big change in confidence in general, a big reduction in uncertainty throughout the world. That that would be the biggest news. Yeah. What's interesting to me is that China, the source of the virus has already opened up their economy.
Whereas in the West, like you said, London's back and locked down cases in the United States are still rising late. Well, how, what is it that. How has the West not caught up in this regard in terms of recovery? What have they done wrong? I think you and I have spoken about some policy measures, uh, in the past, but can you recap some, I, I think, I think the big thing is that, uh, there've been what I call kind of thoughtless lock downs and, and, and thoughtless policy.
You've you've had 10 million experts. In the United States and epidemiology running around saying this, that, and the other thing, no one is ever really balanced the whole thing out. I'm not saying by the way that China necessarily is, but in the way, yes, it's been a pretty chaotic uninformed setup, experts, giving policy to of course, politicians who were even less informed.
And so you've just had everything from a to Z. Coming into the policy picture and they, and changing policy almost every day. So that that's the that's, that's the problem. I mean, it's the. They don't give one, the impression that they know what they're doing, let's recap your, uh, economic forecast, raising inflation, improving job market, decreasing dollar, everything good for gold and commodities.
And the stock markets are likely to stay buoyant for, uh, at least the foreseeable future. Exactly. And not commodity. So I would just add David that we could be saying, and I think we are seeing. The star of a commodity Supercycle, not, not just strong commodities, but maybe big time, maybe big time.
Commodity Supercycle. Thank you very much. Uh, fester, Angie, that was a great update and a happy holidays. Merry Christmas to you and happy new year. Well, and the same to you, David and your colleagues at Kitco. Thank you very much. It's a pleasure to have spoken with you several times this year, and I look forward to many more next year.
Thank you for watching Kitco news. I'm David Lynn.