Pent-up Inflation Ignites Prices in Copper, Lumber, Steel

Extreme price movements to the upside in lumber, copper, and steel are signaling that inflation hasn’t arrived, but hyper-inflation has.

Copper for March delivery soared by 50% from a year ago and is now within $0.40 a pound of its all-time record high of $4.67 a pound set in 2011.

The price of lumber has similarly steepened its upward price trajectory as the pandemic causes supply chains to contract while demand soars as home renovation mania grips city populations and the real estate market sizzles.

Copper, Steel, Lumber Price Movements Since 2015
Copper, Steel, Lumber Price Movements Since 2015

As for steel, prices have doubled in the last year for certain products, and the trend shows no sign of topping out anytime soon.

Michael Bury, famous for making a pile of money during the housing market crash of 2006/2007, tweeted:

@michaeljburry: Prepare for #inflation. Re-opening & stimulus on the way. Pre-COVID it took $3 debt to create $1 GDP, and it is worse now. In an inflationary crisis, governments will move to squash competitors in the currency arena. $BTC #gold.
@michaeljburry: Prepare for #inflation. Re-opening & stimulus on the way. Pre-COVID it took $3 debt to create $1 GDP, and it is worse now. In an inflationary crisis, governments will move to squash competitors in the currency arena. $BTC #gold.

The tweet was deleted shortly after being posted on February 19.

It is no surprise to us here at Midas Letter that the mainstream financial commentators are finally cluing into what we’ve been warning for literally the last ten years.

As far back as 2011, we cautioned that quantitative easing would lead to both price and monetary inflation before escalating into a hyperinflationary state if left unchecked.

The moment we’ve all been waiting for has finally arrived, and as expected, mainstream news interprets this as a nascent phenomenon that is totally novel and unexpected.

But asset prices driven to exponentially higher prices since 2010 do a good job of attaining the complicity of the entire global investment community when it leads to a commensurate rise in net worth.

There is no objective questioning of the price/value correlation in conventional financial reporting: it is presented as a natural outcome of free and fair markets, and proof of the effectiveness of central bank policy.

No analysis of the plateauing of yields in fixed income dependents is published as long as “inflation remains below our target of 2 percent”, as the Fed likes to parrot every month.

But the surging prices of basic commodities like copper, steel, and lumber are the purest harbingers of runaway inflation possible. Most will ignore both the threat and the opportunity inherent in this phenomenon.

But getting exposure to these price moves – which appear to be long-trending as opposed to short-popping – is the opportunity to offset the damage of higher prices for everything.

Michael Burry’s invocation of the Weimar Republic’s hyperinflationary moment in time is apt, but will likely be perceived as some abstraction of history that is meaningless to a befuddled American populace mesmerized by virtual coins and space.

But runaway inflation will lead to diminished access to food for the lower and far greater membership of humanity, which will lead to escalating civil friction. And that is the precursor for civil conflict, which we caught a sneak peek of during the last four years.

Burry’s right to correlate wartime with hyper-inflation, as history demonstrates. But where he’s wrong is that inflation isn’t “coming”. It’s been here for 20 years. What is coming through, is hyperinflation.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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