It was at Demographics School, in late 2011, that I first saw Harry and Rodney speak in public. I had read several of their books, but I wanted to see the show in person.
Two things became clear very quickly. First, Rodney really knows his material. And, he has a knack for connecting with the audience. His use of interesting, real-world examples give life to what can be complex economic theories.
I watched as the audience became increasingly engaged (myself included) as Rodney connected the many dots in the organized chaos that is our global economy.
Second, it was quickly evident that Harry knows his cycles almost better than he knows the back of his hand or his own face in the mirror. He reached back decades to show how a wave of technological innovations set forth a cyclical boom period. And he warned of a present day phenomenon: the topping of a 29-year commodity super-cycle.
His call for the peaking of a multi-decade commodity cycle struck a chord with me.
It was early November 2011 at the time, and I had been watching the PowerShares Commodity Index Fund (ARCX: DBC) since May, when it suddenly dropped more than 10% in a week.
I had some warning before the plunge. My most trusted cycle analysis tool flashed a warning signal on April 29, just one day before DBC peaked at a high of $32.02. You can see this warning signal – the first red dot – in this chart of DBC…
After forecasting the April peak, my cycle analysis tool picked up subsequent peaks in June, July and September (also in red). By the time I got to Demographics School in November (highlighted with a blue circle in the chart above) I was already wondering – are commodities done?
Harry answered that question. Not only did he walk through the previous peaks and valleys of the commodity cycle, he explained the fundamental factors weighing heavily on commodity prices today. His fundamental analysis, and long-term cyclical analysis, neatly synced up with the shorter-term cycle peaks that I had started picking up earlier that year.
It’s now been 18 months since that session of Demographics School and commodities certainly haven’t mustered enough strength to make new highs. In fact, DBC has failed to break above even $30 on two separate attempts and dropped 11% in the past three months.
The topping process takes some time. Often, a market will peak… then make a sudden drop… then trade sideways in a very choppy manner for a year or longer. That’s essentially the pattern we’ve seen in the broad commodity measures, like DBC.
One thing is clear: commodities have much more downside risk than upside potential.
That makes me anxious to grab a copy of the audio from this year’s Demographics School because I know Harry and Rodney will answer the why behind this phenomenon.