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If we’re in a new commodities super cycle should you be investing in mining and commodities stocks?

The London-listed mining company Rio Tinto has just announced it will pay out record…
The post If we’re in a new commodities super cycle should you be investing in mining and commodities stocks? first appeared on Trading and Investment News.

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The London-listed mining company Rio Tinto has just announced it will pay out record half-year dividends totalling $9.1 billion, sending its share price to new record highs. The miner, one of the world’s largest producers of iron ore and its derivatives which it digs out of Western Australia’s Pilbara region, will make the payment via a $6.1 billion ordinary dividend topped up by a $3 billion special dividend.

Rio Tinto is in a position to lavish its shareholders with such gifts because it has just banked interim net profits of $12.3 billion. That’s more than its total profits for the whole of 2020 and a huge leap from the $3.3 billion banked over the same period a year ago.

Rio Tinto, and other companies exposed to commodities prices, have had a good several months. The miner, also listed on Australia’s ASX, has seen revenues soar thanks to a massive rebound in demand for iron ore from China, its most important customer. Prices have risen above $200 a tonne from under $100 at the start of 2020.

A Fortune article examining the school of thought we may have entered the 5th commodities ‘super cycle’ of the industrial era highlights the examples of Cargill Inc., and Trafigura Group.

Cargill, the world’s largest agricultural commodities trader and one of the largest traders across commodities categories, has made more money over the first 9 months of its fiscal year, from October 1 2020 to June 30 2021, than in any full year in its history as it brought in net income of over $4 billion.

Trafigura Group, the world’s second-largest independent oil trader posted a net profit of over $2 billion for the six months to the end of March. That’s almost as much as it made over its best ever full year, prompting chief executive Jeremy Weir to comment:

“Our core trading divisions are firing on all cylinders.”

rio tinto plc

Since a five year bear market culminated in low of 1653.5p in January 2016, the Rio Tinto share price has gained over 280%. Good management has certainly made a strong contribution to Rio Tinto’s recent success but so have commodity prices. Companies across the sector have enjoyed similar trajectories.

If, as many sector analysts are anticipating, commodity prices remain strong for the foreseeable future, should investors consider exposure to miners and commodities themselves?

Many believe the cyclical sector’s good times will continue for a while to come. Let’s take a look at the factors underpinning commodity prices and address the question of if we have embarked on a new commodities super cycle.

The commodities market in 2021

Over the first six months of 2021, commodities have been the best performing asset class in the world, with only the wildly volatile cryptocurrency matching its 21% return. Even U.S. equities, on a rip this year, have only returned 15%.

commodities

Oil has been the commodity with the largest gains this year after a rebound from prices that fell through the floor in spring 2020 as the Covid-19 pandemic took hold and large energy-intensive buildings were moth-balled around the world and long distance travel largely ground to a halt.

As demand has started to return oil prices have roared back to around $75 a barrel. Natural gas prices have similarly benefited and corn is trading at multi-year highs due to a combination of demand from China and poor weather in Brazil hitting supply. Many other agricultural commodities are also at or near multi-year highs.

commodities first half

But it’s the prices of construction materials and industrial metals that miners like Rio Tinto are benefiting from most. Iron ore, copper, lead, nickel, zinc and palladium, which is mainly used in electronics, have all seen their prices soar this year.

Precious metals have seen price drops as economic sentiment has turned risk-on and away from safe have investments. But prices are still solid after gold gained 25% in 2020 and silver 48%. Analysts also see gold fundamentals as robust despite a tough start to the year and many expect prices to retrace back up as inflation rates continue to move up.

Why is demand for industrial metals and other commodities so high?

Doug King, boss of King’s Merchant Commodity Fund, an American hedge fund established in 2004, doesn’t believe the current strength of the commodities market is a temporary rebound from depressed demand over the pandemic. He is convinced that what we are seeing is a long-term shift in the structure of the global economy.

“We are facing a structural inflation shock. There’s a lot of pent up demand, and everyone wants everything now, right now.”

There’s been a recent drop in the prices of industrial metals, especially copper which has given up all of its gains this year. That’s largely been because of pressure from China, which is worried about the cost of the commodities it needs to feed its factories and infrastructure projects.

The world’s biggest buyer has hit back at what it sees as speculators, threatening them with a crackdown, and has also been releasing strategic stockpiles to increase supplies. It’s worked to an extent but the Bloomberg Commodities Spot Index, a measure of 22 raw material prices, is still up 78% from its March 2020 low, and most analysts expect prices to remain high, probably higher, for some time to come.

Are we in a 5th commodities super cycle?

Economists define a commodities super cycle as a sustained period of high demand that commodities producers like oil companies, farmers and miners struggle to match, pushing prices up in a rally that is longer than the usual economic cycle.

The first super cycle was catalysed by U.S. industrialisation in the early 1900s. The second came in the 1930s as a result of global rearmament between the First and Second World Wars. The third took place in the 1950s and 1960s as Europe and Japan was rebuilt after the Second World War and the fourth started in the early 1990s as China industrialised.

There is debate around whether what we are witnessing now is a fifth super cycle that is founded on a combination of continuing huge demand from China, coupled with a drive by the USA to respond to the rise of a rival super power and a global push to electrify and move away from fossil fuels.

There is a further argument that western consumers, starved of the opportunity to spend on services like hospitality and tourism over the pandemic, have allocated more of their spending to buying goods like electronics that use metals in their manufacture.

Other analysts say what we are seeing now is rather the second stage of the China super cycle that began in the 1990s and was interrupted by the global financial crisis of 2008. But that’s a point of debate for economists. What’s more important for investors is if commodity prices will remain higher than historical averages, turbo charging the revenues and profits of miners and other companies exposed to the sector.

Ivan Glasenberg, outgoing chief executive of mining and commodities giant Glencore says “commodity prices will stay strong for a long way longer.”

His faith in continuing robust demand is based on the fact that both the USA and China are, for the first time in history, simultaneously investing in large infrastructure projects as a form of economic stimulus designed to underpin the economic recovery from the coronavirus crisis. And he doesn’t think it will be easy for companies to increase supplies enough to ease prices.

Commodities companies are under pressure from investors and governments to wean themselves off fossil fuels and are tapering investment in areas like oil, gas and especially coal. Shareholders are also demanding higher dividends which leaves less money for expanding production.

Mr King and other commodity traders are happy:

“This is the beginning of a proper boom cycle — this isn’t a transitory spike.”

We’ll take a look at some of the mining and commodities companies that investors may want to take a closer look at in our next article – Investment ideas for exposure to the commodities bull market.

The post If we’re in a new commodities super cycle should you be investing in mining and commodities stocks? first appeared on Trading and Investment News.

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Wendy’s teases new $3 offer for upcoming holiday

The Daylight Savings Time promotion slashes prices on breakfast.

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Daylight Savings Time, or the practice of advancing clocks an hour in the spring to maximize natural daylight, is a controversial practice because of the way it leaves many feeling off-sync and tired on the second Sunday in March when the change is made and one has one less hour to sleep in.

Despite annual "Abolish Daylight Savings Time" think pieces and online arguments that crop up with unwavering regularity, Daylight Savings in North America begins on March 10 this year.

Related: Coca-Cola has a new soda for Diet Coke fans

Tapping into some people's very vocal dislike of Daylight Savings Time, fast-food chain Wendy's  (WEN)  is launching a daylight savings promotion that is jokingly designed to make losing an hour of sleep less painful and encourage fans to order breakfast anyway.

Wendy's has recently made a big push to expand its breakfast menu.

Image source: Wendy's.

Promotion wants you to compensate for lost sleep with cheaper breakfast

As it is also meant to drive traffic to the Wendy's app, the promotion allows anyone who makes a purchase of $3 or more through the platform to get a free hot coffee, cold coffee or Frosty Cream Cold Brew.

More Food + Dining:

Available during the Wendy's breakfast hours of 6 a.m. and 10:30 a.m. (which, naturally, will feel even earlier due to Daylight Savings), the deal also allows customers to buy any of its breakfast sandwiches for $3. Items like the Sausage, Egg and Cheese Biscuit, Breakfast Baconator and Maple Bacon Chicken Croissant normally range in price between $4.50 and $7.

The choice of the latter is quite wide since, in the years following the pandemic, Wendy's has made a concerted effort to expand its breakfast menu with a range of new sandwiches with egg in them and sweet items such as the French Toast Sticks. The goal was both to stand out from competitors with a wider breakfast menu and increase traffic to its stores during early-morning hours.

Wendy's deal comes after controversy over 'dynamic pricing'

But last month, the chain known for the square shape of its burger patties ignited controversy after saying that it wanted to introduce "dynamic pricing" in which the cost of many of the items on its menu will vary depending on the time of day. In an earnings call, chief executive Kirk Tanner said that electronic billboards would allow restaurants to display various deals and promotions during slower times in the early morning and late at night.

Outcry was swift and Wendy's ended up walking back its plans with words that they were "misconstrued" as an intent to surge prices during its most popular periods.

While the company issued a statement saying that any changes were meant as "discounts and value offers" during quiet periods rather than raised prices during busy ones, the reputational damage was already done since many saw the clarification as another way to obfuscate its pricing model.

"We said these menuboards would give us more flexibility to change the display of featured items," Wendy's said in its statement. "This was misconstrued in some media reports as an intent to raise prices when demand is highest at our restaurants."

The Daylight Savings Time promotion, in turn, is also a way to demonstrate the kinds of deals Wendy's wants to promote in its stores without putting up full-sized advertising or posters for what is only relevant for a few days.

Related: Veteran fund manager picks favorite stocks for 2024

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Inside The Most Ridiculous Jobs Report In Recent History: Record 1.2 Million Immigrant Jobs Added In One Month

Inside The Most Ridiculous Jobs Report In Recent History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the…

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Inside The Most Ridiculous Jobs Report In Recent History: Record 1.2 Million Immigrant Jobs Added In One Month

Last month we though that the January jobs report was the "most ridiculous in recent history" but, boy, were we wrong because this morning the Biden department of goalseeked propaganda (aka BLS) published the February jobs report, and holy crap was that something else. Even Goebbels would blush. 

What happened? Let's take a closer look.

On the surface, it was (almost) another blockbuster jobs report, certainly one which nobody expected, or rather just one bank out of 76 expected. Starting at the top, the BLS reported that in February the US unexpectedly added 275K jobs, with just one research analyst (from Dai-Ichi Research) expecting a higher number.

Some context: after last month's record 4-sigma beat, today's print was "only" 3 sigma higher than estimates. Needless to say, two multiple sigma beats in a row used to only happen in the USSR... and now in the US, apparently.

Before we go any further, a quick note on what last month we said was "the most ridiculous jobs report in recent history": it appears the BLS read our comments and decided to stop beclowing itself. It did that by slashing last month's ridiculous print by over a third, and revising what was originally reported as a massive 353K beat to just 229K,  a 124K revision, which was the biggest one-month negative revision in two years!

Of course, that does not mean that this month's jobs print won't be revised lower: it will be, and not just that month but every other month until the November election because that's the only tool left in the Biden admin's box: pretend the economic and jobs are strong, then revise them sharply lower the next month, something we pointed out first last summer and which has not failed to disappoint once.

To be fair, not every aspect of the jobs report was stellar (after all, the BLS had to give it some vague credibility). Take the unemployment rate, after flatlining between 3.4% and 3.8% for two years - and thus denying expectations from Sahm's Rule that a recession may have already started - in February the unemployment rate unexpectedly jumped to 3.9%, the highest since February 2022 (with Black unemployment spiking by 0.3% to 5.6%, an indicator which the Biden admin will quickly slam as widespread economic racism or something).

And then there were average hourly earnings, which after surging 0.6% MoM in January (since revised to 0.5%) and spooking markets that wage growth is so hot, the Fed will have no choice but to delay cuts, in February the number tumbled to just 0.1%, the lowest in two years...

... for one simple reason: last month's average wage surge had nothing to do with actual wages, and everything to do with the BLS estimate of hours worked (which is the denominator in the average wage calculation) which last month tumbled to just 34.1 (we were led to believe) the lowest since the covid pandemic...

... but has since been revised higher while the February print rose even more, to 34.3, hence why the latest average wage data was once again a product not of wages going up, but of how long Americans worked in any weekly period, in this case higher from 34.1 to 34.3, an increase which has a major impact on the average calculation.

While the above data points were examples of some latent weakness in the latest report, perhaps meant to give it a sheen of veracity, it was everything else in the report that was a problem starting with the BLS's latest choice of seasonal adjustments (after last month's wholesale revision), which have gone from merely laughable to full clownshow, as the following comparison between the monthly change in BLS and ADP payrolls shows. The trend is clear: the Biden admin numbers are now clearly rising even as the impartial ADP (which directly logs employment numbers at the company level and is far more accurate), shows an accelerating slowdown.

But it's more than just the Biden admin hanging its "success" on seasonal adjustments: when one digs deeper inside the jobs report, all sorts of ugly things emerge... such as the growing unprecedented divergence between the Establishment (payrolls) survey and much more accurate Household (actual employment) survey. To wit, while in January the BLS claims 275K payrolls were added, the Household survey found that the number of actually employed workers dropped for the third straight month (and 4 in the past 5), this time by 184K (from 161.152K to 160.968K).

This means that while the Payrolls series hits new all time highs every month since December 2020 (when according to the BLS the US had its last month of payrolls losses), the level of Employment has not budged in the past year. Worse, as shown in the chart below, such a gaping divergence has opened between the two series in the past 4 years, that the number of Employed workers would need to soar by 9 million (!) to catch up to what Payrolls claims is the employment situation.

There's more: shifting from a quantitative to a qualitative assessment, reveals just how ugly the composition of "new jobs" has been. Consider this: the BLS reports that in February 2024, the US had 132.9 million full-time jobs and 27.9 million part-time jobs. Well, that's great... until you look back one year and find that in February 2023 the US had 133.2 million full-time jobs, or more than it does one year later! And yes, all the job growth since then has been in part-time jobs, which have increased by 921K since February 2023 (from 27.020 million to 27.941 million).

Here is a summary of the labor composition in the past year: all the new jobs have been part-time jobs!

But wait there's even more, because now that the primary season is over and we enter the heart of election season and political talking points will be thrown around left and right, especially in the context of the immigration crisis created intentionally by the Biden administration which is hoping to import millions of new Democratic voters (maybe the US can hold the presidential election in Honduras or Guatemala, after all it is their citizens that will be illegally casting the key votes in November), what we find is that in February, the number of native-born workers tumbled again, sliding by a massive 560K to just 129.807 million. Add to this the December data, and we get a near-record 2.4 million plunge in native-born workers in just the past 3 months (only the covid crash was worse)!

The offset? A record 1.2 million foreign-born (read immigrants, both legal and illegal but mostly illegal) workers added in February!

Said otherwise, not only has all job creation in the past 6 years has been exclusively for foreign-born workers...

Source: St Louis Fed FRED Native Born and Foreign Born

... but there has been zero job-creation for native born workers since June 2018!

This is a huge issue - especially at a time of an illegal alien flood at the southwest border...

... and is about to become a huge political scandal, because once the inevitable recession finally hits, there will be millions of furious unemployed Americans demanding a more accurate explanation for what happened - i.e., the illegal immigration floodgates that were opened by the Biden admin.

Which is also why Biden's handlers will do everything in their power to insure there is no official recession before November... and why after the election is over, all economic hell will finally break loose. Until then, however, expect the jobs numbers to get even more ridiculous.

Tyler Durden Fri, 03/08/2024 - 13:30

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Shipping company files surprise Chapter 7 bankruptcy, liquidation

While demand for trucking has increased, so have costs and competition, which have forced a number of players to close.

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The U.S. economy is built on trucks.

As a nation we have relatively limited train assets, and while in recent years planes have played an expanded role in moving goods, trucks still represent the backbone of how everything — food, gasoline, commodities, and pretty much anything else — moves around the country.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

"Trucks moved 61.1% of the tonnage and 64.9% of the value of these shipments. The average shipment by truck was 63 miles compared to an average of 640 miles by rail," according to the U.S. Bureau of Transportation Statistics 2023 numbers.

But running a trucking company has been tricky because the largest players have economies of scale that smaller operators don't. That puts any trucking company that's not a massive player very sensitive to increases in gas prices or drops in freight rates.

And that in turn has led a number of trucking companies, including Yellow Freight, the third-largest less-than-truckload operator; J.J. & Sons Logistics, Meadow Lark, and Boateng Logistics, to close while freight brokerage Convoy shut down in October.

Aside from Convoy, none of these brands are household names. but with the demand for trucking increasing, every company that goes out of business puts more pressure on those that remain, which contributes to increased prices.

Demand for trucking has continued to increase.

Image source: Shutterstock

Another freight company closes and plans to liquidate

Not every bankruptcy filing explains why a company has gone out of business. In the trucking industry, multiple recent Chapter 7 bankruptcies have been tied to lawsuits that pushed otherwise successful companies into insolvency.

In the case of TBL Logistics, a Virginia-based national freight company, its Feb. 29 bankruptcy filing in U.S. Bankruptcy Court for the Western District of Virginia appears to be death by too much debt.

"In its filing, TBL Logistics listed its assets and liabilities as between $1 million and $10 million. The company stated that it has up to 49 creditors and maintains that no funds will be available for unsecured creditors once it pays administrative fees," Freightwaves reported.

The company's owners, Christopher and Melinda Bradner, did not respond to the website's request for comment.

Before it closed, TBL Logistics specialized in refrigerated and oversized loads. The company described its business on its website.

"TBL Logistics is a non-asset-based third-party logistics freight broker company providing reliable and efficient transportation solutions, management, and storage for businesses of all sizes. With our extensive network of carriers and industry expertise, we streamline the shipping process, ensuring your goods reach their destination safely and on time."

The world has a truck-driver shortage

The covid pandemic forced companies to consider their supply chain in ways they never had to before. Increased demand showed the weakness in the trucking industry and drew attention to how difficult life for truck drivers can be.

That was an issue HBO's John Oliver highlighted on his "Last Week Tonight" show in October 2022. In the episode, the host suggested that the U.S. would basically start to starve if the trucking industry shut down for three days.

"Sorry, three days, every produce department in America would go from a fully stocked market to an all-you-can-eat raccoon buffet," he said. "So it’s no wonder trucking’s a huge industry, with more than 3.5 million people in America working as drivers, from port truckers who bring goods off ships to railyards and warehouses, to long-haul truckers who move them across the country, to 'last-mile' drivers, who take care of local delivery." 

The show highlighted how many truck drivers face low pay, difficult working conditions and, in many cases, crushing debt.

"Hundreds of thousands of people become truck drivers every year. But hundreds of thousands also quit. Job turnover for truckers averages over 100%, and at some companies it’s as high as 300%, meaning they’re hiring three people for a single job over the course of a year. And when a field this important has a level of job satisfaction that low, it sure seems like there’s a huge problem," Oliver shared.

The truck-driver shortage is not just a U.S. problem; it's a global issue, according to IRU.org.

"IRU’s 2023 driver shortage report has found that over three million truck driver jobs are unfilled, or 7% of total positions, in 36 countries studied," the global transportation trade association reported. 

"With the huge gap between young and old drivers growing, it will get much worse over the next five years without significant action."

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