Stock Market Crash – Will traders Move Into commodities Or cash?

On a recent Rebel Capitalist Pro members only live Q&A, a member asked Glenorchy Capital money manager, Chris MacIntosh, whether he thinks investors would gravitate towards cash or commodities if a stock market crash were to happen.

Chris begins his answer by stressing that it's important to take timeframe into consideration. Chris doesn't time markets. He's not sure what the immediate short term will look like but he doesn't want to get caught owning fiat 5 years from now.

Deepest Value Happens To Be In Commodities

Deep value investors like Chris have been focused on great companies, that are cheap, in commodities. His hedge fund's portfolio is full of companies that do well during inflationary environments like the one we are sinking into now and he's sitting in very little cash.

Very little Cash

Typically, in a short-term market scenario, investors liquidate their positions and move into cash. Investors that operate on margin, will liquidate their gold and bitcoin too, just to cover their exposed positions in the markets. So everything appears to sell-off.

If the stock market does crash this year or the next, expect cash positions to be short-lived. Smart investors will put their cash back to work by investing in inflationary assets like commodities. 

Inflation likely to be with us over the next decade

We have reached the end of a long-term debt cycle. According to Ray Dalio, a long-term debt cycle can last up to 80 years.

By this time, governments and their central bank counterparts no longer take a pragmatic and logical approach to managing the debt. But instead, they take a creative approach to fiscal and monetary policy. They rely heavily on the money printer and financial engineering to make the economy work. Or at least give the appearance that it works.

Faced with unprecedented money printing, massive supply destruction, and asset bubbles that stretch all markets, the Fed and government are running out of options.

Historically, these setups end in catastrophe. Only time will tell when this will happen. It's not a matter of if, but when.

What causes inflation?

Most investors realize the inflationary environment we are in, but not all. There's still debate whether or not we are in a disinflationary environment disguised as a transitory inflationary environment.

But if you take the 30,000-foot view and consider that central banks have been inflating the everything bubble since the early 2000s without a proper deleveraging, without creative destruction, then it makes sense that when the wound does rip open, it'll be deep and take a long time to heal.

Probabilities are higher that inflation will be with us for a long time. Much higher than inflation being transitory or short-term.

The primary driver of today's inflation has been massive stimulus spending coupled with global supply disruption/destruction brought on by the pandemic.

Governments from around the world are printing and flooding their economies with trillions of currency units in an effort to keep markets propped up.

The global pandemic lockdowns – caused by poor planning from big governments – have destroyed supply chains. The irony is that many of these supply chains belong to neglected and ignored sectors like energy and shipping.

Nobody wants to invest in more oil tankers or another coal mine, yet the world needs both.

Hopefully, you can start to see the problem. Sectors that are important to everyday living, are the ones in need of capital expenditure. Yet they are ignored. While sectors that need the least amount of capital expenditure get all the attention.

Think about Elon Musk and Tesla as an example.

We Are Entering Into A Commodities Super Cycle

Chris feels that we are entering into a commodities supercycle. This is great if you are a deep-value investor with a long-term time horizon. It's bad for those of us living in the real world since a commodity supercycle means inflation will run extremely hot. Everything real in the world will get dramatically more expensive. It's already started.

According to Chris, consumer price inflation will continue to sky-rocket for the next decade. He feels it will not be short-term. So if you are an investor, don't feel like you are too late to participate. This party is just getting started.

Investing In Commodities – Which Ones?

The best investments to be in for 2021 and moving forward will be commodities. If you are worried about a potential market crash then you really need to focus on these sub-sectors of the commodities sector.

Build a diverse portfolio that includes these sectors

  • Agriculture
  • Base Metals
  • Copper
  • Gold
  • Natural Gas
  • Offshore Oil
  • Rare Earths
  • Russia Oil & Gas
  • Shipping
  • Uranium

What To Invest In Right Now

If you are looking for specific stock picks, then definitely check out Rebel Capitalist Pro. Pro members get access to Lyn Alden's model portfolio's which show you what to invest in right now. Lyn also provides a premium macro investing newsletter every two weeks and live q&a.

Chris MacIntosh provides 5 great picks every week, in his premium newsletter, Insider Weekly. We also discuss current events and answer member questions on a weekly live q&a.

If you're not a Rebel Capitalist Pro and you conduct your own research and due diligence, then consider investing in commodity producers outside western countries if possible. Especially for sectors like energy.

On one end of the spectrum, you have western countries that are going green, and on the other side, you have countries starving for cash, so they can pay down their debts.

For example, it wouldn't be unreasonable for a country like Chile to nationalize somebody else's gold mine because they need the money. And despite coal still being a necessity for most nations throughout the world, it's hated. So investing in Canadian or American coal is not the best place to put your money.

Hopefully, you get the idea. Diversify your jurisdictional risk.

If you need help, sign up for Rebel Capitalist Pro.

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Arnold Ziffel
1 year ago

I’m in commodities, and my favorite investments are profitable mid-cap gold miners with substantial reserves. The majors aren’t sinking capital into new mines and exploration; thus, they will be buying the mid-caps for high premiums to acquire the reserves and revenue streams.

Herbert Lülsdorf
Herbert Lülsdorf
1 year ago

Hi, there is one important macro – Point that is missing in your World-view! Its the role of the US Military in economics. The eleven Aircraft carriers of the US in comparison to one Carrier of russia and two of china. They are used to protect the dollar as the Word leading currency – nothing else makes sense! The rest of the World including me / the Germans are very concerned about bankrupt US with nothing else than their Military to protect their wealth!! Your military is more important than the Fed! You do not need ten times more Aircraft… Read more »

1 year ago

This video about investing in the commodity super cycle won’t start playing. I get a white line spinning around in a circle for many minutes.