One Man’s Opinion: Has The Commodities Super-Cycle Ended?

92835431In global markets, there’s greater certainty about where the world economy is heading, but there’s no satisfaction in where it’s heading, feels John Lipsky, a professor at John Hopkins University and a former special adviser to the managing director of the International Monetary Fund.

Some economies, especially the Asian emerging economies, are doing well again, while some others are not. The IMF has called this a three-speed world economy and much of it is below where it ought to be, he added.

Asked about the immediate concerns that world finance chiefs, gathered for the G20 meeting in Washington now, should address, John said when the financial crisis had broken out in 2007, the leaders had said three things needed immediate attention. One, restore global economic growth; two, reform and repair the world financial system, and three, reform the international financial institutions – especially the International Monetary Fund.

All the three remain work in progress. Certainly, there’s great pressure to restore global growth. But to make that happen, a functional financial system is required, even after considering the residual anger and resentment over the role of the financial system and its faults in creating the current downturn. There’s no doubt that these repairs have to be done, he noted.

Asked to comment about the new risks that are emerging, such as the unprecedented monetary easing by the Bank of Japan, John said it is very clear from the different meetings and seminars that there is no clear analytical framework underpinning the very extraordinary push by different monetary authorities and the key central banks around the world.

It’s risky, but there is a general feeling that more has to be done though uncertainty remains if this is really the right thing. This means, the important issue is creating confidence in the coherence and consistency in policy and that’s why meetings like the G20 are very important. If there is a sense of conflict among major authorities in these meetings, it will be very damaging, he added.

Asked if the sudden decline in gold prices indicate something bigger about global policies, particularly monetary policies, John said ex-post explanations are never satisfactory, but ex-ante explanations are. Given the outlook for global economy, it’s hard to see how this “commodity super-cycle” can continue. The generalized weakness of commodity prices seems consistent with the outlook in the economy. In broad terms, the gold bull-run has ended, he concluded.

You can watch the video here.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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